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A.C. No.

9872

January 28, 2014

NATIVIDAD P. NAVARRO and HILDA S. PRESBITERO, Complainants,


vs.
ATTY. IVAN M. SOLIDUM, JR., Respondent.
DECISION
PER CURIAM:
This case originated from a complaint for disbarment, dated 26 May 2008, filed by Natividad P. Navarro (Navarro) and Hilda S. Presbitero (Presbitero) against Atty. Ivan M. Solidum, Jr.
(respondent) before the Integrated Bar of the Philippines Commission on Bar Discipline (IBP-CBD).
From the Report, dated 1July 2009, of the IBP-CBD, we gathered the following facts of the case:
On 4 April 2006, respondent signed a retainer agreement with Presbitero to follow up the release of the payment for the latters 2.7-hectare property located in Bacolod which was the subject of a
Voluntary Offer to Sell (VOS) to the Department of Agrarian Reform (DAR). The agreement also included the payment of the debts of Presbiteros late husband to the Philippine National Bank
(PNB), the sale of the retained areas of the property, and the collection of the rentals due for the retained areas from their occupants. It appeared that the DAR was supposed to pay P700,000 for the
property but it was mortgaged by Presbitero and her late husband to PNB for P1,200,000. Presbitero alleged that PNBs claim had already prescribed, and she engaged the services of respondent to
represent her in the matter. Respondent proposed the filing of a case for quieting of title against PNB. Respondent and Presbitero agreed to an attorneys fee of 10% of the proceeds from the VOS or
the sale of the property, with the expenses to be advanced by Presbitero but deductible from respondents fees. Respondent received P50,000 from Presbitero, supposedly for the expenses of the case,
but nothing came out of it.
In May 2006, Presbiteros daughter, Ma. Theresa P. Yulo (Yulo), also engaged respondents services to handle the registration of her 18.85-hectare lot located in Nasud-ong, Caradio-an,
Himamaylan, Negros. Yulo convinced her sister, Navarro, to finance the expenses for the registration of the property. Respondent undertook to register the property in consideration of 30% of the
value of the property once it is registered. Respondent obtained P200,000 from Navarro for the registration expenses. Navarro later learned that the registration decree over the property was already
issued in the name of one Teodoro Yulo. Navarro alleged that she would not have spent for the registration of the property if respondent only apprised her of the real situation of the property.
On 25 May 2006, respondent obtained a loan of P1,000,000 from Navarro to finance his sugar trading business. Respondent and Navarro executed a Memorandum of Agreement (MOA) and agreed
that the loan (a) shall be for a period of one year; (b) shall earn interest at the rate of 10% per month; and (c) shall be secured by a real estate mortgage over a property located in Barangay Alijis,
Bacolod City, covered by Transfer Certificate of Title No. 304688. They also agreed that respondent shall issue postdated checks to cover the principal amount of the loan as well as the interest
thereon. Respondent delivered the checks to Navarro, drawn against an account in Metrobank, Bacolod City Branch, and signed them in the presence of Navarro.
In June 2006, respondent obtained an additional loan of P1,000,000 from Navarro, covered by a second MOA with the same terms and conditions as the first MOA. Respondent sent Navarro,
through a messenger, postdated checks drawn against an account in Bank of Commerce, Bacolod City Branch. Respondent likewise discussed with Navarro about securing a "Tolling Agreement"
with Victorias Milling Company, Inc. but no agreement was signed.
At the same time, respondent obtained a loan of P1,000,000 from Presbitero covered by a third MOA, except that the real estate mortgage was over a 263-square-meter property located in Barangay
Taculing, Bacolod City. Respondent sent Presbitero postdated checks drawn against an account in Metrobank, Bacolod City Branch.
Presbitero was dissatisfied with the value of the 263-square-meter property mortgaged under the third MOA, and respondent promised to execute a real estate mortgage over a 1,000-square-meter
parcel of land adjacent to the 4,000-square-meter property he mortgaged to Navarro.
However, respondent did not execute a deed for the additional security.
Respondent paid the loan interest for the first few months. He was able to pay complainants a total of P900,000. Thereafter, he failed to pay either the principal amount or the interest thereon. In
September 2006, the checks issued by respondent to complainants could no longer be negotiated because the accounts against which they were drawn were already closed. When complainants called
respondents attention, he promised to pay the agreed interest for September and October 2006 but asked for a reduction of the interest to 7% for the succeeding months.
In November 2006, respondent withdrew as counsel for Yulo. On the other hand, Presbitero terminated the services of respondent as counsel. Complainants then filed petitions for the judicial
foreclosure of the mortgages executed by respondent in their favor. Respondent countered that the 10% monthly interest on the loan was usurious and illegal. Complainants also filed cases for estafa
and violation of Batas Pambansa Blg. 22 against respondent.
Complainants alleged that respondent induced them to grant him loans by offering very high interest rates. He also prepared and signed the checks which turned out to be drawn against his sons
accounts. Complainants further alleged that respondent deceived them regarding the identity and value of the property he mortgaged because he showed them a different property from that which he
owned. Presbitero further alleged that respondent mortgaged his 263-square-meter property to her for P1,000,000 but he later sold it for onlyP150,000.
Respondent, for his defense, alleged that he was engaged in sugar and realty business and that it was Yulo who convinced Presbitero and Navarro to extend him loans. Yulo also assured him that
Presbitero would help him with the refining of raw sugar through Victorias Milling Company, Inc. Respondent alleged that Navarro fixed the interest rate and he agreed because he needed the
money. He alleged that their business transactions were secured by real estate mortgages and covered by postdated checks. Respondent denied that the property he mortgaged to Presbitero was less
than the value of the loan. He also denied that he sold the property because the sale was actually rescinded. Respondent claimed that the property he mortgaged to Navarro was valuable and it was
actually worth more than P8,000,000.
Respondent alleged that he was able to pay complainants when business was good but he was unable to continue paying when the price of sugar went down and when the business with Victorias
Milling Company, Inc. did not push through because Presbitero did not help him. Respondent also denied that he was hiding from complainants.
Respondent further alleged that it was Yulo who owed him P530,000 as interest due for September to December 2005. He denied making any false representations. He claimed that complainants
were aware that he could no longer open a current account and they were the ones who proposed that his wife and son issue the checks. Respondent further alleged that he already started with the
titling of Yulos lot but his services were terminated before it could be completed.
A supplemental complaint was filed charging respondent with accepting cases while under suspension. In response, respondent alleged that he accepted Presbiteros case in February 2006 and
learned of his suspension only in May 2006.
After conducting a hearing and considering the position papers submitted by the parties, the IBP-CBD found that respondent violated the Code of Professional Responsibility.
The IBP-CBD found that respondent borrowed P2,000,000 from Navarro and P1,000,000 from Presbitero which he failed to pay in accordance with the MOAs he executed. The IBP-CBD found that
based on the documents presented by the parties, respondent did not act in good faith in obtaining the loans. The IBP-CBD found that respondent either promised or agreed to pay the very high
interest rates of the loans although he knew them to be exorbitant in accordance with jurisprudence. Respondent likewise failed to deny that he misled Navarro and her husband regarding the identity
of the property mortgaged to them. Respondent also mortgaged a property to Presbitero for P1,000,000 but documents showed that its value was only P300,000. Documents also showed that he sold
that property for only P150,000. Respondent conspired with Yulo to secure loans by promising her a 10% commission and later claimed that they agreed that Yulo would "ride" on the loan by
borrowing P300,000 from the amount he obtained from Navarro and Presbitero. Respondent could not explain how he lost all the money he borrowed in three months except for his claim that the
price of sugar went down.
The IBP-CBD found that respondent misled Navarro and Presbitero regarding the issuance of the postdated checks, and there was nothing in the records that would show that he informed them that
it would be his wife or son who would issue the checks. The IBP-CBD also found that respondent had not been transparent in liquidating the money he received in connection with Presbiteros VOS
with DAR. He was also negligent in his accounting regarding the registration of Yulos property which was financed by Navarro.
The IBP-CBD found that respondent was guilty of violating Rule 1.01 of the Code of Professional Responsibility for committing the following acts:
(1) signing drawn checks against the account of his son as if they were from his own account;
(2) misrepresenting to Navarro the identity of the lot he mortgaged to her;
(3) misrepresenting to Presbitero the true value of the 263-square-meter lot he mortgaged to her;
(4) conspiring with Yulo to obtain the loans from complainants;
(5) agreeing or promising to pay 10% interest on his loans although he knew that it was exorbitant; and

(6) failing to pay his loans because the checks he issued were dishonored as the accounts were already closed.
The IBP-CBD also found that respondent violated Canon 16 and Rule 16.01 of the Code of Professional Responsibility when he failed to properly account for the various funds he received from
complainants.
In addition, the IBP-CBD found that respondent violated Rule 16.04 of the Code of Professional Responsibility which prohibits borrowing money from a client unless the clients interest is fully
protected or the client is given independent advice.
On the matter of practicing law while under suspension, the IBP-CBD found that the records were not clear whether the notice of suspension respondent received on 29 May 2006 was the report and
recommendation of the IBP-CBD or the final decision of this Court. The IBP-CBD likewise found that there was insufficient evidence to prove that respondent mishandled his cases.
The IBP-CBD recommended that respondent be meted the penalty of disbarment.
In Resolution No. XIX-2011-267 dated 14 May 2011, the IBP Board of Governors adopted and approved the recommendation of the IBP-CBD with modification by reducing the recommended
penalty from disbarment to suspension from the practice of law for two years. The IBP Board of Governors likewise ordered respondent to return the amount of his unpaid obligation to
complainants.
Complainants filed a motion for reconsideration, praying that the penalty of disbarment be instead imposed upon respondent.
The only issue in this case is whether respondent violated the Code of Professional Responsibility.
The records show that respondent violated at least four provisions of the Code of Professional Responsibility.
Rule 1.01 of the Code of Professional Responsibility provides:
Rule 1.01. - A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.
With respect to his client, Presbitero, it was established that respondent agreed to pay a high interest rate on the loan he obtained from her. He drafted the MOA. Yet, when he could no longer pay his
loan, he sought to nullify the same MOA he drafted on the ground that the interest rate was unconscionable. It was also established that respondent mortgaged a 263-square-meter property to
Presbitero for P1,000,000 but he later sold the property for only P150,000, showing that he deceived his client as to the real value of the mortgaged property. Respondents allegation that the sale was
eventually rescinded did not distract from the fact that he did not apprise Presbitero as to the real value of the property.
Respondent failed to refute that the checks he issued to his client Presbitero and to Navarro belonged to his son, Ivan Garcia Solidum III whose name is similar to his name. He only claimed that
complainants knew that he could no longer open a current bank account, and that they even suggested that his wife or son issue the checks for him. However, we are inclined to agree with the IBPCBDs finding that he made complainants believe that the account belonged to him. In fact, respondent signed in the presence of Navarro the first batch of checks he issued to Navarro. Respondent
sent the second batch of checks to Navarro and the third batch of checks to Presbitero through a messenger, and complainants believed that the checks belonged to accounts in respondents name.
It is clear that respondent violated Rule 1.01 of the Code of Professional Responsibility. We have ruled that conduct, as used in the Rule, is not confined to the performance of a lawyers professional
duties.1 A lawyer may be disciplined for misconduct committed either in his professional or private capacity.2 The test is whether his conduct shows him to be wanting in moral character, honesty,
probity, and good demeanor, or whether it renders him unworthy to continue as an officer of the court.3
In this case, the loan agreements with Navarro were done in respondents private capacity. Although Navarro financed the registration of Yulos lot, respondent and Navarro had no lawyer-client
relationship. However, respondent was Presbiteros counsel at the time she granted him a loan. It was established that respondent misled Presbitero on the value of the property he mortgaged as a
collateral for his loan from her. To appease Presbitero, respondent even made a Deed of Undertaking that he would give her another 1,000-square-meter lot as additional collateral but he failed to do
so.
Clearly, respondent is guilty of engaging in dishonest and deceitful conduct, both in his professional capacity with respect to his client, Presbitero, and in his private capacity with respect to
complainant Navarro. Both Presbitero and Navarro allowed respondent to draft the terms of the loan agreements. Respondent drafted the MOAs knowing that the interest rates were exorbitant. Later,
using his knowledge of the law, he assailed the validity of the same MOAs he prepared. He issued checks that were drawn from his sons account whose name was similar to his without informing
complainants. Further, there is nothing in the records that will show that respondent paid or undertook to pay the loans he obtained from complainants.
Canon 16 and Rule 16.01 of the Code of Professional Responsibility provide:
CANON 16. - A LAWYER SHALL HOLD IN TRUST ALL MONEYS AND PROPERTIES OF HIS CLIENT THAT MAY COME INTO HIS POSSESSION.
Rule 16.01 A lawyer shall account for all money or property collected or received for or from the client.
The fiduciary nature of the relationship between the counsel and his client imposes on the lawyer the duty to account for the money or property collected or received for or from his client. 4 We agree
with the IBP-CBD that respondent failed to fulfill this duty. In this case, the IBP-CBD pointed out that respondent received various amounts from complainants but he could not account for all of
them.
Navarro, who financed the registration of Yulos 18.85-hectare lot, claimed that respondent received P265,000 from her. Respondent countered that P105,000 was paid for real estate taxes but he
could not present any receipt to prove his claim. Respondent also claimed that he paid P70,000 to the surveyor but the receipt was only forP15,000. Respondent claimed that he paid P50,000 for
filing fee, publication fee, and other expenses but again, he could not substantiate his claims with any receipt. As pointed out by the IBP-CBD, respondent had been less than diligent in accounting
for the funds he received from Navarro for the registration of Yulos property.
Unfortunately, the records are not clear whether respondent rendered an accounting to Yulo who had since passed away.
As regards Presbitero, it was established during the clarificatory hearing that respondent received P50,000 from Presbitero. As the IBP-CBD pointed out, the records do not show how respondent
spent the funds because he was not transparent in liquidating the money he received from Presbitero.
Clearly, respondent had been negligent in properly accounting for the money he received from his client, Presbitero.1wphi1 Indeed, his failure to return the excess money in his possession gives rise
to the presumption that he has misappropriated it for his own use to the prejudice of, and in violation of the trust reposed in him by, the client.5
Rule 16.04 of the Code of Professional Responsibility provides:
Rule 16.04. - A lawyer shall not borrow money from his client unless the clients interests are fully protected by the nature of the case or by independent advice. Neither shall a lawyer lend money to
a client except, when in the interest of justice, he has to advance necessary expenses in a legal matter he is handling for the client.
Here, respondent does not deny that he borrowed P1,000,000 from his client Presbitero. At the time he secured the loan, respondent was already the retained counsel of Presbitero.
While respondents loan from Presbitero was secured by a MOA, postdated checks and real estate mortgage, it turned out that respondent misrepresented the value of the property he mortgaged and
that the checks he issued were not drawn from his account but from that of his son. Respondent eventually questioned the terms of the MOA that he himself prepared on the ground that the interest
rate imposed on his loan was unconscionable. Finally, the checks issued by respondent to Presbitero were dishonored because the accounts were already closed. The interest of his client, Presbitero,
as lender in this case, was not fully protected. Respondent violated Rule 16.04 of the Code of Professional Responsibility, which presumes that the client is disadvantaged by the lawyers ability to
use all the legal maneuverings to renege on his obligation.6 In his dealings with his client Presbitero, respondent took advantage of his knowledge of the law as well as the trust and confidence
reposed in him by his client.
We modify the recommendation of the IBP Board of Governors imposing on respondent the penalty of suspension from the practice of law for two years. Given the facts of the case, we see no
reason to deviate from the recommendation of the IBP-CBD imposing on respondent the penalty of disbarment. Respondent failed to live up to the high standard of morality, honesty, integrity, and
fair dealing required of him as a member of the legal profession.7 Instead, respondent employed his knowledge and skill of the law and took advantage of his client to secure undue gains for
himself8 that warrants his removal from the practice of law. Likewise, we cannot sustain the IBP Board of Governors recommendation ordering respondent to return his unpaid obligation to
complainants, except for advances for the expenses he received from his client, Presbitero, that were not accounted at all. In disciplinary proceedings against lawyers, the only issue is whether the
officer of the court is still fit to be allowed to continue as a member of the Bar.9 Our only concern is the determination of respondents administrative liability.10
Our findings have no material bearing on other judicial action which the parties may choose to file against each other.11 Nevertheless, when a lawyer receives money from a client for a particular
purpose involving the client-attorney relationship, he is bound to render an accounting to the client showing that the money was spent for that particular purpose. 12 If the lawyer does not use the

money for the intended purpose, he must immediately return the money to his client. 13 Respondent was given an opportunity to render an accounting, and he failed. He must return the full amount
of the advances given him by Presbitero, amounting to P50,000.
WHEREFORE, the Court finds Atty. Ivan M. Solidum, Jr. GUILTY of violating Rule 1.01, Canon 16, Rule 16.01, and Rule 16.04 of the Code of Professional Responsibility. Accordingly, the Court
DISBARS him from the practice of law effective immediately upon his receipt of this Decision.
Atty. Solidum is ORDERED to return the advances he received from Hilda S. Presbitero, amounting toP50,000, and to submit to the Office of the Bar Confidant his compliance with this order within
thirty days from finality of this Decision.
Let copies of this Decision be furnished the Office of the Bar Confidant, the Integrated Bar of the Philippines for distribution to all its chapters, and the Office of the Court Administrator for
dissemination to all courts all over the country. Let a copy of this Decision be attached to the personal records of respondent.
SO ORDERED

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-49677 May 4, 1989
TRADE UNIONS OF THE PHILIPPINES AND ALLIED SERVICES, petitioner,
vs.
NATIONAL HOUSING CORPORATION and ATTY. VIRGILIO SY, as Officer-in-Charge of the Bureau of Labor Relations, respondents.
Bonifacio V. Tupaz for petitioner.
The Government Corporate Counsel for respondent NHC.
Raul E. Espinosa for intervenor PACIWU.

REGALADO, J.:
The employees of the public sector comprise the largest bloc of workers in our national work force. Governmental bureaucracy is continually being reorganized to cope with the growing complexity
of the problems and needs of political and administrative governance. As the increase in the number of government employees grows space, the need to enhance their welfare correspondingly
becomes more imperative. While it may be assumed that the Government is exerting efforts to advance the interests of its employees, it is quite understandable that the employees themselves should
actively seek arrangements where by they can participate more meaningfully in management and employment relationships. There is, thus, a proliferation of unions or employees' organizations, each
seeking concomitant representational recognition.
The antecedent facts which led to the filing of this special civil action for certiorari are clear and undisputed. The juridical status and relevant circumstances of respondent corporation have been
established in a case of illegal dismissal filed against it, as previously decided by the Court and hereinafter discussed. However, submitted this time for Our resolution is a controversy on the
propriety of and requirements for certification elections in government-owned or controlled corporations like the respondent.
Respondent National Housing Corporation (hereinafter referred to as NHC) is a corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as the Uniform Charter
of Government Corporations, dated January 1, 1951. Its shares of stock are and have been one hundred percent (100%) owned by the Government from its incorporation under Act 459, the former
corporation law. The government entities that own its shares of stock are the Government Service Insurance System, the Social Security System, the Development Bank of the Philippines, the
National Investment and Development Corporation and the People's Homesite and Housing Corporation. 1 Petitioner Trade Unions of the Philippines and Allied Services (TUPAS, for brevity) is a
legitimate labor organization with a chapter in NHC.
On July 13, 1977, TUPAS filed a petition for the conduct of a certification election with Regional Office No. IV of the Department of Labor in order to determine the exclusive bargaining
representative of the workers in NHC. It was claimed that its members comprised the majority of the employees of the corporation. 2 The petition was dismissed by med-arbiter Eusebio M. Jimenez
in an order, dated November 7, 1977, holding that NHC "being a government-owned and/or controlled corporation its employees/workers are prohibited to form, join or assist any labor organization
for purposes of collective bargaining pursuant to Section 1, Rule II, Book V of the Rules and Regulations Implementing the Labor Code." 3
From this order of dismissal, TUPAS appealed to the Bureau of Labor Relations 4 where, acting thereon in BLR Case No. A-984-77 (RO4-MED-1090-77), Director Carmelo C. Noriel reversed the
order of dismissal and ordered the holding of a certification election. 5 This order was, however, set aside by Officer-in-Charge Virgilio S.J. Sy in his resolution of November 21, 1978 6 upon a
motion for reconsideration of respondent NHC.
In the instant petition for certiorari, TUPAS seeks the reversal of the said resolution and prays that a certification election be held among the rank and file employees of NHC.
In retrospect, it will be recalled that in a former case of illegal dismissal involving the same respondent corporation, 7 We had ruled that the employees of NHC and of other government owned or
controlled corporations were governed by civil service laws, rules and regulations pursuant to the 1973 Constitution which provided that "the civil service embraces every branch, agency,
subdivision and instrumentality of the government, including government-owned or controlled corporations." 8
It was therein stressed that to allow subsidiary corporations to be excluded from the civil service laws would be to permit the circumvention or emasculation of the above-quoted constitutional
provision. As perceptively analyzed therein, "(i)t would be possible for a regular ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing
legislature. A government-owned corporation could create several subsidiary corporations. These subsidiary corporation rations would enjoy the best of two worlds. Their officials and employees
would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their incomes would not be subject to the
competitive restraints of the open market nor to the terms and conditions of civil service employment."
The rule, however, was modified in the 1987 Constitution, the corresponding provision whereof declares that "(t)he civil service embraces all branches, subdivisions, instrumentalities and agencies
of the government, including government-owned or controlled corporations with original charters." 9
Consequently, the civil service now covers only government owned or controlled corporations with original or legislative charters, that is those created by an act of Congress or by special law, and
not those incorporated under and pursuant to a general legislation. As We recently held
..., the situations sought to be avoided by the 1973 Constitution and expressed by this Court in the National Housing Corporation case ... appear relegated to relative
insignificance by the 1987 Constitutional provision that the Civil Service embraces government-owned controlled corporationswith original charters and therefore, by clear
implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled
corporations under the general corporation law. 10
While the aforecited cases sought different reliefs, that is, reinstatement consequent to illegal dismissal, the samelis mota determinative of the present special civil action was involved therein.
The workers or employees of NHC undoubtedly have the right to form unions or employees' organizations. The right to unionize or to form organizations is now explicitly recognized and granted to
employees in both the governmental and the private sectors. The Bill of Rights provides that "(t)he right of the people, including those employed in the public and private sectors, to form unions,
associations or societies for purposes not contrary to law shall not be abridged" 11
This guarantee is reiterated in the second paragraph of Section 3, Article XIII, on Social Justice and Human Rights, which mandates that the State "shall guarantee the rights of all workers to selforganization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law ...."
Specifically with respect to government employees, the right to unionize is recognized in Paragraph (5), Section 2, Article IX B 12 which provides that "(t)he right to self-organization shall not be
denied to government employees." The rationale of and justification for this innovation which found expression in the aforesaid provision was explained by its proponents as follows:

... The government is in a sense the repository of the national sovereignty and, in that respect, it must be held in reverence if not in awe. It symbolizes the unity of the nation,
but it does perform a mundane task as well. It is an employer in every sense of the word except that terms and conditions of work are set forth through a Civil Service
Commission. The government is the biggest employer in the Philippines. There is an employer-employee relationship and we all know that the accumulated grievances of
several decades are now beginning to explode in our faces among government workers who feel that the rights afforded by the Labor Code, for example, to workers in the
private sector have been effectively denied to workers in government in what looks like a grotesque, (sic) a caricature of the equal protection of the laws. For example, ...
there were many occasions under the old government when wages and cost of living allowances were granted to workers in the private sector but denied to workers in the
government for some reason or another, and the government did not even state the reasons why. The government employees were being discriminated against. As a general
rule, the majority of the world's countries now entertain public service unions. What they really add up to is that the employees of the government form their own
association. Generally, they do not bargain for wages because these are fixed in the budget but they do acquire a forum where, among other things, professional and selfdevelopment is (sic) promoted and encouraged. They also act as watchdogs of their own bosses so that when graft and corruption is committed, generally, it is the unions
who are no longer afraid by virtue of the armor of self-organization that become the public's own allies for detecting graft and corruption and for exposing it.... 13
There is, therefore, no impediment to the holding of a certification election among the workers of NHC for it is clear that they are covered by the Labor Code, the NHC being a government-owned
and/or controlled corporation without an original charter. Statutory implementation of the last cited section of the Constitution is found in Article 244 of the Labor Code, as amended by Executive
Order No. 111, thus:
... Right of employees in the public service Employees of the government corporations established under the Corporation Code shall have the right to organize and to
bargain collectively with their respective employers. All other employees in the civil service shall have the right to form associations for purposes not contrary to law.
The records do not show that supervening factual events have mooted the present action. It is meet, however, to also call attention to the fact that, insofar as certification elections are concerned,
subsequent statutory developments have rendered academic even the distinction between the two types of government-owned or controlled corporations and the laws governing employment relations
therein, as hereinbefore discussed. For, whether the employees of NHC are covered by the Labor Code or by the civil service laws, a certification election may be conducted.
For employees in corporations and entities covered by the Labor Code, the determination of the exclusive bargaining representative is particularly governed by Articles 255 to 259 of said Code.
Article 256 provides for the procedure when there is a representation issue in organized establishments, while Article 257 covers unorganized establishments. These Labor Code provisions are
fleshed out by Rules V to VII, Book V of the Omnibus Implementing Rules.
With respect to other civil servants, that is, employees of all branches, subdivisions, instrumentalities and agencies of the government including government-owned or controlled corporations with
original charters and who are, therefore, covered by the civil service laws, the guidelines for the exercise of their right to organize is provided for under Executive Order No. 180. Chapter IV thereof,
consisting of Sections 9 to 12, regulates the determination of the "sole and exclusive employees representative"; Under Section 12, "where there are two or more duly registered employees'
organizations in the appropriate organization unit, the Bureau of Labor Relations shall, upon petition order the conduct of certification election and shall certify the winner as the exclusive
representative of the rank-and-file employees in said organizational unit."
Parenthetically, note should be taken of the specific qualification in the Constitution that the State "shall guarantee the rights of all workers to self-organization, collective bargaining, and peaceful
concerted activities, including the right to strike in accordance with law" and that they shall also participate in policy and decision-making processes affecting their rights and benefits as may be
provided by law." 14 (Emphasis supplied.)
ON THE FOREGOING CONSIDERATIONS, the assailed resolution of the Bureau of Labor Relations, dated November 21, 1978, is ANNULLED and SET ASIDE and the conduct of a certification
election among the affected employees of respondent National Housing Corporation in accordance with the rules therefor is hereby GRANTED.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Sarmiento, Cortes Grio Aquino and Medialdea, JJ., concur.
Gancayco, J., on leave.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 82914 June 20, 1988
KAPATIRAN SA MEAT AND CANNING DIVISION (TUPAS Local Chapter No. 1027), petitioner,
vs.
THE HONORABLE BLR DIRECTOR PURA FERRER CALLEJA, MEAT AND CANNING DIVISION UNIVERSAL ROBINA CORPORATION and MEAT AND CANNING
DIVISION NEW EMPLOYEES AND WORKERS UNITED LABOR ORGANIZATION, respondents.
Alar, Comia, Manalo and Associates for petitioner.
Danilo Bolos for respondent Robina Corporation.
RESOLUTION

GRIO-AQUINO, J.:
The petitioner, Kapatiran sa Meat and Canning Division TUPAS Local Chapter No. 1027) hereinafter referred to as "TUPAS," seeks a review of the resolution dated January 27, 1988 (Annex D) of
public respondent Pura Ferrer-Calleja, Director of the Bureau of Labor Relations, dismissing its appeal from the Order dated November 17, 1987 (Annex C) of the Med-Arbiter Rasidali C. Abdullah
ordering a certification election to be conducted among the regular daily paid rank and file employees/workers of Universal Robina Corporation-Meat and Canning Division to determine which of
the contending unions:
a) Kapatiran sa Meat and Canning Division TUPAS Local Chapter No. 1027 (or "TUPAS" for brevity);
b) Meat and Canning Division New Employees and Workers United Labor Organization (or "NEW ULO" for brevity);
c) No union.
shall be the bargaining unit of the daily wage rank and file employees in the Meat and Canning Division of the company.
From 1984 to 1987 TUPAS was the sole and exclusive collective bargaining representative of the workers in the Meat and Canning Division of the Universal Robina Corporation, with a 3-year
collective bargaining agreement (CBA) which was to expire on November 15, 1987.
Within the freedom period of 60 days prior to the expiration of its CBA, TUPAS filed an amended notice of strike on September 28, 1987 as a means of pressuring the company to extend, renew, or
negotiate a new CBA with it.
On October 8, 1987, the NEW ULO, composed mostly of workers belonging to the IGLESIA NI KRISTO sect, registered as a labor union.
On October 12, 1987, the TUPAS staged a strike. ROBINA obtained an injunction against the strike, resulting in an agreement to return to work and for the parties to negotiate a new CBA.
The next day, October 13, 1987, NEW ULO, claiming that it has "the majority of the daily wage rank and file employees numbering 191," filed a petition for a certification election at the Bureau of
Labor Relations (Annex A).
TUPAS moved to dismiss the petition for being defective in form and that the members of the NEW ULO were mostly members of the Iglesia ni Kristo sect which three (3) years previous refused to
affiliate with any labor union. It also accused the company of using the NEW ULO to defeat TUPAS' bargaining rights (Annex B).

On November 17, 1987, the Med-Arbiter ordered the holding of a certification election within 20 days (Annex C).
TUPAS appealed to the Bureau of Labor Relations BLR. In the meantime, it was able to negotiate a new 3-year CBA with ROBINA, which was signed on December 3, 1987 and to expire on
November 15, 1990.
On January 27, 1988, respondent BLR Director Calleja dismissed the appeal (Annex D).
TUPAS' motion for reconsideration (Annex E) was denied on March 17, 1988 (Annex F). On April 30, 1988, it filed this petition alleging that the public respondent acted in excess of her jurisdiction
and with grave abuse of discretion in affirming the Med-Arbiter's order for a certification election.
After deliberating on the petition and the documents annexed thereto, We find no merit in the Petition. The public respondent did not err in dismissing the petitioner's appeal in BLR Case No. A-12389-87. This Court's decision inVictoriano vs. Elizalde Rope Workers' Union, 59 SCRA 54, upholding the right of members of the IGLESIA NI KRISTO sect not to join a labor union for being
contrary to their religious beliefs, does not bar the members of that sect from forming their own union. The public respondent correctly observed that the "recognition of the tenets of the sect ...
should not infringe on the basic right of self-organization granted by the constitution to workers, regardless of religious affiliation."
The fact that TUPAS was able to negotiate a new CBA with ROBINA within the 60-day freedom period of the existing CBA, does not foreclose the right of the rival union, NEW ULO, to challenge
TUPAS' claim to majority status, by filing a timely petition for certification election on October 13, 1987 before TUPAS' old CBA expired on November 15, 1987 and before it signed a new CBA
with the company on December 3, 1987. As pointed out by Med-Arbiter Abdullah, a "certification election is the best forum in ascertaining the majority status of the contending unions wherein the
workers themselves can freely choose their bargaining representative thru secret ballot." Since it has not been shown that this order is tainted with unfairness, this Court will not thwart the holding of
a certification election (Associated Trade Unions [ATU] vs. Noriel, 88 SCRA 96).
WHEREFORE, the petition for certiorari is denied, with costs against the petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
FIRST DIVISION

[G.R. No. 108855. February 28, 1996]

METROLAB INDUSTRIES, INC., petitioner, vs. HONORABLE MA. NIEVES ROLDAN-CONFESOR, in her capacity as Secretary of the Department of Labor and
Employment and METRO DRUG CORPORATION EMPLOYEES ASSOCIATION-FEDERATION OF FREE WORKERS, respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF ADMINISTRATIVE AGENCIES; RULE; CASE AT BAR. - We reaffirm the doctrine that considering their expertise in
their respective fields, factual findings of administrative agencies supported by substantial evidence are accorded great respect and binds this Court. The Secretary of Labor
ruled, thus: x x x Any act committed during the pendency of the dispute that tends to give rise to further contentious issues or increase the tensions between the parties
should be considered an act of exacerbation. One must look at the act itself, not on speculative reactions. A misplaced recourse is not needed to prove that a dispute has
been exacerbated. For instance, the Union could not be expected to file another notice of strike. For this would depart from its theory of the case that the layoff is subsumed
under the instant dispute, for which a notice of strike had already been filed. On the other hand, to expect violent reactions, unruly behavior, and any other chaotic or drastic
action from the Union is to expect it to commit acts disruptive of public order or acts that may be illegal. Under a regime of laws, legal remedies take the place of violent
ones. x xx Protest against the subject layoffs need not be in the form of violent action or any other drastic measure. In the instant case the Union registered their dissent by
swiftly filing a motion for a cease and desist order. Contrary to petitioners allegations, the Union strongly condemned the layoffs and threatened mass action if the Secretary
of Labor fails to timely intervene: x x x 3. This unilateral action of management is a blatant violation of the injunction of this Office against committing acts which would
exacerbate the dispute. Unless such act is enjoined the Union will be compelled to resort to its legal right to mass actions and concerted activities to protest and stop the
said management action. This mass layoff is clearly one which would result in a very serious dispute unless this Office swiftly intervenes. x x x Metrolab and the Union were
still in the process of resolving their CBA deadlock when petitioner implemented the subject layoffs. As a result, motions and oppositions were filed diverting the parties
attention, delaying resolution of the bargaining deadlock and postponing the signing of their new CBA, thereby aggravating the whole conflict.
2. LABOR AND SOCIAL LEGISLATION; TERMINATION OF EMPLOYMENT; EXERCISE OF MANAGEMENT PREROGATIVES; NOT ABSOLUTE; SUBJECT TO
EXCEPTIONS IMPOSED BY LAW. - This Court recognizes the exercise of management prerogatives and often declines to interfere with the legitimate business decisions
of the employer. However, this privilege is not absolute but subject to limitations imposed by law. In PAL vs. NLRC, (225 SCRA 301 [1993]), we issued this reminder: ... the
exercise of management prerogatives was never considered boundless. Thus, in Cruz vs. Medina (177 SCRA 565 [1989]), it was held that managements prerogatives must
be without abuse of discretion ...All this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is circumscribed by limi(ations found in law, a
collective bargaining agreement, or the general principles of fair play and justice (University of Sto. Tomas v. NLRC, 190 SCRA 758 [1990]).
3. ID.; ID.; ID.; ID.; ID.; CASE AT BAR AN EXCEPTION. - The case at bench constitutes one of the exceptions. The Secretary of Labor is expressly given the power under the
Labor Code to assume jurisdiction and resolve labor disputes involving industries indispensable to national interest. The disputed injunction is subsumed under this special
grant of authority. Art. 263 (g) of the Labor Code specifically provides that: x x x (g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or
lockout in an industry indispensable to the national interest, the Secretary of Labor and Employment may assume jurisdiction over the dispute and decide it or certify the
same to the Commission for compulsory arbitration. Such assumption or certification shall have the effect of automatically enjoining the intended or impending strike or
lockout as specified in the assumption or certification order. If one has already taken place at the time of assumption or certification, all striking or locked out employees shall
immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike
or lockout. The Secretary of Labor and Employment or the Commission may seek the assistance of law enforcement agencies to ensure compliance with this provision as
well as with such orders as he may issue to enforce the same. . . . That Metrolabs business is of national interest is not disputed. Metrolab is one of the leading
manufacturers and suppliers of medical and pharmaceutical products to the country. Metrolabs management prerogatives, therefore, are not being unjustly curtailed but duly
balanced with and tempered by the limitations set by law, taking into account its special character and the particular circumstances in the case at bench.
4. ID.; LABOR RELATIONS; INELIGIBILITY OF MANAGERIAL EMPLOYEES TO JOIN, FORM AND ASSIST ANY LABOR ORGANIZATION; PROHIBITION EXTENDED TO
CONFIDENTIAL EMPLOYEES. - Although Article 245 of the Labor Code limits the ineligibility to join, form and assist any labor organization to managerial employees,
jurisprudence has extended this prohibition to confidential employees or those who by reason of their positions or nature of work are required to assist or act in a fiduciary
manner to managerial employees and hence, are likewise privy to sensitive and highly confidential records.
5. ID.; ID.; EXCLUSION OF CONFIDENTIAL EMPLOYEES FROM THE RANK AND FILE BARGAINING UNIT; NOT TANTAMOUNT TO DISCRIMINATION. - Confidential
employees cannot be classified as rank and file. As previously discussed, the nature of employment of confidential employees is quite distinct from the rank and file, thus,
warranting a separate category. Excluding confidential employees from the rank and file bargaining unit, therefore, is not tantamount to discrimination.

APPEARANCES OF COUNSEL
Bautista Picazo Buyco Tan & Fider for petitioner.
The Solicitor General for public respondent.
Perfecto V. Fernandez, Jose P. Fernandez & Cristobal P. Fernandez for Metro Drug Corporation.
DECISION

KAPUNAN, J.:

This is a petition for certiorari under Rule 65 of the Revised Rules of Court seeking the annulment of the Resolution and Omnibus Resolution of the Secretary of Labor and
Employment dated 14 April 1992 and 25 January 1993, respectively, in OS-AJ-04491-11 (NCMB-NCR-NS-08-595-9 1; NCMB-NCR-NS-09-678-91) on grounds that these were
issued with grave abuse of discretion and in excess of jurisdiction.
Private respondent Metro Drug Corporation Employees Association-Federation of Free Workers (hereinafter referred to as the Union) is a labor organization representing
the rank and file employees of petitioner Metrolab Industries, Inc. (hereinafter referred to as Metrolab/MII) and also of Metro Drug, Inc.
On 31 December 1990, the Collective Bargaining Agreement (CBA) between Metrolab and the Union expired. The negotiations for a new CBA, however, ended in a
deadlock.
Consequently, on 23 August 1991, the Union filed a notice of strike against Metrolab and Metro Drug Inc. The parties failed to settle their dispute despite the conciliation
efforts of the National Conciliation and Mediation Board.
To contain the escalating dispute, the then Secretary of Labor and Employment, Ruben D. Torres, issued an assumption order dated 20 September 1991, the dispositive
portion of which reads, thus:
WHEREFORE, PREMISES CONSIDERED, and pursuant to Article 263 (g) of the Labor Code, as amended, this Office hereby assumes jurisdiction over the entire labor dispute at Metro Drug, Inc.
- Metro Drug Distribution Division and Metrolab Industries Inc.
Accordingly, any strike or lockout is hereby strictly enjoined. The Companies and the Metro Drug Corp. Employees Association - FFW are likewise directed to cease and desist from committing any
and all acts that might exacerbate the situation.
Finally, the parties are directed to submit their position papers and evidence on the aforequoted deadlocked issues to this office within twenty (20) days from receipt hereof.
SO ORDERED.[1] (Italics ours.)
On 27 December 1991, then Labor Secretary Torres issued an order resolving all the disputed items in the CBA and ordered the parties involved to execute a new CBA.
Thereafter, the Union filed a motion for reconsideration.
On 27 January 1992, during the pendency of the abovementioned motion for reconsideration, Metrolab laid off 94 of its rank and file employees.
On the same date, the Union filed a motion for a cease and desist order to enjoin Metrolab from implementing the mass layoff, alleging that such act violated the prohibition
against committing acts that would exacerbate the dispute as specifically directed in the assumption order.[2]
On the other hand, Metrolab contended that the layoff was temporary and in the exercise of its management prerogative. It maintained that the company would suffer a
yearly gross revenue loss of approximately sixty-six (66) million pesos due to the withdrawal of its principals in the Toll and Contract Manufacturing Department. Metrolab further
asserted that with the automation of the manufacture of its product Eskinol, the number of workers required its production is significantly reduced.[3]
Thereafter, on various dates, Metrolab recalled some of the laid off workers on a temporary basis due to availability of work in the production lines.
On 14 April 1992, Acting Labor Secretary Nieves Confesor issued a resolution declaring the layoff of Metrolabs 94 rank and file workers illegal and ordered their
reinstatement with full backwages. The dispositive portion reads as follows:
WHEREFORE, the Unions motion for reconsideration is granted in part, and our order of 28 December 1991 is affirmed subject to the modifications in allowances and in the close shop
provision. The layoff of the 94 employees at MII is hereby declared illegal for the failure of the latter to comply with our injunction against committing any act which may exacerbate the dispute and
with the 30-day notice requirement. Accordingly, MII is hereby ordered to reinstate the 94 employees, except those who have already been recalled, to their former positions or substantially
equivalent, positions with full backwages from the date they were illegally laid off on 27 January 1992 until actually reinstated without loss of seniority rights and other benefits. Issues relative to the
CBA agreed upon by the parties and not embodied in our earlier order are hereby ordered adopted for incorporation in the CBA. Further, the dispositions and directives contained in all previous
orders and resolutions relative to the instant dispute, insofar as not inconsistent herein, are reiterated. Finally, the parties are enjoined to cease and desist from committing any act which may tend to
circumvent this resolution.
SO RESOLVED.[4]
On 6 March 1992, Metrolab filed a Partial Motion for Reconsideration alleging that the layoff did not aggravate the dispute since no untoward incident occurred as a result
thereof. It, likewise, filed a motion for clarification regarding the constitution of the bargaining unit covered by the CBA.
On 29 June 1992, after exhaustive negotiations, the parties entered into a new CBA. The execution, however, was without prejudice to the outcome of the issues raised in
the reconsideration and clarification motions submitted for decision to the Secretary of Labor.[5]
Pending the resolution of the aforestated motions, on 2 October 1992, Metrolab laid off 73 of its employees on grounds of redundancy due to lack of work which the Union
again promptly opposed on 5 October 1992.
On 15 October 1992, Labor Secretary Confesor again issued a cease and desist order. Metrolab moved for a reconsideration.[6]

On 25 January 1993, Labor Secretary Confesor issued the assailed Omnibus Resolution containing the following orders:
xxx xxx xxx.
1. MIIs motion for partial reconsideration of our 14 April 1992 resolution specifically that portion thereof assailing our ruling that the layoff of the 94 employees is illegal, is hereby denied. MII is
hereby ordered to pay such employees their full backwages computed from the time of actual layoff to the time of actual recall;
2. For the parties to incorporate in their respective collective bargaining agreements the clarifications herein contained; and
3. MIIs motion for reconsideration with respect to the consequences of the second wave of layoff affecting 73 employees, to the extent of assailing our ruling that such layoff tended to exacerbate the
dispute, is hereby denied. But inasmuch as the legality of the layoff was not submitted for our resolution and no evidence had been adduced upon which a categorical finding thereon can be based,
the same is hereby referred to the NLRC for its appropriate action.
Finally, all prohibitory injunctions issued as a result of our assumption of jurisdiction over this dispute are hereby lifted.
SO RESOLVED.[7]
Labor Secretary Confesor also ruled that executive secretaries are excluded from the closed-shop provision of the CBA, not from the bargaining unit.
On 4 February 1993, the Union filed a motion for execution. Metrolab opposed. Hence, the present petition for certiorari with application for issuance of a Temporary
Restraining Order.
On 4 March 1993, we issued a Temporary Restraining Order enjoining the Secretary of Labor from enforcing and implementing the assailed Resolution and Omnibus
Resolution dated 14 April 1992 and 25 January 1993, respectively.
In its petition, Metrolab assigns the following errors:
A
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND EMPLOYMENT COMMITTED GRAVE ABUSE OF DISCRETION AND EXCEEDED HER JURISDICTION IN
DECLARING THE TEMPORARY LAYOFF ILLEGAL AND ORDERING THE REINSTATEMENT AND PAYMENT OF BACKWAGES TO THE AFFECTED EMPLOYEES.*
B
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND EMPLOYMENT GRAVELY ABUSED HER DISCRETION IN INCLUDING EXECUTIVE SECRETARIES AS PART OF
THE BARGAINING UNIT OF RANK AND FILE EMPLOYEES.[8]
Anent the first issue, we are asked to determine whether or not public respondent Labor Secretary committed grave abuse of discretion and exceeded her jurisdiction in
declaring the subject layoffs instituted by Metrolab illegal on grounds that these unilateral actions aggravated the conflict between Metrolab and the Union who were, then, locked in
a stalemate in CBA negotiations.
Metrolab argues that the Labor Secretarys order enjoining the parties from committing any act that might exacerbate the dispute is overly broad, sweeping and vague and
should not be used to curtail the employers right to manage his business and ensure its viability.
We cannot give credence to Metrolabs contention.
This Court recognizes the exercise of management prerogatives and often declines to interfere with the legitimate business decisions of the employer. However, this
privilege is not absolute but subject to limitations imposed by law.[9]
In PAL v. NLRC,[10] we issued this reminder:
xxx xxx xxx
. . .the exercise of management prerogatives was never considered boundless. Thus, in Cruz vs. Medina ( 177 SCRA 565 [1989]), it was held that managements prerogatives must be without abuse of
discretion....
xxx xxx xxx
All this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is circumscribed by limitations found in law, a collective bargaining agreement, or the general
principles of fair play and justice (University of Sto. Tomas v. NLRC, 190 SCRA 758 [1990]). . . . (Italics ours.)
xxx xxx xxx.
The case at bench constitutes one of the exceptions. The Secretary of Labor is expressly given the power under the Labor Code to assume jurisdiction and resolve labor
disputes involving industries indispensable to national interest. The disputed injunction is subsumed under this special grant of authority. Art. 263 (g) of the Labor Code specifically
provides that:
xxx xxx xxx
(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest, the Secretary of Labor and Employment may
assume jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory arbitration. Such assumption or certification shall have the effect of automatically enjoining
the intended or impending strike or lockout as specified in the assumption or certification order. If one has already taken place at the time of assumption or certification, all striking or locked out
employees shall immediately return to work and the employer shall immediately resume operations and readmit all workers under the same terms and conditions prevailing before the strike or
lockout. The Secretary of Labor and Employment or the Commission may seek the assistance of law enforcement agencies to ensure compliance with this provision as well as with such orders as he
may issue to enforce the same. . . (Italics ours.)
xxx xxx xxx.

That Metrolabs business is of national interest is not disputed. Metrolab is one of the leading manufacturers and suppliers of medical and pharmaceutical products to the
country.
Metro labs management prerogatives, therefore, are not being unjustly curtailed but duly balanced with and tempered by the limitations set by law, taking into account its
special character and the particular circumstances in the case at bench.
As aptly declared by public respondent Secretary of Labor in its assailed resolution:
xxx xxx xxx.
MII is right to the extent that as a rule, we may not interfere with the legitimate exercise of management prerogatives such as layoffs. But it may nevertheless be appropriate to mention here that one
of the substantive evils which Article 263 (g) of the Labor Code seeks to curb is the exacerbation of a labor dispute to the further detriment of the national interest. When a labor dispute has in fact
occurred and a general injunction has been issued restraining the commission of disruptive acts, management prerogatives must always be exercised consistently with the statutory objective.[11]
xxx xxx xxx.
Metrolab insists that the subject layoffs did not exacerbate their dispute with the Union since no untoward incident occurred after the layoffs were implemented. There were
no work disruptions or stoppages and no mass actions were threatened or undertaken. Instead, petitioner asserts, the affected employees calmly accepted their fate as this was a
matter which they had been previously advised would be inevitable.[12]
After a judicious review of the record, we find no compelling reason to overturn the findings of the Secretary of Labor.
We reaffirm the doctrine that considering their expertise in their respective fields, factual findings of administrative agencies supported by substantial evidence are accorded
great respect and binds this Court.[13]
The Secretary of Labor ruled, thus:
xxx xxx xxx.
Any act committed during the pendency of the dispute that tends to give rise to further contentious issues or increase the tensions between the parties should be considered an act of
exacerbation. One must look at the act itself, not on speculative reactions. A misplaced recourse is not needed to prove that a dispute has been exacerbated. For instance, the Union could not be
expected to file another notice of strike. For this would depart from its theory of the case that the layoff is subsumed under the instant dispute, for which a notice of strike had already been filed. On
the other hand, to expect violent reactions, unruly behavior, and any other chaotic or drastic action from the Union is to expect it to commit acts disruptive of public order or acts that may be
illegal. Under a regime of laws, legal remedies take the place of violent ones.[14]
xxx xxx xxx.
Protest against the subject layoffs need not be in the form of violent action or any other drastic measure. In the instant case the Union registered their dissent by swiftly filing a motion for a cease and
desist order. Contrary to petitioners allegations, the Union strongly condemned the layoffs and threatened mass action if the Secretary of Labor fails to timely intervene:
xxx xxx xxx.
3. This unilateral action of management is a blatant violation of the injunction of this Office against committing acts which would exacerbate the dispute. Unless such act is enjoined the Union will
be compelled to resort to its legal right to mass actions and concerted activities to protest and stop the said management action. This mass layoff is clearly one which would result in a very serious
labor dispute unless this Office swiftly intervenes.[15]
xxx xxx xxx.
Metrolab and the Union were still in the process of resolving their CBA deadlock when petitioner implemented the subject layoffs. As a result, motions and oppositions were
filed diverting the parties attention, delaying resolution of the bargaining deadlock and postponing the signing of their new CBA, thereby aggravating the whole conflict.
We, likewise, find untenable Metrolabs contention that the layoff of the 94 rank-and-file employees was temporary, despite the recall of some of the laid off workers.
If Metrolab intended the layoff of the 94 workers to be temporary, it should have plainly stated so in the notices it sent to the affected employees and the Department of
Labor and Employment. Consider the tenor of the pertinent portions of the layoff notice to the affected employees:
xxx xxx xxx.
Dahil sa mga bagay na ito, napilitan ang ating kumpanya na magsagawa ng lay-off ng mga empleyado sa Rank & File dahil nabawasan ang trabaho at puwesto para sa kanila. Marami sa atin ang
kasama sa lay-off dahil wala nang trabaho para sa kanila. Mahirap tanggapin ang mga bagay na ito subalit kailangan nating gawin dahil hindi kaya ng kumpanya ang magbayad ng suweldo kung
ang empleyado ay walang trabaho. Kung tayo ay patuloy na magbabayad ng suweldo, mas hihina ang ating kumpanya at mas marami ang maaring maapektuhan.
Sa pagpapatupad ng lay-off susundin natin ang LAST IN-FIRST OUT policy. Ang mga empleyadong may pinakamaikling serbisyo sa kumpanya ang unang maaapektuhan. Ito ay batay na rin sa
nakasaad sa ating CBA na ang mga huling pumasok sa kumpanya ang unang masasama sa lay-off kapag nagkaroon ng ganitong mga kalagayan.
Ang mga empleyado na kasama sa lay-off ay nakalista sa sulat na ito. Ang umpisa ng lay-off ay sa Lunes, Enero 27. Hindi na muna sila papasok sa kumpanya. Makukuha nila ang suweldo nila sa
Enero 30, 1992.
Hindi po natin matitiyak kung gaano katagal ang lay-off ngunit ang aming tingin ay matatagalan bago magkaroon ng dagdag na trabaho. Dahil dito, sinimulan na namin ang isang Redundancy
Program sa mga supervisors. Nabawasan ang mga puwesto para sa kanila, kaya sila ay mawawalan ng trabaho at bibigyan na ng redundancy pay.[16] (Italics ours.)
xxx xxx xxx.
We agree with the ruling of the Secretary of Labor, thus:
xxx xxx xxx.

. . .MII insists that the layoff in question is temporary not permanent. It then cites International Hardware, Inc. vs. NLRC, 176 SCRA 256, in which the Supreme Court held that the 30-day notice
required under Article 283 of the Labor Code need not be complied with if the employer has no intention to permanently severe (sic) the employment relationship.
We are not convinced by this argument. International Hardware involves a case where there had been a reduction of workload. Precisely to avoid laying off the employees, the employer therein
opted to give them work on a rotating basis. Though on a limited scale, work was available. This was the Supreme Courts basis for holding that there was no intention to permanently severe (sic) the
employment relationship.
Here, there is no circumstance at all from which we can infer an intention from MII not to sever the employment relationship permanently. If there was such an intention, MII could have made it
very clear in the notices of layoff. But as it were, the notices are couched in a language so uncertain that the only conclusion possible is the permanent termination, not the continuation, of the
employment relationship.
MII also seeks to excuse itself from compliance with the 30-day notice with a tautology. While insisting that there is really no best time to announce a bad news, (sic) it also claims that it broke the
bad news only on 27 January 1992 because had it complied with the 30-day notice, it could have broken the bad news on 02 January 1992, the first working day of the year. If there is really no best
time to announce a bad news (sic), it wouldnt have mattered if the same was announced at the first working day of the year. That way, MII could have at least complied with the requirement of the
law.[17]
The second issue raised by petitioner merits our consideration.
In the assailed Omnibus Resolution, Labor Secretary Confesor clarified the CBA provisions on closed-shop and the scope of the bargaining unit in this wise:
xxx xxx xxx.
Appropriateness of the bargaining unit.
xxx xxx xxx.
Exclusions. In our 14 April 1992 resolution, we ruled on the issue of exclusion as follows:
These aside, we reconsider our denial of the modifications which the Union proposes to introduce on the close shop provision. While we note that the provision as presently worded has served the
relationship of the parties well under previous CBAs, the shift in constitutional policy toward expanding the right of all workers to self-organization should now be formally recognized by the
parties, subject to the following exclusions only:
1. Managerial employees; and
2. The executive secretaries of the President, Executive Vice-President, Vice-President, Vice President for Sales, Personnel Manager, and Director for Corporate Planning who may have access to
vital labor relations information or who may otherwise act in a confidential capacity to persons who determine or formulate management policies.
The provisions of Article I (b) and Attachment I of the 1988-1990 CBA shall thus be modified consistently with the foregoing.
Article I (b) of the 1988-1990 CBA provides:
b)Close Shop. - All Qualified Employees must join the Association immediately upon regularization as a condition for continued employment. This provision shall not apply to: (i) managerial
employees who are excluded from the scope of the bargaining unit; (ii) the auditors and executive secretaries of senior executive officers, such as, the President, Executive Vice-President, VicePresident for Finance, Head of Legal, Vice-President for Sales, who are excluded from membership in the Association; and (iii) those employees who are referred to in Attachment I hereof, subject,
however, to the application of the provision of Article II, par. (b) hereof. Consequently, the above-specified employees are not required to join the Association as a condition for their continued
employment.
On the other hand, Attachment I provides:
Exclusion from the Scope of the Close Shop Provision
The following positions in the Bargaining Unit are not covered by the Close Shop provision of the CBA (Article I, par. b):
1. Executive Secretaries of Vice-Presidents, or equivalent positions.
2. Executive Secretary of the Personnel Manager, or equivalent positions.
3. Executive Secretary of the Director for Corporate Planning, or equivalent positions.
4. Some personnel in the Personnel Department, EDP Staff at Head Office, Payroll Staff at Head Office, Accounting Department at Head Office, and Budget Staff, who because of the nature of their
duties and responsibilities need not join the Association as a condition for their employment.
5. Newly-hired secretaries of Branch Managers and Regional Managers.
Both MDD and MII read the exclusion of managerial employees and executive secretaries in our 14 April 1992 resolution as exclusion from the bargaining unit. They point
out that managerial employees are lumped under one classification with executive secretaries, so that since the former are excluded from the bargaining unit, so must the latter be
likewise excluded.
This reading is obviously contrary to the intent of our 14 April 1992 resolution. By recognizing the expanded scope of the right to self-organization, our intent was to delimit
the types of employees excluded from the close shop provision, not from the bargaining unit, to executive secretaries only. Otherwise, the conversion of the exclusionary provision
to one that refers to the bargaining unit from one that merely refers to the close shop provision would effectively curtail all the organizational rights of executive secretaries.
The exclusion of managerial employees, in accordance with law, must therefore still carry the qualifying phrase from the bargaining unit in Article I (b)(i) of the 1988-1990
CBA. In the same manner, the exclusion of executive secretaries should be read together with the qualifying phrase are excluded from membership in the Association of the same
Article and with the heading of Attachment I. The latter refers to Exclusions from Scope of Close Shop Provision and provides that [t]he following positions in Bargaining Unit are
not covered by the close shop provision of the CBA.
The issue of exclusion has different dimension in the case of MII. In an earlier motion for clarification, MII points out that it has done away with the positions of Executive
Vice-President, Vice-President for Sales, and Director for Corporate Planning. Thus, the foregoing group of exclusions is no longer appropriate in its present organizational
structure. Nevertheless, there remain MII officer positions for which there may be executive secretaries. These include the General Manager and members of the Management
Committee, specifically i) the Quality Assurance Manager; ii) the Product Development Manager; iii) the Finance Director; iv) the Management System Manager; v) the Human
Resources Manager; vi) the Marketing Director; vii) the Engineering Manager; viii) the Materials Manager; and ix) the Production Manager.

xxx xxx xxx


The basis for the questioned exclusions, it should be noted, is no other than the previous CBA between MII and the Union. If MII had undergone an organizational
restructuring since then, this is a fact to which we have never been made privy. In any event, had this been otherwise the result would have been the same. To repeat, we limited
the exclusions to recognize the expanded scope of the right to self-organization as embodied in the Constitution.[18]
Metrolab, however, maintains that executive secretaries of the General Manager and the executive secretaries of the Quality Assurance Manager, Product Development
Manager, Finance Director, Management System Manager, Human Resources Manager, Marketing Director, Engineering Manager, Materials Manager and Production Manager,
who are all members of the companys Management Committee should not only be exempted from the closed-shop provision but should be excluded from membership in the
bargaining unit of the rank and file employees as well on grounds that their executive secretaries are confidential employees, having access to vital labor information. [19]
We concur with Metrolab.
Although Article 245 of the Labor Code[20] limits the ineligibility to join, form and assist any labor organization to managerial employees, jurisprudence has extended this
prohibition to confidential employees or those who by reason of their positions or nature of work are required to assist or act in a fiduciary manner to managerial employees and
hence, are likewise privy to sensitive and highly confidential records.
The rationale behind the exclusion of confidential employees from the bargaining unit of the rank and file employees and their disqualification to join any labor organization
was succinctly discussed in Philips Industrial Development v. NLRC:[21]
xxx xxx xxx.
On the main issue raised before Us, it is quite obvious that respondent NLRC committed grave abuse of discretion in reversing the decision of the Executive Labor Arbiter and in decreeing that
PIDIs Service Engineers, Sales Force, division secretaries, all Staff of General Management, Personnel and Industrial Relations Department, Secretaries of Audit, EDP and Financial Systems are
included within the rank and file bargaining unit.
In the first place, all these employees, with the exception of the service engineers and the sales force personnel, are confidential employees. Their classification as such is not seriously disputed by
PEO-FFW; the five (5) previous CBAs between PIDI and PEO-FFW explicitly considered them as confidential employees. By the very nature of their functions, they assist and act in a confidential
capacity to, or have access to confidential matters of, persons who exercise managerial functions in the field of labor relations. As such, the rationale behind the ineligibility of managerial employees
to form, assist or join a labor union equally applies to them.
In Bulletin Publishing Co., Inc. vs. Hon. Augusto Sanchez, this Court elaborated on this rationale, thus:
x x x The rationale for this inhibition has been stated to be, because if these managerial employees would belong to or be affiliated with a Union, the latter might not be assured of their loyalty to the
Union in view of evident conflict of interests. The Union can also become company-dominated with the presence of managerial employees in Union membership.
In Golden Farms, Inc. vs. Ferrer-Calleja, this Court explicitly made this rationale applicable to confidential employees:
This rationale holds true also for confidential employees such as accounting personnel, radio and telegraph operators, who having access to confidential information, may become the source of
undue advantage. Said employee(s) may act as a spy or spies of either party to a collective bargaining agreement. This is specially true in the present case where the petitioning Union is already the
bargaining agent of the rank-and-file employees in the establishment. To allow the confidential employees to join the existing Union of the rank-and-file would be in violation of the terms of the
Collective Bargaining Agreement wherein this kind of employees by the nature of their functions/positions are expressly excluded.
xxx xxx xxx.
Similarly, in National Association of Trade Union - Republic Planters Bank Supervisors Chapter v. Torres[22] we declared:
xxx xxx xxx.
. . . As regards the other claim of respondent Bank that Branch Managers/OICs, Cashiers and Controllers are confidential employees, having control, custody and/ or access to confidential matters,
e.g., the branchs cash position, statements of financial condition, vault combination, cash codes for telegraphic transfers, demand drafts and other negotiable instruments, pursuant to Sec. 1166.4 of
the Central Bank Manual regarding joint custody, this claim is not even disputed by petitioner. A confidential employee is one entrusted with confidence on delicate matters, or with the custody,
handling, or care and protection of the employers property. While Art. 245 of the Labor Code singles out managerial employees as ineligible to join, assist or form any labor organization, under the
doctrine of necessary, implication, confidential employees are similarly disqualified. . . .
xxx xxx xxx.
. . .(I)n the collective bargaining process, managerial employees are supposed to be on the side of the employer, to act as its representatives, and to see to it that its interest are well protected. The
employer is not assured of such protection if these employees themselves are union members. Collective bargaining in such a situation can become one-sided. It is the same reason that impelled this
Court to consider the position of confidential employees as included in the disqualification found in Art. 245 as if the disqualification of confidential employees were written in the provision. If
confidential employees could unionize in order to bargain for advantages for themselves, then they could be governed by their own motives rather than the interest of the employers. Moreover,
unionization of confidential employees for the purpose of collective bargaining would mean the extension of the law to persons or individuals who are supposed to act in the interest of the
employers. It is not farfetched that in the course of collective bargaining, they might jeopardize that interest which they are duty-bound to protect. . . .
xxx xxx xxx.
And in the latest case of Pier 8 Arrastre & Stevedoring Services, Inc. vs. Roldan-Confesor,[23] we ruled that:
xxx xxx xxx.
Upon the other hand, legal secretaries are neither managers nor supervisors. Their work is basically routinary and clerical. However, they should be differentiated from rank-and-file employees
because they are tasked with, among others, the typing of legal documents, memoranda and correspondence, the keeping of records and files, the giving of and receiving notices, and such other
duties as required by the legal personnel of the corporation. Legal secretaries therefore fall under the category of confidential employees. . . .
xxx xxx xxx.
We thus hold that public respondent acted with grave abuse of discretion in not excluding the four foremen and legal secretary from the bargaining unit composed of rank-and-file employees.
xxx xxx xxx.

In the case at bench, the Union does not disagree with petitioner that the executive secretaries are confidential employees. It however, makes the following contentions:
xxx xxx xxx.
There would be no danger of company domination of the Union since the confidential employees would not be members of and would not participate in the decision making processes of the Union.
Neither would there be a danger of espionage since the confidential employees would not have any conflict of interest, not being members of the Union. In any case, there is always the danger that
any employee would leak management secrets to the Union out of sympathy for his fellow rank and filer even if he were not a member of the union nor the bargaining unit.
Confidential employees are rank and file employees and they, like all the other rank and file employees, should be granted the benefits of the Collective Bargaining Agreement. There is no valid
basis for discriminating against them. The mandate of the Constitution and the Labor Code, primarily of protection to Labor, compels such conclusion.[24]
xxx xxx xxx.
The Unions assurances fail to convince. The dangers sought to be prevented, particularly the threat of conflict of interest and espionage, are not eliminated by nonmembership of Metrolabs executive secretaries or confidential employees in the Union. Forming part of the bargaining unit, the executive secretaries stand to benefit from any
agreement executed between the Union and Metrolab. Such a scenario, thus, gives rise to a potential conflict between personal interests and their duty as confidential employees
to act for and in behalf of Metrolab. They do not have to be union members to affect or influence either side.
Finally, confidential employees cannot be classified as rank and file. As previously discussed, the nature of employment of confidential employees is quite distinct from the
rank and file, thus, warranting a separate category. Excluding confidential employees from the rank and file bargaining unit, therefore, is not tantamount to discrimination.
WHEREFORE, premises considered, the petition is partially GRANTED. The resolutions of public respondent Secretary of Labor dated 14 April 1992 and 25 January 1993
are hereby MODIFIED to the extent that executive secretaries of petitioner Metrolabs General Manager and the executive secretaries of the members of its Management
Committee are excluded from the bargaining unit of petitioners rank and file employees.
SO ORDERED.
Padilla, Bellosillo, Vitug, and Hermosisima, Jr., JJ., concur.

THIRD DIVISION

[G.R. No. 96663. August 10, 1999]

PEPSI - COLA PRODUCTS PHILIPPINES, INC., petitioner, vs. HONORABLE SECRETARY OF LABOR, MED - ARBITER NAPOLEON V. FERNANDO & PEPSI - COLA
SUPERVISORY EMPLOYEES ORGANIZATION - UOEF, respondents.

[G.R. No. 103300. August 10, 1999]

PEPSI COLA PRODUCTS PHILIPPINES, petitioner, vs. OFFICE OF THE SECRETARY DEPARTMENT OF LABOR AND HON. CELENIO N. DAING, in his capacity as MedArbiter Labor Regional Office No. X, Cagayan de Oro City, CAGAYAN DE ORO PEPSI COLA SUPERVISORS UNION (UOEF), respondents.

DECISION
PURISIMA, J.:

These are petitions for certiorari relating to three (3) cases filed with the Med-Arbiter, to wit: MED ARB ROX Case No. R100-9101-RU-002 for Certification Election filed by Pepsi Cola
Supervisors Union-UOEF (Union), MED ARB Case No. R1000-9102-RU-008, Re: Petition to Set Aside, Cancel and/ or Revoke the Charter Affiliation of the Union, and MED-ARB ROX Case No.
R1000-9104-RU-012, for Cancellation of Registration Certificate No. 11492-LC in favor of the Union.

G. R. No. 96663

The facts that matter can be culled as follows:


Sometime in June 1990, the Pepsi-Cola Employees Organization-UOEF (Union) filed a petition for certification election with the Med-Arbiter seeking to be the exclusive bargaining agent of
supervisors of Pepsi-Cola Philippines, Inc. (PEPSI).

On July 12, 1990, the Med-Arbiter granted the Petition, with the explicit statement that it was an affiliate of Union de Obreros Estivadores de Filipinas (federation) together with two (2) rank
and file unions, Pepsi-Cola Labor Unity (PCLU) and Pepsi-Cola Employees Union of the Philippines (PEUP).
On July 23, 1990, PEPSI filed with the Bureau of Labor Relations a petition to Set Aside, Cancel and/or Revoke Charter Affiliation of the Union, entitled PCPPI v. PCEU-UOEF and
docketed as Case No. 725-90, on the grounds that (a) the members of the Union were managers and (b) a supervisors union can not affiliate with a federation whose members include the rank and
file union of the same company.
On August 29,1990, PEPSI presented a motion to re-open the case since it was not furnished with a copy of the Petition for Certification Election.
On September 4, 1990, PEPSI submitted its position paper to the BLR in Case No. 725-90.
On September 21, 1990, PEPSI received summons to appear at the pre-trial conference set on September 25, 1990 but which the hearing officer rescheduled on October 21, 1990.
On October 12, 1990, PEPSI filed a Notice of Appeal and Memorandum of Appeal with the Secretary of Labor, questioning the setting of the certification election on the said date and five
(5) days after.It also presented an urgent Ex-Parte Motion to Suspend the Certification Election, which motion was granted on October 18, 1990.
On November 12, 1990, the Secretary of Labor denied the appeal and Motion for Reconsideration. Even as the Petition to Cancel, Revoke and Suspend Union Charter Certificate was
pending before the BLR, PEPSI found its way to this Court via the present petition for certiorari.
On February 6, 1991, the Court granted the prayer for temporary restraining order and/or preliminary injunction.
The pivot of inquiry here is: whether or not a supervisors union can affiliate with the same Federation of which two (2) rank and file unions are likewise members, without violating Article
245 of the Labor Code (PD 442), as amended, by Republic Act 6715, which provides:
Art. 245. Ineligibility of managerial employees to join any labor organization; right of supervisory employees.- Managerial employees are not eligible to join, assist or form any labor
organization.Supervisory employees shall not be eligible for membership in a labor organization of the rank-and-file employees but may join, assist or form separate labor organizations of their own.
In its Comment dated March 19, 1991, the Federation argued that:
The pertinent portion of Article 245 of the Labor Code states that. Supervisory employees shall not be eligible for membership in a labor organization of the rank and file employees but may join,
assist or form separate labor organization of their own.
This provision of law does not prohibit a local union composed of supervisory employees from being affiliated to a federation which has local unions with rank-and-file members as affiliates.
xxx xxx xxx
xxx the Petition to Cancel, Revoke or Set Aside the Charter Certificate of the private respondent is anchored on the alleged ground that certain managerial employees are included as members
thereof. The grounds for the cancellation of the registration certificate of a labor organization are provided in Section 7 of Rule II, Book V of the Omnibus Rules Implementing the Labor Code, and
the inclusion of managerial employees is not one of the grounds. xxx (in this case, the private respondent herein) remains to be a legitimate labor organization.[1]
On April 8, 1991, the Secretary of Labor and Employment, through the Office of the Solicitor General, sent in a Comment, alleging inter alia, that:
xxx under Article 259 of the New Labor Code, only orders of the Med-Arbiter can be appealed through the Secretary of Labor and only on the ground that the rules and regulations for the conduct of
the certification election have been violated. The Order of the Representation Officer is interlocutory and not appealable. xxx
xxx until and unless there is a final order cancelling its certificate of registration or charter certificate, a labor organization remains to be a legitimate labor organization entitled to exercise all the
rights and duties accorded to it by the Labor Code including the right to be certified as a bargaining representative. xxx
xxx Public respondent cannot be deemed to have committed grave abuse of discretion with respect to an issue that was never presented before it for resolution. xxx
Article 245 of the New Labor Code does not preclude the supervisors union and the rank-and-file union from being affiliated with the same federation.
xxx xxx xxx
A federation of local union is not the labor organization referred to in Article 245 but only becomes entitled to all the rights enjoyed by the labor organization (at the company level) when it has
complied with the registration requirements found in Articles 234 and 237. Hence, what is prohibited by Article 245 is membership of supervisory employees in a labor union (at the company level)
of the rank and file. xxx
xxx In other words, the affiliation of the supervisory employees union with the same federation with which the rank and file employees union is affiliated did not make the supervisory employees
members of the rank and file employees union and vice versa.[2] xxx
PEPSI, in its Reply dated May 7, 1991, asserted:
It is our humble contention that a final determination of the Petition to Set-Aside, Cancel, Revoke Charter Union Affiliation should first be disposed of before granting the Petition for the Conduct of
Certification Election. To allow the conduct of the certification election to proceed would make any decision arrived at by the Bureau of Labor Relations useless inasmuch as the same would
necessarily be rendered moot and academic.[3]
On June 7, 1991, petitioner again filed a Supplemental Reply stressing:
It is likewise stressed that officials of both the PCLU and PEUP are top ranking officers of UOEF, the federation of supervisors union, to wit:
POSITION IN RANK AND FILE POSITION IN FEDERATION
UNION
1. Rogelio de la Cruz PCLU -President General Vice President
2. Felix Gatela PEUP - President General Treasurer
3. Carlito Epino PCLU Board Member Educational Research
Director
xxx xxx xxx
The respondent supervisory union could do indirectly what it could not do directly as the simple expedient of affiliating with UOEF would negate the manifest intent and letter of the law that
supervisory employees can only join, assist or form separate labor organizations of their own and cannot be eligible for membership in a labor organization of the rank and file employees.[4]

On August 6, 1991, the Secretary of Labor and Employment filed a Rejoinder, claiming thus:
xxx an employer has no legal standing to question the validity of a certification election.
xxx For this reason, the Supreme Court has consistently held that, as a rule, a certification election is the sole and exclusive concern of the employees and that the employer is definitely an intruder
or a mere bystander (Consolidated Farms vs. Noriel, L-47752, July 31, 1978, 84 SCRA 469; Filipino Metals Corporation vs. Ople, L- 43861, September 4, 1981, 107 SCRA 211; Trade Unions of the
Philippines and Allied Services (TUPAS) vs. Trajano No. L-61153, January 17, 1983, 120 SCRA 64].
xxx xxx xxx
In Adamson & Adamson, Inc. vs. CIR No. L-35120, January 31, 1984, 127 SCRA 268, the Supreme Court (then dealing with the interpretation of Section 3 of the Industrial Peace Act, from which
Section 245 of the Labor Code was derived) grappled with the issue in the case at bar. It held that,
There is nothing in the provisions of the Industrial Peace Act which provides that a duly registered local union affiliating with a national union or federation loses its legal personality, or its
independence.
xxx xxx xxx
However, there is absolutely nothing in the Labor Code that prohibits a federation from representing or exercising influence over its affiliates. On the contrary, this is precisely the reason why
federations are formed and are allowed by law to exist.[5]
On November 8, 1991, the Union also filed a Rejoinder.
On December 9, 1991, the Court resolved to DISMISS the case for failure to sufficiently show that the questioned judgment is tainted with grave abuse of discretion.
In a Resolution dated March 2, 1992, the Second Division of the Court resolved to grant the motion for reconsideration interposed on January 28, 1992.

G.R. No. 103300

What are assailed in this case is Med-Arbiter Order dated May 23, 1991 and the Decision and Order of the Secretary of Labor and Employment, dated October 4, 1991 and December 12,
1991, respectively.
The decretal portion of the Med-Arbiter Order under attack, reads:
WHEREFORE, premises considered, an order is hereby issued:
1. Dismissing MED ARB ROX CASE NO. R1000-919104-RU-012 and R1000-9102-RU-008 for lack of merit; and
2. Ordering the conduct of a Certification Election to be participated by and among the supervisory workers of the respondent company, Pepsi-Cola Products Philippines, Inc. at its plant at Tin-ao,
Cagayan de Oro City, including all the satellite warehouse within the territorial coverage and control of the Cagayan de Oro Pepsi-Cola Plant. The choices are as follows:
1. Cagayan de Oro Pepsi-Cola Supervisors Union (U.O.E.P.)
2. No union
The parties are directed to attend a pre-election conference on June 10, 1991, 2:30 p.m. at the Regional Office to determine the qualification of the voters and to thresh out the mechanics of the
election.Respondent/employer is directed to submit five (5) copies of the names of the rank and file workers taken from the payroll on October 1-31, 1991, alphabetically arranged (sic) indicating
their names and positions and dates of employment and to bring the aforementioned payroll during the pre-election conference for verification purposes.[6] xxx
The supervisory employees of the Union are:
POSITION
1. Felipe Valdehueza Route Manager
2. Gerberto Vertudazo C & C Manager
3. Paul Mendoza Sales Service Department Manager
4. Gilberto Emano, Jr. Route Manager
5. Jaime Huliganga Chief Checker
6. Elias Edgama, Sr. Accounting Manager
7. Romanico Ramos Route Manager
8. Raul Yacapin Route Manager
9. Jovenal Albaque Route Manager
10. Fulvio Narciso Route Manager
11. Apolinario Opiniano Route Manager
12. Alfredo Panas Route Manager
13. Simplicio Nelie Route Manager
14. Arthur Rodriguez Route Manager
15. Marco Ilano Warehouse Operations Manager and
16. Deodoro Ramos Maintenance Manager

On June 6, 1991, PEPSI appealed the said Order to the Secretary of Labor and Employment on the ground of grave abuse of discretion, docketed as Case No. OS-A-232-91.
On October 4, 1991, the Secretary modified the appealed decision, ruling thus:
WHEREFORE, the Order of the Med-Arbiter dated 23 May 1991 is hereby modified to the effect that MED ARB ROX Case No. R1000-9104-RU-012 and R1000-9102-RU-008 are hereby referred
to the Office of the Regional Director which has jurisdiction over these cases. The call for certification election among the supervisory workers of the Pepsi-Cola Products Philippines, Inc. at its
plant at Tin-ao, Cagayan de Oro City is hereby sustained.[7]
On October 19, 1991, PEPSI presented a motion for reconsideration of the aforesaid Order but the same was denied on December 12, 1991.
Meanwhile, the BLR issued Registration Certificate No. 11492-LC in favor of the Union. Dissatisfied therewith, PEPSI brought the instant petition for certiorari, contending that:
PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION IN RULING THAT PRIVATE RESPONDENTS OFFICERS AND MEMBERS ARE NOT MANAGERIAL
EMPLOYEES;
PRIVATE RESPONDENT IS PROHIBITED FROM AFFILIATING ITSELF WITH A FEDERATION ALREADY AFFILIATED WITH THE RANK AND FILE UNION;
PUBLIC RESPONDENT COMMITTED GRAVE OF (SIC) ABUSE OF DISCRETION IN RULING THAT THE INSTITUTION OF A PETITION FOR CANCELLATION OF UNION
REGISTRATION DOES NOT CONSTITUTE A PREJUDICIAL QUESTION TO A PETITION CERTIFICATION ELECTION.[8]
The petitions must fail for want of merit.
At the outset, it must be stressed that on September 1, 1992, there was a Resolution of the Union withdrawing from the Federation, to wit:
BE IT RESOLVED, as it is hereby RESOLVED, that this UNION WITHDRAW, as it hereby WITHDRAWS its affiliation from the Union de Obreros Estivadores de Filipinas, and at the same time,
give our thanks to the said federation for its help and guidance rendered to this Union in the past.[9]
The issue in G.R. No. 96663, whether or not the supervisors union can be affiliated with a Federation with two (2) rank and file unions directly under the supervision of the former, has thus
become moot and academic in view of the Unions withdrawal from the federation.
In a long line of cases (Narciso Nakpil, et. al., vs. Hon. Crisanto Aragon, et. al.,, G. R. No. L - 24087, January 22, 1980, 95 SCRA 85; Toribio v. Bidin, et. al., G.R. No. L-37960, February 28,
1980, 96 SCRA 361; Gumaua v. Espino, G.R. No. L- 36188 - 37586 February 29, 1980, 96 SCRA 402), the Court dismissed the petition for being moot and academic. In the case of F. C. Fisher v.
Yangco Steamship Co., March 31, 1915, the Court held:
It is unnecessary, however to indulge in academic discussion of a moot question. xxx
xxx The action would have been dismissed at any time on a showing of the facts as they were . The question left for the court was a moot one. Its Resolution would have been useless. Its judgment
would have been impossible of execution xxx.
However, in the case of University of San Agustin, Inc., et al. vs. Court of Appeals, et al., the court resolved the case, ruling that even if a case were moot and academic, a statement of the
governing principle is appropriate in the resolution of dismissal for the guidance not only of the parties but of others similarly situated. xxx[10]
In Atlas Lithographic Services, Inc. v. Laguesma, 205 SCRA 12, [1992] decided by the Third Division with J. Gutierrez, Jr., as ponente and JJ. Feliciano, Bidin, Romero and now Chief
Justice Davide, Jr., as members it was ratiocinated:
xxx xxx xxx
Thus, if the intent of the law is to avoid a situation where supervisors would merge with the rank-and-file or where the supervisors labor organization would represent conflicting interests, then a
local supervisors union should not be allowed to affiliate with the national federation of union of rank-and-file employees where that federation actively participates in union activity in the company.
xxx xxx xxx
The prohibition against a supervisors union joining a local union of rank and file is replete with jurisprudence. The Court emphasizes that the limitation is not confined to a case of supervisors
wanting to join a rank-and-file union. The prohibition extends to a supervisors local union applying for membership in a national federation the members of which include local unions of rank and
file employees. The intent of the law is clear especially where, as in this case at bar, the supervisors will be co-mingling with those employees whom they directly supervise in their own bargaining
unit.
Anent the issue of whether or not the Petition to cancel/revoke registration is a prejudicial question to the petition for certification election, the following ruling in the case of Association of
the Court of Appeals Employees (ACAE) vs. Hon. Pura Ferrer-Calleja, in her capacity as Director, Bureau of Labor Relations et. Al., 203 ACRA 597, 598, [1991], is in point, to wit:
xxx It is a well-settled rule that a certification proceedings is not a litigation in the sense that the term is ordinarily understood, but an investigation of a non-adversarial and fact finding character.
(Associated Labor Unions (ALU) v. Ferrer-Calleja, 179 SCRA 127 [1989]; Philippine Telegraph and Telephone Corporation v. NLRC, 183 SCRA 451 [1990]. Thus, the technical rules of evidence
do not apply if the decision to grant it proceeds from an examination of the sufficiency of the petition as well as a careful look into the arguments contained in the position papers and other
documents.
At any rate, the Court applies the established rule correctly followed by the public respondent that an order to hold a certification election is proper despite the pendency of the petition for
cancellation of the registration certificate of the respondent union. The rationale for this is that at the time the respondent union filed its petition, it still had the legal personality to perform such act
absent an order directing the cancellation.
xxx xxx xxx
As regards the issue of whether or not confidential employees can join the labor union of the rank and file, what was held in the case of National Association of Trade Unions (NATU) Republic Planters Bank Supervisors Chapter vs. Hon. R. D. Torres, et. al., G.R. No. 93468, December 29, 1994, applies to this case. Citing Bulletin Publishing Corporation vs. Sanchez, 144 SCRA
628,635, Golden Farms vs. NLRC, 175 SCRA 471, and Pier 8 Arrastre and Stevedoring Services, Inc. vs. Hon. Nieves Roldan-Confessor et al., G.R. No. 110854, February 14, 1995, the Court ruled:
xxx A confidential employee is one entrusted with confidence on delicate matters, or with the custody, handling, or care and protection of the employers property. While Art. 245 of the Labor Code
singles out managerial employee as ineligible to join, assist or form any labor organization, under the doctrine of necessary implication, confidential employees are similarly disqualified. This
doctrine states that what is implied in a statute is as much a part thereof as that which is expressed, as elucidated in several case; the latest of which is Chua v. Civil Service Commission where we
said:
No statute can be enacted that can provide all the details involved in its application. There is always an omission that may not meet a particular situation. What is thought, at the time of the
enactment, to be an all embracing legislation maybe inadequate to provide for the unfolding events of the future. So-called gaps in the law develop as the law is enforced. One of the rules of statutory
construction used to fill in the gap is the doctrine of necessary implication xxx, Every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object

and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its
terms. Ex necessitate legis xxx
In applying the doctrine of necessary implication, we took into consideration the rationale behind the disqualification of managerial employees expressed in Bulletin Publishing Corporation v.
Sanchez, thus xxx if these managerial employees would belong to or be affiliated with a Union, the latter might not be assured of their loyalty to the Union in view of evident conflict of
interests. The Union can also become company dominated with the presence of managerial employees in Union membership. Stated differently, in the collective bargaining process, managerial
employees are supposed to be on the side of the employer, to act as its representatives, and to see to it that its interest are well protected. The employer is not assured of such protection if these
employees themselves are union members. Collective bargaining in such a situation can become one-sided. It is the same reason that impelled this Court to consider the position of confidential
employees as included in the disqualification found in Art. 245 as if the disqualification of confidential employees were written in the provision. If confidential employees could unionize in order to
bargain for advantages for themselves, then they could be governed by their own motives rather than the interest of the employers. Moreover, unionization of confidential employees for the purpose
of collective bargaining would mean the extension of the law to persons or individuals who are supposed to act in the interest of the employers. It is not farfetched that in the course of collective
bargaining, they might jeopardize that interest which they are duty bound to protect. Along the same line of reasoning we held in Golden Farms, Inc. vs. Ferrer-Calleja reiterated in Philips Industrial
Development, Inc., NLRC, that confidential employees such as accounting personnel, radio and telegraph operators who, having access to confidential information, may become the source of undue
advantage. Said employee(s) may act as spy or spies of either party to a collective bargaining agreement.
The Court finds merit in the submission of the OSG that Route Managers, Chief Checkers and Warehouse Operations Managers are supervisors while Credit & Collection Managers and
Accounting Managers are highly confidential employees. Designation should be reconciled with the actual job description of subject employees. A careful scrutiny of their job description indicates
that they dont lay down company policies. Theirs is not a final determination of the company policies since they have to report to their respective superior. The mere fact that an employee is
designated manager does not necessarily make him one. Otherwise, there would be an absurd situation where one can be given the title just to be deprived of the right to be a member of a union. In
the case of National Steel Corporation v. Laguesma, G. R. No. 103743, January 29,1996, it was stressed that:
What is essential is the nature of the employees function and not the nomenclature or title given to the job which determines whether the employee has rank and file or managerial status, or whether
he is a supervisory employee.
WHEREFORE, the petitions under consideration are DISMISSED but subject Decision, dated October 4, 1991, of the Secretary of Labor and Employment is MODIFIED in that Credit and
Collection Managers and Accounting Managers are highly confidential employees not eligible for membership in a supervisors union. No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, and Gonzaga-Reyes, JJ., concur.
Panganiban, J., in the result.

[1] Pepsi - Cola Supervisory Employees Organization - UOEF, Comment, pp. 4-6, Rollo, pp. 71-73.
THIRD DIVISION

[G.R. No. 131235. November 16, 1999]

UST FACULTY UNION (USTFU), GIL Y. GAMILLA, CORAZON QUI, NORMA CALAGUAS, IRMA POTENCIANO, LUZ DE GUZMAN, REMEDIOS GARCIA, RENE ARNEJO,
EDITHA OCAMPO, CESAR REYES, CELSO NIERRA, GLICERIA BALDRES, MA. LOURDES MEDINA, HIDELITA GABO, MAFEL YSRAEL, LAURA ABARA,
NATIVIDAD SANTOS, FERDINAND LIMOS, CARMELITA ESPINA, ZENAIDA FAMORCA, PHILIP AGUINALDO, BENEDICTA ALAVA and LEONCIO
CASAL, petitioners vs. Dir. BENEDICTO ERNESTO R. BITONIO JR. of the Bureau of Labor Relations, Med-Arbiter TOMAS F. FALCONITIN of The National Capital
Region, Department of Labor and Employment (DOLE), EDUARDO J. MARIO JR., MA. MELVYN ALAMIS, NORMA COLLANTES, URBANO ALABAGIA, RONALDO
ASUNCION, ZENAIDA BURGOS, ANTHONY CURA, FULVIO M. GUERRERO, MYRNA HILARIO, TERESITA MEER, FERNANDO PEDROSA, NILDA
REDOBLADO, RENE SISON, EVELYN TIROL and ROSIE ALCANTARA,respondents.

DECISION
PANGANIBAN, J.:

There is a right way to do the right thing at the right time for the right reasons, [1] and in the present case, in the right forum by the right parties. While grievances against union leaders
constitute legitimate complaints deserving appropriate redress, action thereon should be made in the proper forum at the proper time and after observance of proper procedures. Similarly, the election
of union officers should be conducted in accordance with the provisions of the unions constitution and bylaws, as well as the Philippine Constitution and the Labor Code. Specifically, while all
legitimate faculty members of the University of Santo Tomas (UST) belonging to a collective bargaining unit may take part in a duly convened certification election, only bona fide members of the
UST Faculty Union (USTFU) may participate and vote in a legally called election for union officers. Mob hysteria, however well-intentioned, is not a substitute for the rule of law.

The Case

The Petition for Certiorari before us assails the August 15, 1997 Resolution[2] of Director Benedicto Ernesto R. Bitonio Jr. of the Bureau of Labor Relations (BLR) in BLR Case No. A-8-4997, which affirmed the February 11, 1997 Decision of Med-Arbiter Tomas F. Falconitin. The med-arbiters Decision disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring the election of USTFU officers conducted on October 4, 1996 and its election results as null and void ab initio.
Accordingly, respondents Gil Gamilla, et al are hereby ordered to cease and desist from acting and performing the duties and functions of the legitimate officers of [the] University of Santo Tomas
Faculty Union (USTFU) pursuant to [the] unions constitution and by-laws (CBL).

The Temporary Restraining Order (TRO ) issued by this Office on December 11, 1996 in connection with the instant petition, is hereby made and declared permanent.[3]
Likewise challenged is the October 30, 1997 Resolution[4]of Director Bitonio, which denied petitioners Motion for Reconsideration.

The Facts

The factual antecedents of the case are summarized in the assailed Resolution as follows:
Petitioners-appellees [herein Private Respondents] Marino, et. al. (appellees) are duly elected officers of the UST Faculty Union (USTFU). The union has a subsisting five-year Collective Bargaining
Agreement with its employer, the University of Santo Tomas (UST). The CBA was registered with the Industrial Relations Division, DOLE-NCR, on 20 February 1995. It is set to expire on 31 May
1998.
On 21 September 1996, appellee Collantes, in her capacity as Secretary General of USTFU, posted a notice addressed to all USTFU members announcing a general assembly to be held on 05
October 1996.Among others, the general assembly was called to elect USTFUs next set of officers. Through the notice, the members were also informed of the constitution of a Committee on
Elections (COMELEC) to oversee the elections. (Annex B, petition)
On 01 October 1996, some of herein appellants filed a separate petition with the Med-Arbiter, DOLE-NCR, directed against herein appellees and the members of the COMELEC. Docketed as Case
No. NCR-OD-M-9610-001, the petition alleged that the COMELEC was not constituted in accordance with USTFUs constitution and by-laws (CBL) and that no rules had been issued to govern the
conduct of the 05 October 1996 election.
On 02 October 1996, the secretary general of UST, upon the request of the various UST faculty club presidents (See paragraph VI, Respondents Comment and Motion to Dismiss), issued notices
allowing all faculty members to hold a convocation on 04 October 1996 (See Annex C Petition; Annexes 4 to 10, Appeal). Denominated as [a] general faculty assembly, the convocation was
supposed to discuss the state of the unratified UST-USTFU CBA and status and election of USTFU officers (Annex 11, Appeal)
On 04 October 1996, the med-arbiter in Case No. NCR-OD-M-9610-001 issued a temporary restraining order against herein appellees enjoining them from conducting the election scheduled on 05
October 1996.
Also on 04 October 1996, and as earlier announced by the UST secretary general, the general faculty assembly was held as scheduled. The general assembly was attended by members of the USTFU
and, as admitted by the appellants, also by 'non-USTFU members [who] are members in good standing of the UST Academic Community Collective Bargaining Unit' (See paragraph XI,
Respondents Comment and Motion to Dismiss). On this occasion, appellants were elected as USTFUs new set of officers by acclamation and clapping of hands (See paragraphs 40 to 50, Annex '12',
Appeal).
The election of the appellants came about upon a motion of one Atty. Lopez, admittedly not a member of USTFU, that the USTFU CBL and 'the rules of the election be suspended and that the
election be held [on] that day' (See --paragraph 39, Idem.)
On 11 October 1996, appellees filed the instant petition seeking injunctive reliefs and the nullification of the results of the 04 October 1996 election. Appellees alleged that the holding of the same
violated the temporary restraining order issued in Case No. NCR-OD-M-9610-001. Accusing appellants of usurpation, appellees characterized the election as spurious for being violative of USTFUs
CBL, specifically because the general assembly resulting in the election of appellants was not called by the Board of Officers of the USTFU; there was no compliance with the ten-day notice rule
required by Section 1, Article VIII of the CBL; the supposed elections were conducted without a COMELEC being constituted by the Board of Officers in accordance with Section 1, Article IX of
the CBL; the elections were not by secret balloting as required by Section 1, Article V and Section 6, Article IX of the CBL, and, the general assembly was convened by faculty members some of
whom were not members of USTFU, so much so that non-USTFU members were allowed to vote in violation of Section 1, Article V of the CBL.
On 24 October 1996, appellees filed another urgent ex-parte motion for a temporary restraining order, this time alleging that appellants had served the former a notice to vacate the union office. For
their part, appellants moved to dismiss the original petition and the subsequent motion on jurisdictional grounds. Both the petition and the motion were captioned to be for Prohibition, Injunction
with Prayer for Preliminary Injunction and Temporary Restraining Order. According to the appellants, the med-arbiter has no jurisdiction over petitions for prohibition, 'including the ancillary
remedies of restraining order and/or preliminary injunction, which are merely incidental to the main petition for PROHIBITION' (Paragraph XVIII3, Respondents Comment and Motion to
Dismiss). Appellants also averred that they now constituted the new set of union officers having been elected in accordance with law after the term of office of appellees had expired. They further
maintained that appellees scheduling of the 5 October 1996 elections was illegal because no rules and regulations governing the elections were promulgated as required by USTFUs CBL and that
one of the members of the COMELEC was not a registered member of USTFU. Appellants likewise noted that the elections called by the appellees should have been postponed to allow the
promulgation of rules and regulations and to 'insure a free, clean, honest and orderly elections and to afford at the same time the greater majority of the general membership to participate' (See
paragraph V, Idem). Finally, appellants contended that the holding of the general faculty assembly on 04 October 1996 was under the control of the Council of College/Faculty Club Presidents in
cooperation with the USTFU Reformist Alliance and that they received the Temporary Restraining Order issued in Case No. NCR-OD-M-9610-001 only on 07 October 1996 and were not aware of
the same on 04 October 1996.
On 03 December 1996, appellants and UST allegedly entered into another CBA covering the period from 01 June 1996 to 31 May 2001 (Annex 11, appellants Rejoinder to the Reply and
Opposition).
Consequently, appellees again moved for the issuance of a temporary restraining order to prevent appellants from making further representations that [they] had entered into a new agreement with
UST.Appellees also reiterated their earlier stand that appellants were usurping the formers duties and functions and should be stopped from continuing such acts.
On 11 December 1996, over appellants insistence that the issue of jurisdiction should first be resolved, the med-arbiter issued a temporary restraining order directing the respondents to cease and
desist from performing any and all acts pertaining to the duties and functions of the officers and directors of USTFU.
In the meantime, appellants claimed that the new CBA was purportedly ratified by an overwhelming majority of USTs academic community on 12 December 1996 (Annexes 1 to 10, Idem). For this
reason, appellants moved for the dismissal of what it denominated as appellees petition for prohibition on the ground that this had become moot and academic.[5]
Petitioners appealed the med-arbiters Decision to the labor secretary,[6] who transmitted the records of the case to the Bureau of Labor Relations which, under Department Order No. 9, was
authorized to resolve appeals of intra-union cases, consistent with the last paragraph of Article 241 of the Labor Code.[7]

The Assailed Ruling

Agreeing with the med-arbiter that the USTFU officers purported election held on October 4, 1994 was void for having been conducted in violation of the unions Constitution and Bylaws
(CBL), Public Respondent Bitonio rejected petitioners contention that it was a legitimate exercise of their right to self-organization. He ruled that the CBL, which constituted the covenant between
the union and its members, could not be suspended during the October 4, 1996 general assembly of all faculty members, since that assembly had not been convened or authorized by the USTFU.
Director Bitonio likewise held that the October 4, 1996 election could not be legitimized by the recognition of the newly elected set of officers by UST or by the alleged ratification of the
new CBA by the general membership of the USTFU. Ruled Respondent Bitonio:

"This submission is flawed. The issue at hand is not collective bargaining representation but union leadership, a matter that should concern only the members of USTFU. As pointed out by the
appellees, the privilege of determining who the union officers will be belongs exclusively to the members of the union. Said privilege is exercised in an election proceeding in accordance with the
union's CBL and applicable law.
To accept appellants' claim to legitimacy on the foregoing grounds is to invest in appellants the position, duties, responsibilities, rights and privileges of USTFU officers without the benefit of a
lawful electoral exercise as defined in USTFU's CBL and Article 241(c) of the Labor Code. Not to mention the fact that labor laws prohibit the employer from interfering with the employees in the
latter' exercise of their right to self-organization. To allow appellants to become USTFU officers on the strength of management's recognition of them is to concede to the employer the power of
determining who should be USTFU's leaders. This is a clear case of interference in the exercise by USTFU members of their right to self-organization.[8]
Hence, this Petition.[9]

The Issues

The main issue in this case is whether the public respondent committed grave abuse of discretion in refusing to recognize the officers elected during the October 4, 1996 general
assembly. Specifically, petitioners in their Memorandum urge the Court to resolve the following questions:[10]
(1) Whether the Collective Bargaining Unit of all the faculty members in that General Faculty Assembly had the right in that General Faculty Assembly to suspend the provisions of the Constitution
and By-Laws of the USTFU regarding the elections of officers of the union[.]
(2) Whether the suspension of the provisions of the Constitution and By-Laws of the USTFU in that General Faculty Assembly is valid pursuant to the constitutional right of the Collective
Bargaining Unit to engage in peaceful concerted activities for the purpose of ousting the corrupt regime of the private respondents[.]
(3) Whether the overwhelming ratification of the Collective Bargaining Agreement executed by the petitioners in behalf of the USTFU with the University of Santo Tomas has rendered moot and
academic the issue as to the validity of the suspension of the Constitution and By-Laws and the elections of October 4, 1996 in the General Faculty Assembly[.]

The Courts Ruling

The petition is not meritorious. Petitioners fail to convince this Court that Director Bitonio gravely abused his discretion in affirming the med-arbiter and in refusing to recognize the binding
effect of the October 4, 1996 general assembly called by the UST administration.

First Issue: Right to Self-Organization and Union Membership

At the outset, the Court stresses that National Federation of Labor (NFL) v. Laguesma[11] has held that challenges against rulings of the labor secretary and those acting on his behalf, like
the director of labor relations, shall be acted upon by the Court of Appeals, which has concurrent jurisdiction with this Court over petitions for certiorari. However, inasmuch as the memoranda in
the instant case have been filed prior to the promulgation and finality of our Decision in NFL, we deem it proper to resolve the present controversy directly, instead of remanding it to the Court of
Appeals. Having disposed of the foregoing procedural matter, we now tackle the issues in the present case seriatim.
Self-organization is a fundamental right guaranteed by the Philippine Constitution and the Labor Code. Employees have the right to form, join or assist labor organizations for the purpose of
collective bargaining or for their mutual aid and protection.[12] Whether employed for a definite period or not, any employee shall be considered as such, beginning on his first day of service, for
purposes of membership in a labor union.[13]
Corollary to this right is the prerogative not to join, affiliate with or assist a labor union.[14] Therefore, to become a union member, an employee must, as a rule, not only signify the intent to
become one, but also take some positive steps to realize that intent. The procedure for union membership is usually embodied in the unions constitution and bylaws. [15] An employee who becomes
a union member acquires the rights and the concomitant obligations that go with this new status and becomes bound by the unions rules and regulations.
When a man joins a labor union (or almost any other democratically controlled group), necessarily a portion of his individual freedom is surrendered for the benefit of all members. He accepts the
will of the majority of the members in order that he may derive the advantages to be gained from the concerted action of all. Just as the enactments of the legislature bind all of us, to the constitution
and by-laws of the union (unless contrary to good morals or public policy, or otherwise illegal), which are duly enacted through democratic processes, bind all of the members. If a member of a
union dislikes the provisions of the by-laws, he may seek to have them amended or may withdraw from the union; otherwise, he must abide by them. It is not the function of courts to decide the
wisdom or propriety of legitimate by-laws of a trade union.
On joining a labor union, the constitution and by-laws become a part of the members contract of membership under which he agrees to become bound by the constitution and governing rules of the
union so far as it is not inconsistent with controlling principles of law. The constitution and by-laws of an unincorporated trade union express the terms of a contract, which define the privileges and
rights secured to, and duties assumed by, those who have become members. The agreement of a member on joining a union to abide by its laws and comply with the will of the lawfully constituted
majority does not require a member to submit to the determination of the union any question involving his personal rights.[16]
Petitioners claim that the numerous anomalies allegedly committed by the private respondents during the latters incumbency impelled the October 4, 1996 election of the new set of USTFU
officers. They assert that such exercise was pursuant to their right to self-organization.
Petitioners frustration over the performance of private respondents, as well as their fears of a fraudulent election to be held under the latters supervision, could not justify the method they
chose to impose their will on the union. Director Bitonio aptly elucidated:[17]
The constitutional right to self-organization is better understood in the context of ILO Convention No. 87 (Freedom of Association and Protection of Right to Organize), to which the Philippines is
signatory.Article 3 of the Convention provides that workers organizations shall have the right to draw up their constitution and rules and to elect their representatives in full freedom, free from any
interference from public authorities. The freedom conferred by the provision is expansive; the responsibility imposed on union members to respect the constitution and rules they themselves draw up
equally so. The point to be stressed is that the unions CBL is the fundamental law that governs the relationship between and among the members of the union. It is where the rights, duties and
obligations, powers, functions and authority of the officers as well as the members are defined. It is the organic law that determines the validity of acts done by any officer or member of the
union. Without respect for the CBL, a union as a democratic institution degenerates into nothing more than a group of individuals governed by mob rule.

Union Election vs. Certification Election

A union election is held pursuant to the unions constitution and bylaws, and the right to vote in it is enjoyed only by union members. A union election should be distinguished from a
certification election, which is the process of determining, through secret ballot, the sole and exclusive bargaining agent of the employees in the appropriate bargaining unit, for purposes of collective
bargaining.[18] Specifically, the purpose of a certification election is to ascertain whether or not a majority of the employees wish to be represented by a labor organization and, in the affirmative
case, by which particular labor organization.[19]
In a certification election, all employees belonging to the appropriate bargaining unit can vote.[20] Therefore, a union member who likewise belongs to the appropriate bargaining unit is
entitled to vote in said election. However, the reverse is not always true; an employee belonging to the appropriate bargaining unit but who is not a member of the union cannot vote in the union
election, unless otherwise authorized by the constitution and bylaws of the union. Verily, union affairs and elections cannot be decided in a non-union activity.
In both elections, there are procedures to be followed. Thus, the October 4, 1996 election cannot properly be called a union election, because the procedure laid down in the USTFUs CBL for
the election of officers was not followed. It could not have been a certification election either, because representation was not the issue, and the proper procedure for such election was not
followed. The participation of non-union members in the election aggravated its irregularity.

Second Issue: USTFUs Constitution and ByLaws Violated

The importance of a unions constitution and bylaws cannot be overemphasized. They embody a covenant between a union and its members and constitute the fundamental law governing the
members rights and obligations.[21] As such, the unions constitution and bylaws should be upheld, as long as they are not contrary to law, good morals or public policy.
We agree with the finding of Director Bitonio and Med-Arbiter Falconitin that the October 4, 1996 election was tainted with irregularities because of the following reasons.
First, the October 4, 1996 assembly was not called by the USTFU. It was merely a convocation of faculty clubs, as indicated in the memorandum sent to all faculty members by Fr. Rodel
Aligan, OP, the secretary general of the University of Santo Tomas.[22] It was not convened in accordance with the provision on general membership meetings as found in the USTFUs CBL, which
reads:
ARTICLE VIII-MEETINGS OF THE UNION
Section 1. The Union shall hold regular general membership meetings at least once every three (3) months. Notices of the meeting shall be sent out by the Secretary-General at least ten (10) days
prior to such meetings by posting in conspicuous places, preferably inside Company premises, said notices. The date, time and place for the meetings shall be determined by the Board of Officers.
[23]
Unquestionably, the assembly was not a union meeting. It was in fact a gathering that was called and participated in by management and non-union members. By no legal fiat was such
assembly transformed into a union activity by the participation of some union members.
Second, there was no commission on elections to oversee the election, as mandated by Sections 1 and 2 of Article IX of the USTFUs CBL, which provide:
ARTICLE IX - UNION ELECTION
Section 1. There shall be a Committee on Election (COMELEC) to be created by the Board of Officers at least thirty (30) days before any regular or special election. The functions of the COMELEC
include the following:
a) Adopt and promulgate rules and regulations that will ensure a free, clean, honest and orderly election, whether regular or special;
b) Pass upon qualifications of candidates;
c) Rule on any question or protest regarding the conduct of the election subject to the procedure that may be promulgated by the Board of Officers; and
d) Proclaim duly elected officers.
Section 2. The COMELEC shall be composed of a chairman and two members all of whom shall be appointed by the Board of Officers.
xxx xxx xxx[24]
Third, the purported election was not done by secret balloting, in violation of Section 6, Article IX of the USTFUs CBL, as well as Article 241 (c) of the Labor Code.
The foregoing infirmities considered, we cannot attribute grave abuse of discretion to Director Bitonios finding and conclusion. In Rodriguez v. Director, Bureau of Labor Relations,[25] we
invalidated the local union elections held at the wrong date without prior notice to members and conducted without regard for duly prescribed ground rules. We held that the proceedings were
rendered void by the lack of due process -- undue haste, lack of adequate safeguards to ensure integrity of the voting, and the absence of the notice of the dates of balloting.

Third Issue: Suspension of USTFUs CBL

Petitioners contend that the October 4, 1996 assembly suspended the unions CBL. They aver that the suspension and the election that followed were in accordance with their constituent and
residual powers as members of the collective bargaining unit to choose their representatives for purposes of collective bargaining. Again they cite the numerous anomalies allegedly committed by the
private respondents as USTFU officers. This argument does not persuade.

First, as has been discussed, the general faculty assembly was not the proper forum to conduct the election of USTFU officers. Not all who attended the assembly were members of the union;
some, apparently, were even disqualified from becoming union members, since they represented management. Thus, Director Bitonio correctly observed:
Further, appellants cannot be heard to say that the CBL was effectively suspended during the 04 October 1996 general assembly. A union CBL is a covenant between the union and its members and
among members (Johnson and Johnson Labor Union-FFW, et al. v. Director of Labor Relations, 170 SCRA 469). Where ILO Convention No. 87 speaks of a unions full freedom to draw up its
constitution and rules, it includes freedom from interference by persons who are not members of the union. The democratic principle that governance is a matter for the governed to decide upon
applies to the labor movement which, by law and constitutional mandate, must be assiduously insulated against intrusions coming from both the employer and complete strangers if the 'protection to
labor clause' of the constitution is to be guaranteed. By appellants own evidence, the general faculty assembly of 04 October 1996 was not a meeting of USTFU. It was attended by members and
non-members alike, and therefore was not a forum appropriate for transacting union matters. The person who moved for the suspension of USTFUs CBL was not a member of USTFU. Allowing a
non-union member to initiate the suspension of a unions CBL, and non-union members to participate in a union election on the premise that the unions CBL had been suspended in the meantime, is
incompatible with the freedom of association and protection of the right to organize.
If there are members of the so-called academic community collective bargaining unit who are not USTFU members but who would nevertheless want to have a hand in USTFUs affairs, the
appropriate procedure would have been for them to become members of USTFU first. The procedure for membership is very clearly spelled out in Article IV of USTFUs CBL. Having become
members, they could then draw guidance from Ang Malayang Manggagawa Ng Ang Tibay v. Ang Tibay, 103 Phil. 669. Therein the Supreme Court held that if a member of the union dislikes the
provisions of the by-laws he may seek to have them amended or may withdraw from the union; otherwise he must abide by them. Under Article XVII of USTFUs CBL, there is also a specific
provision for constitutional amendments. What is clear therefore is that USTFUs CBL provides for orderly procedures and remedies which appellants could have easily availed [themselves] of
instead of resorting to an exercise of their so-called residual power'.[26]
Second, the grievances of the petitioners could have been brought up and resolved in accordance with the procedure laid down by the unions CBL [27]and by the Labor Code.[28] They
contend that their sense of desperation and helplessness led to the October 4, 1996 election. However, we cannot agree with the method they used to rectify years of inaction on their part and thereby
ease bottled-up frustrations, as such method was in total disregard of the USTFUs CBL and of due process. The end never justifies the means.
We agree with the solicitor generals observation that the act of suspending the constitution when the questioned election was held is an implied admission that the election held on that date
[October 4, 1996] could not be considered valid under the existing USTFU constitution xxx.[29]
The ratification of the new CBA executed between the petitioners and the University of Santo Tomas management did not validate the void October 4, 1996 election. Ratified were
the terms of the new CBA, not the issue of union leadership -- a matter that should be decided only by union members in the proper forum at the proper time and after observance of proper
procedures.

Epilogue

In dismissing this Petition, we are not passing upon the merits of the mismanagement allegations imputed by the petitioners to the private respondents; these are not at issue in the present
case. Petitioners can bring their grievances and resolve their differences with private respondents in timely and appropriate proceedings. Courts will not tolerate the unfair treatment of union
members by their own leaders.When the latter abuse and violate the rights of the former, they shall be dealt with accordingly in the proper forum after the observance of due process.
WHEREFORE, the Petition is hereby DISMISSED and the assailed Resolutions AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
THIRD DIVISION

[G.R. No. 95405. June 29, 1999]

SEMIRARA COAL CORPORATION, petitioner, vs. HON. SECRETARY OF LABOR, SEMIRARA COAL CORPORATION SUPERVISORY UNION (SECCSUN) and SEMIRARA
COAL CORPORATION UNION OF NON-MANAGERIAL EMPLOYEES (SCCUNME), respondents.

DECISION
PURISIMA, J.:

Before the Court is a Petition for Certiorari with prayer for the issuance of a Temporary Restraining Order and/or Preliminary Injunction, seeking to annul the Decision[1] and affirmatory
Orders[2] of the Secretary of Labor which set aside the Order[3] of the Med-Arbiter dated April 18, 1990.
The petitioner, Semirara Coal Corporation, prays for the reinstatement of the Order of the Med-Arbiter which excluded the members of Semirara Coal Corporation Supervisory
Union (SECCSUN)allegedly performing a managerial function, from participating in the certification election among the petitioners supervisory employees.
On February 13, 1989, the Court issued a Temporary Restraining Order,[4] enjoining the respondents from proceeding with the pre-election conference and/or certification election scheduled
for February 15, 1991.
The antecedent facts that matter are as follows:

On January 13, 1989, respondent Semirara Corporation Union of Non-Managerial Employees (SCCUNME) filed a petition for certification election among the non-managerial (supervisors
and Junior staff) employees of the bargaining unit consisting, more or less, of one hundred forty (140) employees.
On March 21, 1989, Republic Act 6715, amending the Labor Code, took effect. Among others, it amended Article 212 (m) and Article 245 of the Labor Code by creating a new group of
employees the supervisory employees separate and distinct from the managerial employees.
Meanwhile, the petition for certification election was granted. Accordingly, on May 29, 1989 the Med-Arbiter issued an Order directing the conduct of a certification election among the nonmanagerial(supervisors and junior staff) employees of the petitioner with the following choices:
1. Semirara Coal Corporation Union of Non-Managerial Employees (SCCUNME);
2. No Union.[5]
On June 23, 1989, petitioner appealed from the aforesaid Order on the sole ground that the Honorable Med-Arbiter erred in considering the petitioner union as vested with legal personality to
seek certification election as the exclusive bargaining agent of the corporations supervisory employees.[6]
In his Resolution of August 3, 1989, the Secretary of Labor dismissed the appeal of petitioner and directed the immediate conduct of a certification election. Petitioners motion for
reconsideration of the said resolution was denied.
On December 6, 1989, respondent Semirara Coal Corporation of Supervisory Union (SECCSUN), which was granted a certificate of registration on September 11, 1989, filed an ExParte motion for intervention in the certification election sought by respondent SCCUNME.[7]
During the hearing of the petition for certification election on January 4, 1990, the private respondents, SCCNME, SECCSUN, and the petitioner voluntarily agreed to hold a consent
election.[8]
However, on or about February 2, 1990, petitioner, instead of submitting the required list of eligible voters pursuant to a prior undertaking, sent a telegram to Med-Arbiter Claudio Sigaya, Jr.,
informing the latter that petitioner could not submit a list of non-managerial supervisors since all the supervisors are performing managerial functions. The pertinent portion of said telegram stated:
Further to our communication earlier made to your Office to the effect that we can not submit a list of non managerial supervisors because all of our supervisors are performing managerial
function based on following definition of R.A. 6715 x x x[9]
On February 5, 1990, private respondent SCCUNME filed a Manifestation and Motion withdrawing its consent to the intervention of private respondent SECCSUN.
On the same date, petitioner instead of submitting the list of eligible voters requested by the Med-arbiter, filed a Manifestation and Motion alleging that its supervisors are not eligible to
participate in the certification election because they are managerial employees within the contemplation of Section 4 (o) of the Rules and Regulation Implementing Republic Act No. 6715. In so
claiming, petitioner presented a copy of a company memorandum[10] dated August 29, 1988, allegedly vesting in the supervisory employees of petitioner the power to discipline the subordinates. To
support its portion on the matter, the petitioner likewise submitted samples of the standard form of the company disciplinary memorandum.
In its Order, dated April 18, 1990, Med-Arbiter Claudio M. Sigaya Jr. declared that the so-called supervisory employees of Semirara Coal Corporation are managerial employees and are
therefore deemed ineligible to participate in a certification election.[11]
On appeal[12] by private respondent SECCSUN on May 18, 1990, the said Order was set aside by the Honorable Secretary of Labor, and declared the so-called supervisory employees as
truly supervisory employees. He further ordered the inclusion of SECCSUN as one of the choices in the certification election, ruling thus:
WHEREFORE, premises considered, the appeal of intervenor-appellant Semirara Coal Corporation Supervisory Union (SECCSUN) is hereby granted, and the Order dated 18 April 1990 is hereby
set aside.In lieu thereof, a new Order is entered declaring the so-called supervisory employees of the respondent Semirara Coal Corporation as truly supervisory employees pursuant to the mandate
of paragraph (m), Article 212, of the Labor Code, as amended by Republic Act No. 6715.
A certification election is hereby directed to be conducted within the context of our previous Resolution dated 3 August 1989 and 30 October 1989, with the inclusion of herein intervenor-appellant
Semirara Coal Corporation Supervisory Union (SECCSUN) as one of the choices.
Let, therefore, the entire records of this case be remanded to the Regional Office of origin for the immediate conduct of the certification election aforestated subject to the usual pre-election
conference.
SO ORDERED.[13]
A motion for reconsideration of the aforesaid ruling was denied by the Secretary of Labor, on August 21, 1990.[14]
On August 30, 1990, petitioner issued a memorandum, entitled Policy Empowering All the Junior Staffs/Supervisors In The Company To Discipline The Erring Employees Under Them.[15]
On September 4, 1990, petitioner filed its Manifestation and Motion for the reversal of the Secretarys Decision of July 30, 1990, as well as the affirmatory Order dated August 21,
1990. Petitioner manifested that [R]ecently, on 30 August 1990, the Company issued a Memorandum captioned Policy Empowering All the Supervisors in the company to Discipline the Erring
Employees Directly Under Them, which unequivocally vested upon the supervisors the power to discipline employees. It has already taken effect.[16]
On September 19, 1990, the Honorable Secretary of Labor denied[17] for lack of merit the aforementioned Manifestation and Motion of petitioner.
With the denial of its Manifestation and Motion, petitioner found its way to this court via the present petition.
The petition is not impressed with merit.
The law in point is Article 212 (m) of the Labor Code, which reads:
Managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay off, recall, discharge, assign or discipline
employees. Supervisory employees are those who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in
nature but requires the use of independent judgment. All employees not falling within any of the above definitions are considered rank and file employees for purposes of this Book. (emphasis
supplied)

Are the supervisory employees of petitioner truly supervisory employees? The Med-Arbiter and the Secretary of Labor in delving into this pivot of inquiry relied upon the: 1) April 10, 1984
Memorandum entitled Guidelines on Disciplinary Actions;[18] 2) August 29, 1988 Memorandum entitled Processing of Disciplinary Action Cases;[19] and 3) Standard Forms of the Company
Disciplinary Memoranda.[20]
Pertinent portion of the Memorandum, entitled Guidelines on Disciplinary Actions, dated April 10, 1984, addressed to all department heads/supervisors reads:
A. PHILOSOPHY
xxx
3. The company shall take prompt and consistent disciplinary action on its erring employees. All offenses as a general rule, shall be investigated within 24 hours and shall be acted upon within three
(3) working days.
4. While reporting person/s/immediate supervisor/s is/are responsible for reporting violations of the company rules and regulations, conducting preliminary investigation thereof, and making the
appropriate recommendations in accordance with company rules and regulations, nevertheless all disciplinary actions should be reviewed and concurred by Personnel Manager who reserves the
right and responsibility to conduct further investigation on violations committed as well as determine and administer the appropriate disciplinary action against erring employees, upon
concurrence and approval of the Resident Manager. (emphasis supplied)
xxx
C. PROCEDURES
xxx
4. Recommendation
Here the immediate supervisor, after studying the facts of the case and the surrounding circumstances recommends appropriate action based on company rules and regulations/policy/SOP.
5. Concurrences
All disciplinary actions must be concurred by the following officers in this order: Department Manager, Personnel Manager, Division Manager.
6. Approval
The disciplinary action as concurred goes for approval of the Resident Manager.
From the foregoing, it can be gleaned unerringly that the disciplinary actions of the immediate superiors are truly supervisory, the same being recommendatory in nature. Note that their
findings and decisions are subject to the approval of the Personnel Manager and Resident Manager. Obviously, then, they fall into the category of supervisory employees within the contemplation of
Article 212 (m) of the Labor Code, as amended by Republic Act. No. 6715.
Pertinent portion of the Company Memorandum of August 29, 1988, entitled Processing of Disciplinary Action Cases, addressed to all Department Heads, states:
POLICY:
To practice due process of law in enforcing company discipline.
PROCEDURES:
1. Right after an employee allegedly committed an offense, the immediate superior shall inform the erring employee in writing of the charges against him using the REQUEST FOR
EXPLANATION form. This is to be accomplished in four copies. xxx
At the same time, the immediate superior fills up the COMPANY RULE DEVIATION report form. This is to be accomplished in three copies. xxx
Should the employee who is charged of the offense refuse to acknowledge the REQUEST FOR EXPLANATION form, the immediate superior shall call the attention of a steward to acknowledge
receipt of the form in behalf of the employee.
2. The employee charged has three days from receipt of the REQUEST FOR EXPLANATION form to submit his written explanation to the immediate superior. If no reply is given within the threeday limit, it is construed that the employee has waived the due process requirement and is admitting his guilt.
3. In case the employee charged of the offense submits a written explanation, the immediate superior together with the HRD representatives shall conduct an investigation. During the
investigation the employee charged may challenge the statement of any witness to rebut any evidence presented against him. The proceedings of the investigation must be recorded. (emphasis
supplied)
4. If it is indeed proven that the employee is guilty of the offense, the appropriate penalty will be given based on the existing table of penalties for offenses. The immediate superior will fill up
theCORRECTIVE MEMO form in four copies. xxx In case of suspensions Accounting Department will be duly advised and suspension dates reflected in the employees time-sheet, time-card or
location sheet.
5. As much as possible, the immediate superior shall discuss with the employee the decision made regarding the offense.
HRD will be conducting a briefing with individual department heads to ensure proper implementation of these procedures. xxx
Petitioner has theorized that the abovecited August 29, 1988 memorandum supersedes the April 10, 1984 memorandum which expressly indicated the supervisory nature of the immediate
supervisors job.That the 1988 memorandum vested in the supervisory employees the power to discipline their subordinates is the bone of its contention. It is averred that by virtue of the August 29,
1988 memorandum, the immediate supervisors became managerial employees, and therefore, not entitled to participate in the certification election.
We are not persuaded by petitioners stance. A conscientious scrutiny of the August 29, 1988 memorandum reveals that nothing therein alters the nature of the duty of the members of
SECCSUN from supervisory to managerial. The duty to conduct a preliminary investigation with the HRD representatives, in the memorandum in question, is a mere reiteration of the same duty
stated in paragraph four (4) of the April 10, 1984 company memorandum of petitioner.
As to who ultimately determines the guilt of the erring employee, the 1988 memorandum is silent. Paragraph four (4) thereof merely states that: If it is indeed proven that the employee is
guilty of the offense, the appropriate penalty will be given based on the existing table of penalties for offenses. The immediate superior will fill up the corrective memo in four copies. There is thus
no sufficient basis for a conclusion that the memorandum of 1988 divested the Personnel Manager and the Resident Manager of their power to review the results of the preliminary investigation
conducted by the immediate superiors.To conclude other wise would be to bargain away the mandate of the Constitution, to wit:
"Sec. 8. The right of the people, including those employed in the public and private sectors, to form unions x x x for purposes not contrary to law shall not be abridged."[21]
Sec. 3. The state shall afford full protection to labor x x x
It shall guarantee the rights of workers to self-organization, collective bargaining, and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. x x x[22]

The claim of petitioner that the Memorandum of 1988 lodged on the supervisors the ultimate prerogative to determine the guilt of the erring employee and to impose the penalty on him
without an express grant of such power in the same memorandum relied upon by the petitioner, creates a doubt as to the true status of the employees in the case. This doubt militates against
petitioners stand. Time honored is the rule that in interpreting the Constitution and labor laws or rules and regulations implementing the constitutional mandate, the Court has always adopted the
liberal approach which favors the exercise of labor rights.[23]
In the case at bar, the members of SECCSUN should be declared as they are so referred supervisory employees. This finding accords with the intention of the lawmakers in enacting Republic
Act 6715 to revive the existence of the nomenclature of employees referred to as supervisory employees and their corresponding right to unionize among themselves. Article 245 of the Labor Code,
as amended by Republic Act 6715, states:
Art. 245. Ineligibility of managerial employees to join any labor organization; right of supervisory employees. Managerial employees are not eligible to join, assist or form any labor
organization.Supervisory employees shall not be eligible for membership in labor organization of the rank-and-file employees but may join, assist or form separate labor organizations of their
own. (emphasis supplied)
It is indeed decisively clear that the existence of supervisory employees and their corresponding right to organize under the Industrial Peace Act as been revived under the amendment so
introduced by Republic Act 6715.[24]
This noble objective of the lawmakers should not be defeated. To declare the members of SECCSUN as managerial employees amidst the doubtful ratiocination by petitioner would be to
deprive them of their constitutional right to self-organization.
To substantiate petitioners submission that the August 29, 1988 memorandum (which allegedly vested in the supervisory employees the power to discipline their subordinates) has actually
been implemented by the petitioner, copies of the standard form of the company disciplinary memoranda were presented. A sample[25] of said memoranda showing the disciplinary sanction imposed
by E. A. Lapinig in his capacity as immediate supervisor has been attached to the petition. Pertinent portion thereof, reads:
In view of the above and in accordance with rules, we shall impose on you the following penalty:
[x] REPRIMAND for committing the stated infraction.
[ ] SUSPENSION for ______ days without pay commencing on _________________
to _______________________
[ ] _____________________________
Please be informed that this is your _________ offense. Repetition of the same will subject you to a graver penalty if not dismissal.
E. A. LAPINIG
Immediate Supervisor
The aforequoted memorandum fails to convince the court that the power to discipline erring employees is vested in their immediate supervisor. True it is, the immediate supervisors signature
appears on the said memorandum. But other than this, it cannot further be inferred therefrom that it is the immediate supervisors sole power to decide the fate of erring employees and to impose on
them the prescribed penalty. That the immediate supervisors disciplinary action is not subject to review by the Personnel Manager and the Resident Manager is not provided by the aforestated
disciplinary memorandum.
As regards the July 30, 1990 memorandum, entitled Policy Empowering All The Junior Staff/Supervisors In The Company To Discipline The Erring Employees Under Them, the court agrees
with the following observation of the Solicitor General, to wit:
It will be noted that if indeed it were true, as claimed by petitioner, that is memorandum of 10 April 1984 had already been repealed by that of 29 August 1988, why should there be a need for its
(memorandum of 10 April 1984) express repeal by another memorandum (of 30 August 1990)?
Moreover, even the title/subject of the latest memorandum (Policy Empowering All The Junior Staff/Supervisors In The Company To Discipline The Erring Employees Under Them) indicates
petitioners tacit admission of the fact that prior to 30 August 1990 memorandum and therefore even at the time of the questioned decision of the Secretary of Labor on 30 July 1990 the company
supervisors were not vested with the power to discipline[26]
WHEREFORE, the petition is hereby DISMISSED for lack of merit; the Temporary Restraining Order of February 13, 1989 LIFTED and the July 30, 1990 Decision of the Honorable
Secretary of Labor and affirmatory Orders, dated August 21, 1990 and September 19, 1990, respectively, AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
Romero, (Chairman), J., abroad on official business
SECOND DIVISION

[G.R. No. 110399. August 15, 1997]

SAN MIGUEL CORPORATION SUPERVISORS AND EXEMPT UNION AND ERNESTO L. PONCE, President, petitioners, vs. HONARABLE BIENVENIDO E. LAGUESMA IN
HIS CAPACITY AS UNDERSECRETARY OF LABOR AND EMPLOYMENT, HONORABLE DANILO L. REYNANTE IN HIS CAPACITY AS MED-ARBITER AND SAN
MIGUEL CORPORATION, respondents.

DECISION
ROMERO, J.:

This is a Petition for Certiorari with Prayer for the Issuance of Preliminary Injunction seeking to reverse and set aside the Order of public respondent, Undersecretary of the
Department of Labor and Employment, Bienvenido E. Laguesma, dated March 11, 1993, in Case No. OS MA A-2-70-91 [1] entitled In Re: Petition for Certification Election Among

the Supervisory and Exempt Employees of the San Miguel Corporation Magnolia Poultry Plants of Cabuyao, San Fernando and Otis, San Miguel Corporation Supervisors and
Exempt Union, Petitioner. The Order excluded the employees under supervisory levels 3 and 4 and the so-called exempt employees from the proposed bargaining unit and ruled
out their participation in the certification election.
The antecedent facts are undisputed:
On October 5, 1990, petitioner union filed before the Department of Labor and Employment (DOLE) a Petition for District Certification or Certification Election among the
supervisors and exempt employees of the SMC Magnolia Poultry Products Plants of Cabuyao, San Fernando and Otis.
On December 19, 1990, Med-Arbiter Danilo L. Reynante issued an Order ordering the conduct of certification among the supervisors and exempt employees of the SMC
Magnolia Poultry Products Plants of Cabuyao, San Fernando and Otis as one bargaining unit.
On January 18, 1991, respondent San Miguel Corporation filed a Notice of Appeal with Memorandum on Appeal, pointing out, among others, the Med-Arbiters error in
grouping together all three (3) separate plants, Otis, Cabuyao and San Fernando, into one bargaining unit, and in including supervisory levels 3 and above whose positions are
confidential in nature.
On July 23, 1991, the public respondent, Undersecretary Laguesma, granted respondent companys Appeal and ordered the remand of the case to the Med-Arbiter of origin
for determination of the true classification of each of the employees sought to be included in the appropriate bargaining unit.
Upon petitioner-unions motion dated August 7, 1991, Undersecretary Laguesma granted the reconsideration prayed for on September 3, 1991 and directed the conduct of
separate certification elections among the supervisors ranked as supervisory levels 1 to 4 (S1 to S4) and the exempt employees in each of the three plants at Cabuyao, San
Fernando and Otis.
On September 21, 1991, respondent company, San Miguel Corporation filed a Motion for Reconsideration with Motion to suspend proceedings.
On March 11, 1993, an Order was issued by the public respondent granting the Motion, citing the doctrine enunciated in Philips Industrial Development, Inc. v.
NLRC[2] case. Said Order reads in part:
x x x Confidential employees, like managerial employees, are not allowed to form, join or assist a labor union for purposes of collective bargaining.
In this case, S3 and S4 and the so-called exempt employees are admittedly confidential employees and therefore, they are not allowed to form, join or assist a labor union for purposes of collective
bargaining following the above courts ruling. Consequently, they are not allowed to participate in the certification election.
WHEREFORE, the motion is hereby granted and the Decision of this Office dated 03 September 1991 is hereby modified to the extent that employees under supervisory levels 3 and 4 (S3 and S4)
and the so-called exempt employees are not allowed to join the proposed bargaining unit and are therefore excluded from those who could participate in the certification election.[3]
Hence this petition.
For resolution in this case are the following issues:
1. Whether Supervisory employees 3 and 4 and the exempt employees of the company are considered confidential employees, hence ineligible from joining a union.
2. If they are not confidential employees, do the employees of the three plants constitute an appropriate single bargaining unit.
On the first issue, this Court rules that said employees do not fall within the term confidential employees who may be prohibited from joining a union.
There is no question that the said employees, supervisors and the exempt employees, are not vested with the powers and prerogatives to lay down and execute
management policies and/or to hire, transfer, suspend, layoff, recall, discharge or dismiss employees. They are, therefore, not qualified to be classified as managerial employees
who, under Article 245[4] of the Labor Code, are not eligible to join, assist or form any labor organization. In the very same provision, they are not allowed membership in a labor
organization of the rank-and-file employeesbut may join, assist or form separate labor organizations of their own. The only question that need be addressed is whether these
employees are properly classified as confidential employees or not.
Confidential employees are those who (1) assist or act in a confidential capacity, (2) to persons who formulate, determine, and effectuate management policies in the field of
labor relations.[5] The two criteria are cumulative, and both must be met if an employee is to be considered a confidential employee that is, the confidential relationship must exist
between the employees and his supervisor, and the supervisor must handle the prescribed responsibilities relating to labor relations.[6]
The exclusion from bargaining units of employees who, in the normal course of their duties, become aware of management policies relating to labor relations is a principal
objective sought to be accomplished by the confidential employee rule. The broad rationale behind this rule is that employees should not be placed in a position involving a
potential conflict of interests.[7] Management should not be required to handle labor relations matters through employees who are represented by the union with the company is
required to deal and who in the normal performance of their duties may obtain advance information of the companys position with regard to contract negotiations, the disposition of
grievances, or other labor relations matters.[8]
There have been ample precedents in this regard, thus in Bulletin Publishing Company v. Hon. Augusto Sanchez,[9] the Court held that if these managerial employees
would belong to or be affiliated with a Union, the latter might not be assured of their loyalty to the Union in view of evident conflict of interest. The Union can also become companydominated with the presence of managerial employees in Union membership. The same rationale was applied to confidential employees in Golden Farms, Inc. v. FerrerCalleja[10] and in the more recent case of Philips Industrial Development, Inc. v. NLRC[11] which held that confidential employees, by the very nature of their functions, assist and
act in a confidential capacity to, or have access to confidential matters of, persons who exercise managerial functions in the field of labor relations. Therefore, the rationale behind
the ineligibility of managerial employees to form, assist or join a labor union was held equally applicable to them.[12]
An important element of the confidential employee rule is the employees need to use labor relations information. Thus, in determining the confidentiality of certain
employees, a key questions frequently considered is the employees necessary access to confidential labor relations information.[13]
It is the contention of respondent corporation that Supervisory employees 3 and 4 and the exempt employees come within the meaning of the term confidential employees
primarily because they answered in the affirmative when asked Do you handle confidential data or documents? in the Position Questionnaires submitted by the Union. [14] In the
same questionnaire, however, it was also stated that the confidential information handled by questioned employees relate to product formulation, product standards and product
specification which by no means relate to labor relations.[15]

Granting arguendo that an employee has access to confidential labor relations information but such is merely incidental to his duties and knowledge thereof is not necessary
in the performance of such duties, said access does not render the employee a confidential employee. [16] If access to confidential labor relations information is to be a factor in the
determination of an employees confidential status, such information must relate to the employers labor relations policies. Thus, an employee of a labor union, or of a management
association, must have access to confidential labor information with respect to his employer, the union, or the association, to be regarded a confidential employee, and knowledge
of labor relations information pertaining to the companies with which the union deals, or which the association represents, will not clause an employee to be excluded from the
bargaining unit representing employees of the union or association.[17] Access to information which is regarded by the employer to be confidential from the business standpoint,
such as financial information[18] or technical trade secrets, will not render an employee a confidential employee.[19]
Herein listed are the functions of supervisors 3 and higher:
1. To undertake decisions to discontinue/temporarily stop shift operations when situations require.
2. To effectively oversee the quality control function at the processing lines in the storage of chicken and other products.
3. To administer efficient system of evaluation of products in the outlets.
4. To be directly responsible for the recall, holding and rejection of direct manufacturing materials.
5. To recommend and initiate actions in the maintenance of sanitation and hygiene throughout the plant.[20]
It is evident that whatever confidential data the questioned employees may handle will have to relate to their functions. From the foregoing functions, it can be gleaned that
the confidential information said employees have access to concern the employers internal business operations. As held in Westinghouse Electric Corporation v. National Labor
Relations Board,[21] an employee may not be excluded from appropriate bargaining unit merely because he has access to confidential information concerning employers internal
business operations and which is not related to the field of labor relations.
It must be borne in mind that Section 3 of Article XIII of the 1987 Constitution mandates the State to guarantee to all workers the right to self-organization. Hence,
confidential employees who may be excluded from bargaining unit must be strictly defined so as not to needlessly deprive many employees of their right bargain collectively
through representatives of their choosing.[22]
In the case at bar, supervisors 3 and above may not be considered confidential employees merely because they handle confidential data as such must first be strictly
classified as pertaining to labor relations for them to fall under said restrictions. The information they handle are properly classifiable as technical and internal business operations
data which, to our mind, has no relevance to negotiations and settlement of grievances wherein the interests of a union and the management are invariably adversarial. Since the
employees are not classifiable under the confidential type, this Court rules that they may appropriately form a bargaining unit for purposes of collective bargaining. Furthermore,
even assuming that they are confidential employees, jurisprudence has established that there is no legal prohibition against confidential employees who are not performing
managerial functions to form and join a union.[23]
In this connection, the issue of whether the employees of San Miguel Corporation Magnolia Poultry Products Plants of Cabuyao, San Fernando, and Otis constitute a single
bargaining unit needs to be threshed out.
It is the contention of the petitioner union that the creation of three (3) separate bargaining units, one each for Cabuyao Otis and San Fernando as ruled by the respondent
Undersecretary, is contrary to the one-company, one-union policy. It adds that Supervisors level 1 to 4 and exempt employees of the three plants have a similarity or a community
of interests.
This Court finds the contention of the petitioner meritorious.
An appropriate bargaining unit may be defined as a group of employees of a given employer, comprised of all or less than all of the entire body of employees, which the
collective interest of all the employees, consistent with equity to the employer, indicate to be best suited to serve the reciprocal rights and duties of the parties under the collective
bargaining provisions of the law.[24]
A unit to be appropriate must effect a grouping of employees who have substantial, mutual interests in wages, hours, working conditions and other subjects of collective
bargaining.[25]
It is readily seen that the employees in the instant case have community or mutuality of interest, which is the standard in determining the proper constituency of a collective
bargaining unit.[26] It is undisputed that they all belong to the Magnolia Poultry Division of San Miguel Corporation. This means that, although they belong to three different plants,
they perform work of the same nature, receive the same wages and compensation, and most importantly, share a common stake in concerted activities.
In light of these considerations, the Solicitor General has opined that separate bargaining units in the three different plants of the division will fragmentize the employees of
the said division, thus greatly diminishing their bargaining leverage. Any concerted activity held against the private respondent for a labor grievance in one bargaining unit will, in all
probability, not create much impact on the operations of the private respondent. The two other plants still in operation can well step up their production and make up for the slack
caused by the bargaining unit engaged in the concerted activity. This situation will clearly frustrate the provisions of the Labor Code and the Mandate of the Constitution.[27]
The fact that the three plants are located in three different places, namely, in Cabuyao, Laguna, in Otis, Pandacan, Metro Manila, and in San Fernando, Pampanga is
immaterial.Geographical location can be completely disregarded if the communal or mutual interests of the employees are not sacrificed as demonstrated in UP v. Calleja-Ferrer
where all non-academic rank and file employees of the University of the Philippines inDiliman, Quezon City, Padre Faura, Manila, Los Baos, Laguna and the Visayas were allowed
to participate in a certification election. We rule that the distance among the three plants is not productive of insurmountable difficulties in the administration of union affairs. Neither
are there regional differences that are likely to impede the operations of a single bargaining representative.
WHEREFORE, the assailed Order of March 11, 1993 is hereby SET ASIDE and the Order of the Med-Arbiter on December 19, 1990 is REINSTATED under which a
certification election among the supervisors (level 1 to 4) and exempt employees of the San Miguel Corporation Magnolia Poultry Products Plants of Cabuyao, San Fernando, and
Otis as one bargaining unit is ordered conducted.
SO ORDERED.
Regalado, (Chairman), Puno, Mendoza, and Torres, Jr., JJ., concur.

FIRST DIVISION

[G.R. No. 115077. April 18, 1997]

PROGRESSIVE DEVELOPMENT CORPORATION-PIZZA HUT, petitioner, vs. HON. BIENVENIDO LAGUESMA, in his capacity as Undersecretary of Labor, and
NAGKAKAISANG LAKAS NG MANGGAGAWA (NLM)-KATIPUNAN, respondents.

DECISION
KAPUNAN, J.:

On July 9, 1993, Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan (respondent Union) filed a petition for certification election with the Department of Labor (National
Capital Region) in behalf of the rank and file employees of the Progressive Development Corporation (Pizza Hut) docketed as NCR Case No. NCR-OD-M-9307-020. [1]
Petitioner filed on August 20, 1993, a verified Motion to Dismiss the petition alleging fraud, falsification and misrepresentation in the respondent Union's registration making it
void and invalid. The motion specifically alleged that: a) respondent Union's registration was tainted with false, forged, double or multiple signatures of those who allegedly took part
in the ratification of the respondent Union's constitution and by-laws and in the election of its officers that there were two sets of supposed attendees to the alleged organizational
meeting that was alleged to have taken place on June 26, 1993; that the alleged chapter is claimed to have been supported by 318 members when in fact the persons who actually
signed their names were much less; and b) while the application for registration of the charter was supposed to have been approved in the organizational meeting held on June 27,
1993, the charter certification issued by the federation KATIPUNAN was dated June 26, 1993 or one (1) day prior to the formation of the chapter, thus, there were serious falsities in
the dates of the issuance of the charter certification and the organization meeting of the alleged chapter.
Citing other instances of misrepresentation and fraud, petitioner, on August 29, 1993, filed a Supplement to its Motion to Dismiss,[2] claiming that:
1) Respondent Union alleged that the election of its officers was held on June 27, 1993; however, it appears from the documents submitted by respondent union to
the BIR-DOLE that the Union's constitution and by-laws were adopted only on July 7, 1993, hence, there was no bases for the supposed election of officers on
June 27, 1993 because as of this date, there existed no positions to which the officers could be validly elected;
2) Voting was not conducted by secret ballot in violation of Article 241, section (c) of the Labor Code;
3) The Constitution and by Laws submitted in support of its petition were not properly acknowledged and notarized.[3]
On August 30, 1993, petitioner filed a Petition[4] seeking the cancellation of the Union's registration on the grounds of fraud and falsification, docketed as BIR Case No. 821-83.[5]Motion was likewise filed by petitioner with the Med-Arbiter requesting suspension of proceedings in the certification election case until after the prejudicial question of the
Union's legal personality is determined in the proceedings for cancellation of registration.
However, in an Order dated September 29, 1993,[6] Med-Arbiter Rasidali C. Abdullah directed the holding of a certification election among petitioner's rank and file
employees. The Order explained:
x x x Sumasaklaw sa Manggagawa ng Pizza Hut is a legitimate labor organization in contemplation of law and shall remain as such until its very charter certificate is canceled or otherwise revoked
by competent authority. The alleged misrepresentation, fraud and false statement in connection with the issuance of the charter certificate are collateral issues which could be properly ventilated in
the cancellation proceedings.[7]
On appeal to the office of the Secretary of Labor, Labor Undersecretary Bienvenido E. Laguesma in a Resolution dated December 29, 1993[8] denied the same.
A motion for reconsideration of the public respondent's resolution was denied in his Order [9] dated January 27, 1994, hence, this special civil action for certiorari under Rule
65 of the Revised Rules of Court where the principal issue raised is whether or not the public respondent committed grave abuse of discretion in affirming the Med-Arbiter's order to
conduct a certification election among petitioner's rank and file employees, considering that: (1) respondent Union's legal personality was squarely put in issue; (2) allegations of
fraud and falsification, supported by documentary evidence were made; and (3) a petition to cancel respondent Union's registration is pending with the regional office of the
Department of Labor and Employment.[10]
We grant the petition.
In the public respondent's assailed Resolution dated December 29, 1993, the suggestion is made that once a labor organization has filed the necessary documents and
papers and the same have been certified under oath and attested to, said organization necessarily becomes clothed with the character of a legitimate labor organization. The
resolution declares:
Records show that at the time of the filing of the subject petition on 9 July 1993 by the petitioner NLM-KATIPUNAN, for and in behalf of its local affiliate Sumasaklaw sa Manggagawa ng Pizza
Hut, the latter has been clothed with the status and/or character of a legitimate labor organization. This is so, because on 8 July 1993, petitioner submitted to the Bureau of Labor Relations (BLR),
this Department, the following documents: Charter Certificate, Minutes of the Organizational Meeting, List of Officers, and their respective addresses, financial statement, Constitution and By-Laws
(CBL, and the minutes of the ratification of the CBL). Said documents (except the charter certificate) are certified under oath and attested to by the local union's Secretary/Treasurer and President,
respectively.
As to the contention that the certification election proceedings should be suspended in view of the pending case for the cancellation of the petitioner's certificate of registration, let it be stressed that
the pendency of a cancellation case is not a ground for the dismissal or suspension of a representation proceedings considering that a registered labor organization continues to be a legitimate one
entitled to all the rights appurtenant thereto until a final valid order is issued canceling such registration.[11]
In essence, therefore, the real controversy in this case centers on the question of whether or not, after the necessary papers and documents have been filed by a labor
organization, recognition by the Bureau of Labor Relations merely becomes a ministerial function.

We do not agree.
In the first place, the public respondent's views as expressed in his December 29, 1993 Resolution miss the entire point behind the nature and purpose of proceedings
leading to the recognition of unions as legitimate labor organizations. Article 234 of the Labor Code provides:
Art. 234. Requirements of registration. - Any applicant labor organization, association or group of unions or workers shall acquire legal personality and shall be entitled to the rights and privileges
granted by law to legitimate labor organizations upon issuance of the certificate of registration based on the following requirements:
(a) Fifty pesos (P50.00) registration fee;
(b) The names of its officers, their addresses, the principal address of the labor organization, the minutes of the organizational meetings and the list of the workers
who participated in such meetings;
(c) The names of all its members comprising at least twenty percent (20%) of all the employees in the bargaining unit where it seeks to operate;
(d) If the applicant union has been in existence for one or more years, copies of its annual financial reports; and
(e) Four (4) copies of the constitution and by-laws of the applicant union, minutes of its adoption or ratification, and the list of the members who participated in it.
A more than cursory reading of the aforecited provisions clearly indicates that the requirements embodied therein are intended as preventive measures against the
commission of fraud.After a labor organization has filed the necessary papers and documents for registration, it becomes mandatory for the Bureau of Labor Relations to check if
the requirements under Article 234 have been sedulously complied with. If its application for registration is vitiated by falsification and serious irregularities, especially those
appearing on the face of the application and the supporting documents, a labor organization should be denied recognition as a legitimate labor organization. And if a certificate of
recognition has been issued, the propriety of the labor organization's registration could be assailed directly through cancellation of registration proceedings in accordance with
Articles 238 and 239 of the Labor Code, or indirectly, by challenging its petition for the issuance of an order for certification election.
These measures are necessary - and may be undertaken simultaneously - if the spirit behind the Labor Code's requirements for registration are to be given flesh and
blood. Registration requirements specifically afford a measure of protection to unsuspecting employees who may be lured into joining unscrupulous or fly-by-night unions whose
sole purpose is to control union funds or use the labor organization for illegitimate ends. [12] Such requirements are a valid exercise of the police power, because the activities in
which labor organizations, associations and unions of workers are engaged directly affect the public interest and should be protected.[13]
Thus, in Progressive Development Corporation vs. Secretary of Labor and Employment,[14] we held:
The controversy in this case centers on the requirements before a local or chapter of a federation may file a petition for certification election and be certified as the sole and exclusive bargaining
agent of the petitioner's employees.
xxx
But while Article 257 cited by the Solicitor General directs the automatic conduct of a certification election in an unorganized establishment, it also requires that the petition for certification election
must be filed by a legitimate labor organization. xxx
xxx
xxx. The employer naturally needs assurance that the union it is dealing with is a bona-fide organization, one which has not submitted false statements or misrepresentations to the Bureau. The
inclusion of the certification and attestation requirements will in a marked degree allay these apprehensions of management. Not only is the issuance of any false statement and misrepresentation or
ground for cancellation of registration (see Article 239 (a), (c) and (d)); it is also a ground for a criminal charge of perjury.
The certification and attestation requirements are preventive measures against the commission of fraud. They likewise afford a measure of protection to unsuspecting employees who may be lured
into joining unscrupulous or fly-by-night unions whose sole purpose is to control union funds or to use the union for dubious ends.
xxx
xxx. It is not this Court's function to augment the requirements prescribed by law in order to make them wiser or to allow greater protection to the workers and even their employer. Our only
recourse is, as earlier discussed, to exact strict compliance with what the law provides as requisites for local or chapter formation.
xxx
The Court's conclusion should not be misconstrued as impairing the local union's right to be certified as the employees' bargaining agent in the petitioner's establishment. We are merely saying that
the local union must first comply with the statutory requirements in order to exercise this right. Big federations and national unions of workers should take the lead in requiring their locals and
chapters to faithfully comply with the law and the rules instead of merely snapping union after union into their folds in a furious bid with rival federations to get the most number of members.
Furthermore, the Labor Code itself grants the Bureau of Labor Relations a period of thirty (30) days within which to review all applications for registration. Article 235
provides:
"Art. 235. Action on application. - The Bureau shall act on all applications for registration within thirty (30) days from filing.
All requisite documents and papers shall be certified under oath by the secretary or the treasurer of the organization, as the case may be, and attested to by its president."
The thirty-day period in the aforecited provision ensures that any action taken by the Bureau of Labor Relations is made in consonance with the mandate of the Labor Code,
which, it bears emphasis, specifically requires that the basis for the issuance of a certificate of registration should be compliance with the requirements for recognition under Article
234. Since, obviously, recognition of a labor union or labor organization is not merely a ministerial function, the question now arises as to whether or not the public respondent
committed grave abuse of discretion in affirming the Med-Arbiter's order in spite of the fact that the question of the Union's legitimacy was squarely put in issue and that the
allegations of fraud and falsification were adequately supported by documentary evidence.
The Labor Code requires that in organized and unorganized[15] establishments, a petition for certification election must be filed by a legitimate labor organization. The
acquisition of rights by any union or labor organization, particularly the right to file a petition for certification election, first and foremost, depends on whether or not the labor
organization has attained the status of a legitimate labor organization.

In the case before us, the Med-Arbiter summarily disregarded the petitioner's prayer that the former look into the legitimacy of the respondent Union by a sweeping
declaration that the union was in the possession of a charter certificate so that "for all intents and purposes, Sumasaklaw sa Manggagawa sa Pizza Hut (was) a legitimate labor
organization."[16] Glossing over the transcendental issue of fraud and misrepresentation raised by herein petitioner, Med-Arbiter Rasidali Abdullah held that:
The alleged misrepresentation, fraud and false statement in connection with the issuance of the charter certificate are collateral issues which could be ventilated in the cancellation proceedings.[17]
It cannot be denied that the grounds invoked by petitioner for the cancellation of respondent Union's registration fall under paragraph (a) and (c) of Article 239 of the Labor
Code. to wit:
(a) Misrepresentation, false statement or fraud in connection with the adoption or ratification of the constitution and by-laws or amendments thereto, the minutes of ratification, the list of members
who took part in the ratification of the constitution and by-laws or amendments thereto, the minutes of ratification, the list of members who took part in the ratification;
xxx
(c) Misrepresentation, false statements or fraud in connection with the election of officers, minutes of the election of officers, the list of voters, or failure to submit these documents together with the
list of the newly elected-appointed officers and their postal addresses within thirty (30) days from election
xxx
The grounds ventilated in cancellation proceedings in accordance with Article 239 of the Labor Code constitute a grave challenge to the right of respondent Union to ask for
certification election. The Med-Arbiter should have looked into the merits of the petition for cancellation before issuing an order calling for certification election. Registration based
on false and fraudulent statements and documents confer no legitimacy upon a labor organization irregularly recognized, which, at best, holds on to a mere scrap of paper. Under
such circumstances, the labor organization, not being a legitimate labor organization, acquires no rights, particularly the right to ask for certification election in a bargaining unit.
As we laid emphasis in Progressive Development Corporation Labor,[18] "[t]he employer needs the assurance that the union it is dealing with is a bona fide organization,
one which has not submitted false statements or misrepresentations to the Bureau." Clearly, fraud, falsification and misrepresentation in obtaining recognition as a legitimate labor
organization are contrary to the Med-Arbiter's conclusion not merely collateral issues. The invalidity of respondent Union's registration would negate its legal personality to
participate in certification election.
Once a labor organization attains the status of a legitimate labor organization it begins to possess all of the rights and privileges granted by law to such organizations. As
such rights and privileges ultimately affect areas which are constitutionally protected, the activities in which labor organizations, associations and unions are engaged directly affect
the public interest and should be zealously protected. A strict enforcement of the Labor Code's requirements for the acquisition of the status of a legitimate labor organization is in
order.
Inasmuch as the legal personality of respondent Union had been seriously challenged, it would have been more prudent for the Med-Arbiter and public respondent to have
granted petitioner's request for the suspension of proceedings in the certification election case, until the issue of the legality of the Union's registration shall have been
resolved. Failure of the Med-Arbiter and public respondent to heed the request constituted a grave abuse of discretion.
WHEREFORE, PREMISES CONSIDERED, the instant petition is GRANTED and the Resolution and Order of the public respondent dated December 29, 1993 and January
24, 1994, respectively, are hereby SET ASIDE.
The case is REMANDED to the Med-Arbiter to resolve with reasonable dispatch petitioner's petition for cancellation of respondent Union's registration
SO ORDERED.
Padilla, (Chairman), Bellosillo, and Vitug, JJ., concur.
Hermosisima, Jr., J., on leave.
THIRD DIVISION
G.R. No. 83086
June 19, 1991
REYNALDO C. HONRADO, JR., petitioner,
vs.
COURT OF APPEALS and JARDINE-MANILA FINANCE, INC., respondent.
A.M. Navarro Law Office for petitioner.
I.M. Barredo & Associates Law Office for private respondent.

FERNAN, C.J.:
In this petition for review on certiorari, petitioner Reynaldo C. Honrado, Jr. seeks the reversal of the decision of the Court of Appeals dated August 5, 1987 1 which affirmed the decision dated
January 22, 1986 of the Regional Trial Court, Branch CXL at Makati, Metro Manila. The dispositive portion of the affirmed decision reads as follows:
WHEREFORE, judgment is hereby rendered ordering defendant Reynaldo C. Honrado, Jr., to pay plaintiff MB Finance, formerly Jardine-Manila Finance Corporation, as follows:
1. P81,325.05, of which P40,769.00 representing balance of the principal amount due shall earn interest of 14% per annum from January 1984;
2. P4,076.00 as liquidated damages;
3. P6,115.35 as attorney's fees; and
4. The costs of suit.2
The factual background of this case as found by the trial court and affirmed by the Court of Appeals is as follows:
On August 21, 1978, Hadd Construction and Trading Corporation (HCTC for brevity) purchased on installment basis a Toyota Corolla Hardtop, 2 Door, 1978 Model with Engine No. 3K-7515608,
Serial No. KE 35-915409, Plate No. B-YE-290 from Cressida Sales Corporation (Cressida for brevity). HCTC represented by petitioner Reynaldo C. Honrado, Jr. as president, executed a promissory
note in favor of Cressida, in the amount of P49,120.20, payable at the rate of P1,364.45 a month for thirty six (36) months beginning September 25, 1978 and every 25th day of the month thereafter
until full payment. In said promissory note, HCTC agreed to a waiver of formal demand and presentment as well as notices of protest and dishonor, among others. Petitioner Honrado signed the
promissory note a second time as co-maker of HCTC.3
A chattel mortgage on the motor vehicle was also executed by HCTC in favor of Cressida.

On September 4, 1978, Cressida executed a deed of assignment of the promissory note with warranty of soundness in favor of Jardine-Manila Finance, Inc. for and in consideration of P30,985.54.
This was executed with HCTC's conformity, represented again by petitioner as its president. Petitioner Honrado likewise signed this deed of assignment as co-maker.4
For failure of HCTC to pay the monthly amortization as stipulated in the promissory note, private respondent Jardine-Manila Finance, Inc. filed on May 22, 1979 an action for replevin and damages
with the Regional Trial Court of Makati, Branch CXL docketed as Civil Case No. 2096, praying for the seizure and delivery of the questioned motor vehicle to private respondent, with alternative
prayer, that in the event the normal delivery of the motor vehicle cannot be effected, judgment be rendered ordering HCTC to pay P41,011.34 with 14% interest per annum from the date the
obligation became due and demandable until fully paid. Private respondent impleaded petitioner Reynaldo Honrado, Jr. as party-defendant on the contention that he signed the documents as comaker.
After an answer with compulsory counterclaim was filed on November 7, 1981 by herein petitioner as defendant therein, the case was thereafter set for pre-trial conference.
On September 14, 1983, private respondent informed the trial court that it was waiving the recovery of the motor vehicle and chose to pursue instead its alternative prayer considering that since the
filing of the complaint, it has not been able to recover said motor vehicle, and that even if recovered, its current value would not allegedly be commensurate to the amount of P41,011.34.
On the same day, private respondent moved to dismiss the case against HCTC without prejudice on the ground that summons could not be served on said defendant corporation since it was no longer
holding office at its given address and its present address could not be ascertained. This motion was granted by the trial court on October 3, 1983.
In due time, the trial court rendered the assailed decision against petitioner who seasonably appealed to the Court of Appeals. 1wphi1 On August 5, 1987, the Court of Appeals promulgated its
decision affirming that of the trial court.
Hence the present recourse of petitioner.
To support his prayer for reversal of the appellate court's decision, petitioner argues that he signed the promissory note and deed of chattel mortgage in his official capacity as president of HCTC
only. He never intended to sign these documents as co-maker. Thus, petitioner in his Memorandum raises the following issues:
1) WAS PRIVATE RESPONDENT CORRECT IN ITS CONTENTION THAT PETITIONER WAS A CO-MAKER OF HCTC IN THE EXECUTION OF THE PROMISSORY NOTE
AND DEED OF CHATTEL MORTGAGE IN QUESTION?
2) WAS THE COURT OF APPEALS CORRECT IN ITS INTERPRETATION OF SUBJECT PROMISSORY NOTE AND DEED OF CHATTEL MORTGAGE IN FAVOR OF
PRIVATE RESPONDENT AND AGAINST PETITIONER?5
On the first issue, petitioner Honrado vehemently denies any liability as co-maker of HCTC on the ground that the body of the documents in question, namely, the promissory note and deed of
chattel mortgage, indicates that the contract was between HCTC and Cressida only. In addition, petitioner cites the testimony of Mr. George Caruncho, the sales agent of Cressida, who stated that
petitioner was asked to sign these documents in his official capacity as president of HCTC.
We find no merit in the above contention. Petitioner Honrado cannot plead that he signed these documents in his official capacity only as president of HCTC and not as co-maker with HCTC. The
documents in question, including the deed of assignment which contains petitioner's signatures as co-maker, whose genuineness and due execution were admitted by petitioner, clearly indicate
otherwise. As stated by respondent Court of Appeals:
The promissory note (Exhibit "A") clearly shows on its face that the appellant signed the same in his capacity as President of the Hadd Construction & Trading Corp. and again as comaker in his private capacity (Exhibits "A-2" & "A-3"). Appellant also signed the Deed of Chattel Mortgage and the Affidavit of Good Faith four (4) times; twice as President and twice
as co-maker (Exhibit "B"). And the appellant lastly signed his conformity to the Deed of Assignment (Exhibit "C") as president and again as co-maker.
From the above facts, petitioner, by signing these documents several times as co-maker, is presumed to be aware of the consequences of his actions. Considering that petitioner Honrado is of age and
a businessman, holding the highest position in Hadd Construction Trading Corporation, he is presumed to have acted with due care, and to have signed the documents in question with full knowledge
of its contents as well as the attendant obligations and responsibilities. As aptly observed by the trial court:
. . . defendant Honrado is presumed to have intended the ordinary consequences of his voluntary act and taken ordinary care of his concerns. When defendant signed eight times on three
documents, and always as president and as co-maker, it is presumed that he had exercised care in verifying his involvement in the transaction, considering his age, business life,
intelligence and the fact that he occupied the highest office in the corporation.6
Furthermore, there is no evidence of fraud. Petitioner on cross-examination testified as follows:
Q At the left hand margin of the promissory note there appears a signature over the name Reynaldo C. Honrado Jr., President, Hadd Construction and Trading Corp. Will you kindly tell
us if this is your signature?
A Yes, sir.
xxx

xxx

xxx

Q Also, at the right hand margin of the promissory note there appears a signature above the typewritten name Reynaldo C. Honrado, Jr., co-maker, is this your signature?
A Yes, sir, that is my signature.7
Since petitioner Honrado did not question and in fact admitted the genuineness and due execution of these documents, including the genuineness of his signatures, then these documents must be
given legal effects.
The testimony of the sales agent, Mr. Caruncho, can not change the legal effect of these documents. 1wphi1 Granting that he told petitioner to sign these documents in his official capacity as
president of HCTC the mere fact that petitioner also signed voluntarily as co-maker proves his participation in the transactions as a co-maker. Furthermore, Mr. Caruncho testified that when
petitioner signed these documents, all the type-written words already appeared therein.
On the matter of interpretation of contracts, it is basic and fundamental that if the terms of the contract are clear, the literal meaning of the stipulation shall control. 8 The intention of the parties to a
contract must be determined from the contract itself. When petitioner Honrado signed several times on these documents as president of HCTC and as co-maker, there is no other interpretation but to
conclusively presume that he bound himself also as co-maker. He cannot therefore renege on the obligations and liabilities attached to a co-maker. When the terms of a contract are clear and do not
leave room for doubt as to the intention of the contracting parties, it is not necessary to interpret the same, the literal meaning of its clauses should be followed.9
The promissory note clearly stipulates a solidary obligation as shown by the following clause "For value received I/We jointly and severally promised to pay Cressida Motor Sales Corp. . . . Signed:
Hadd Construction & Trading Corporation by Reynaldo C. Honrado, Jr., President and Reynaldo C. Honrado, Jr., Co-maker". In the case of Parot vs. Gemora,10 this Court had occasion to state:
Where a promissory note is signed by two or more persons promissing to pay the amount of the said note juntos o separadamente, such co-makers are individually liable for the payment
of the full amount of the obligation of such contract.
Therefore, petitioner Honrado is solidarily liable to pay the full amount of the obligation as stipulated in the promissory note to which private respondent is entitled.
However, the award of P81,325.00 based on the Statement of Account as of December 10, 1983,11 prepared by private respondent includes other charges aside from the principal obligation. These
charges have not been satisfactorily proved during the trial. Moreover, a careful examination of the records of the case failed to support these charges. The records are bereft of any evidence to show
how these charges were computed nor is there an adequate showing that private respondent is entitled thereto. A mere mention of the outstanding obligation of petitioner in the amount of P81,747.05
as of December 10, 1985 in the testimony of Alfonso Flores, private respondent's manager for collection,12 is not sufficient without proof presented before the court of the expenses and other
charges imputed to petitioner. Thus, in the interest of justice and equity, petitioner should be liable only for the outstanding balance based on the promissory note in the amount of P40,769.00. This is
computed by deducting the total payments equivalent to four (4) monthly installments made by HCTC in the amount of P8,351.20 from the principal amount of the promissory note of P49,120.20. In
addition, this amount of P40,769.00 shall earn interest at the rate of 14% per annum to be computed from March 10, 1979 when the total amount of the principal obligation became due and
demandable13 until actual payment. The award of 10% liquidated damages and 15% attorney's fees based on the principal obligation is found to be equitable.
WHEREFORE, the assailed decision is hereby AFFIRMED, with modification as indicated below, ordering petitioner Honrado to pay private respondent MB Finance, formerly Jardine-Manila
Finance Corporation as follows:
1) P40,769.00 with 14 % interest per annum from March 10, 1979 until actual payment;
2) P4,076.90 as liquidated damages;

3) P6,115.35 as attorney's fees; and


4) The costs of the suit.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

SECOND DIVISION

G.R. No. 85750 September 28, 1990


INTERNATIONAL CATHOLIC IMMIGRATION COMMISSION, petitioner
vs
HON. PURA CALLEJA IN HER CAPACITY AS DIRECTOR OF THE BUREAU OF LABOR RELATIONS AND TRADE UNIONS OF THE PHILIPPINES AND ALLIED SERVICES
(TUPAS) WFTU respondents.
G.R. No. 89331 September 28, 1990
KAPISANAN NG MANGGAGAWA AT TAC SA IRRI-ORGANIZED LABOR ASSOCIATION IN LINE INDUSTRIES AND AGRICULTURE, petitioner,
vs
SECRETARY OF LABOR AND EMPLOYMENT AND INTERNATIONAL RICE RESEARCH INSTITUTE, INC.,respondents.
Araullo, Zambrano, Gruba, Chua Law Firm for petitioner in 85750.
Dominguez, Armamento, Cabana & Associates for petitioner in G.R. No. 89331.
Jimenez & Associates for IRRI.
Alfredo L. Bentulan for private respondent in 85750.

MELENCIO-HERRERA, J.:
Consolidated on 11 December 1989, these two cases involve the validity of the claim of immunity by the International Catholic Migration Commission (ICMC) and the International Rice Research
Institute, Inc. (IRRI) from the application of Philippine labor laws.
I
Facts and Issues
A. G.R. No. 85750 the International Catholic Migration Commission (ICMC) Case.
As an aftermath of the Vietnam War, the plight of Vietnamese refugees fleeing from South Vietnam's communist rule confronted the international community.
In response to this crisis, on 23 February 1981, an Agreement was forged between the Philippine Government and the United Nations High Commissioner for Refugees whereby an operating center
for processing Indo-Chinese refugees for eventual resettlement to other countries was to be established in Bataan (Annex "A", Rollo, pp. 22-32).
ICMC was one of those accredited by the Philippine Government to operate the refugee processing center in Morong, Bataan. It was incorporated in New York, USA, at the request of the Holy See,
as a non-profit agency involved in international humanitarian and voluntary work. It is duly registered with the United Nations Economic and Social Council (ECOSOC) and enjoys Consultative
Status, Category II. As an international organization rendering voluntary and humanitarian services in the Philippines, its activities are parallel to those of the International Committee for Migration
(ICM) and the International Committee of the Red Cross (ICRC) [DOLE Records of BLR Case No. A-2-62-87, ICMC v. Calleja, Vol. 1].
On 14 July 1986, Trade Unions of the Philippines and Allied Services (TUPAS) filed with the then Ministry of Labor and Employment a Petition for Certification Election among the rank and file
members employed by ICMC The latter opposed the petition on the ground that it is an international organization registered with the United Nations and, hence, enjoys diplomatic immunity.
On 5 February 1987, Med-Arbiter Anastacio L. Bactin sustained ICMC and dismissed the petition for lack of jurisdiction.
On appeal by TUPAS, Director Pura Calleja of the Bureau of Labor Relations (BLR), reversed the Med-Arbiter's Decision and ordered the immediate conduct of a certification election. At that time,
ICMC's request for recognition as a specialized agency was still pending with the Department of Foreign Affairs (DEFORAF).
Subsequently, however, on 15 July 1988, the Philippine Government, through the DEFORAF, granted ICMC the status of a specialized agency with corresponding diplomatic privileges and
immunities, as evidenced by a Memorandum of Agreement between the Government and ICMC (Annex "E", Petition, Rollo, pp. 41-43), infra.
ICMC then sought the immediate dismissal of the TUPAS Petition for Certification Election invoking the immunity expressly granted but the same was denied by respondent BLR Director who,
again, ordered the immediate conduct of a pre-election conference. ICMC's two Motions for Reconsideration were denied despite an opinion rendered by DEFORAF on 17 October 1988 that said
BLR Order violated ICMC's diplomatic immunity.
Thus, on 24 November 1988, ICMC filed the present Petition for Certiorari with Preliminary Injunction assailing the BLR Order.
On 28 November 1988, the Court issued a Temporary Restraining Order enjoining the holding of the certification election.
On 10 January 1989, the DEFORAF, through its Legal Adviser, retired Justice Jorge C. Coquia of the Court of Appeals, filed a Motion for Intervention alleging that, as the highest executive
department with the competence and authority to act on matters involving diplomatic immunity and privileges, and tasked with the conduct of Philippine diplomatic and consular relations with
foreign governments and UN organizations, it has a legal interest in the outcome of this case.
Over the opposition of the Solicitor General, the Court allowed DEFORAF intervention.
On 12 July 1989, the Second Division gave due course to the ICMC Petition and required the submittal of memoranda by the parties, which has been complied with.
As initially stated, the issue is whether or not the grant of diplomatic privileges and immunites to ICMC extends to immunity from the application of Philippine labor laws.
ICMC sustains the affirmative of the proposition citing (1) its Memorandum of Agreement with the Philippine Government giving it the status of a specialized agency, ( infra); (2) the Convention on
the Privileges and Immunities of Specialized Agencies, adopted by the UN General Assembly on 21 November 1947 and concurred in by the Philippine Senate through Resolution No. 91 on 17 May
1949 (the Philippine Instrument of Ratification was signed by the President on 30 August 1949 and deposited with the UN on 20 March 1950) infra; and (3) Article II, Section 2 of the 1987
Constitution, which declares that the Philippines adopts the generally accepted principles of international law as part of the law of the land.
Intervenor DEFORAF upholds ICMC'S claim of diplomatic immunity and seeks an affirmance of the DEFORAF determination that the BLR Order for a certification election among the ICMC
employees is violative of the diplomatic immunity of said organization.
Respondent BLR Director, on the other hand, with whom the Solicitor General agrees, cites State policy and Philippine labor laws to justify its assailed Order, particularly, Article II, Section 18 and
Article III, Section 8 of the 1987 Constitution, infra; and Articles 243 and 246 of the Labor Code, as amended, ibid. In addition, she contends that a certification election is not a litigation but a mere
investigation of a non-adversary, fact-finding character. It is not a suit against ICMC its property, funds or assets, but is the sole concern of the workers themselves.

B. G.R. No. 89331 (The International Rice Research Institute [IRRI] Case).
Before a Decision could be rendered in the ICMC Case, the Third Division, on 11 December 1989, resolved to consolidate G.R. No. 89331 pending before it with G.R. No. 85750, the lowernumbered case pending with the Second Division, upon manifestation by the Solicitor General that both cases involve similar issues.
The facts disclose that on 9 December 1959, the Philippine Government and the Ford and Rockefeller Foundations signed a Memorandum of Understanding establishing the International Rice
Research Institute (IRRI) at Los Baos, Laguna. It was intended to be an autonomous, philanthropic, tax-free, non-profit, non-stock organization designed to carry out the principal objective of
conducting "basic research on the rice plant, on all phases of rice production, management, distribution and utilization with a view to attaining nutritive and economic advantage or benefit for the
people of Asia and other major rice-growing areas through improvement in quality and quantity of rice."
Initially, IRRI was organized and registered with the Securities and Exchange Commission as a private corporation subject to all laws and regulations. However, by virtue of Pres. Decree No. 1620,
promulgated on 19 April 1979, IRRI was granted the status, prerogatives, privileges and immunities of an international organization.
The Organized Labor Association in Line Industries and Agriculture (OLALIA), is a legitimate labor organization with an existing local union, the Kapisanan ng Manggagawa at TAC sa IRRI
(Kapisanan, for short) in respondent IRRI.
On 20 April 1987, the Kapisanan filed a Petition for Direct Certification Election with Region IV, Regional Office of the Department of Labor and Employment (DOLE).
IRRI opposed the petition invoking Pres. Decree No. 1620 conferring upon it the status of an international organization and granting it immunity from all civil, criminal and administrative
proceedings under Philippine laws.
On 7 July 1987, Med-Arbiter Leonardo M. Garcia, upheld the opposition on the basis of Pres. Decree No. 1620 and dismissed the Petition for Direct Certification.
On appeal, the BLR Director, who is the public respondent in the ICMC Case, set aside the Med-Arbiter's Order and authorized the calling of a certification election among the rank-and-file
employees of IRRI. Said Director relied on Article 243 of the Labor Code, as amended, infra and Article XIII, Section 3 of the 1987 Constitution, 1and held that "the immunities and privileges
granted to IRRI do not include exemption from coverage of our Labor Laws." Reconsideration sought by IRRI was denied.
On appeal, the Secretary of Labor, in a Resolution of 5 July 1989, set aside the BLR Director's Order, dismissed the Petition for Certification Election, and held that the grant of specialized agency
status by the Philippine Government to the IRRI bars DOLE from assuming and exercising jurisdiction over IRRI Said Resolution reads in part as follows:
Presidential Decree No. 1620 which grants to the IRRI the status, prerogatives, privileges and immunities of an international organization is clear and explicit. It provides in
categorical terms that:
Art. 3 The Institute shall enjoy immunity from any penal, civil and administrative proceedings, except insofar as immunity has been expressly waived by the DirectorGeneral of the Institution or his authorized representative.
Verily, unless and until the Institute expressly waives its immunity, no summons, subpoena, orders, decisions or proceedings ordered by any court or administrative or quasijudicial agency are enforceable as against the Institute. In the case at bar there was no such waiver made by the Director-General of the Institute. Indeed, the Institute, at the
very first opportunity already vehemently questioned the jurisdiction of this Department by filing an ex-parte motion to dismiss the case.
Hence, the present Petition for Certiorari filed by Kapisanan alleging grave abuse of discretion by respondent Secretary of Labor in upholding IRRI's diplomatic immunity.
The Third Division, to which the case was originally assigned, required the respondents to comment on the petition. In a Manifestation filed on 4 August 1990, the Secretary of Labor declared that it
was "not adopting as his own" the decision of the BLR Director in the ICMC Case as well as the Comment of the Solicitor General sustaining said Director. The last pleading was filed by IRRI on
14 August 1990.
Instead of a Comment, the Solicitor General filed a Manifestation and Motion praying that he be excused from filing a comment "it appearing that in the earlier case of International Catholic
Migration Commission v. Hon. Pura Calleja, G.R. No. 85750. the Office of the Solicitor General had sustained the stand of Director Calleja on the very same issue now before it, which position has
been superseded by respondent Secretary of Labor in G.R. No. 89331," the present case. The Court acceded to the Solicitor General's prayer.
The Court is now asked to rule upon whether or not the Secretary of Labor committed grave abuse of discretion in dismissing the Petition for Certification Election filed by Kapisanan.
Kapisanan contends that Article 3 of Pres. Decree No. 1620 granting IRRI the status, privileges, prerogatives and immunities of an international organization, invoked by the Secretary of Labor, is
unconstitutional in so far as it deprives the Filipino workers of their fundamental and constitutional right to form trade unions for the purpose of collective bargaining as enshrined in the 1987
Constitution.
A procedural issue is also raised. Kapisanan faults respondent Secretary of Labor for entertaining IRRI'S appeal from the Order of the Director of the Bureau of Labor Relations directing the holding
of a certification election. Kapisanan contends that pursuant to Sections 7, 8, 9 and 10 of Rule V 2 of the Omnibus Rules Implementing the Labor Code, the Order of the BLR Director had become
final and unappeable and that, therefore, the Secretary of Labor had no more jurisdiction over the said appeal.
On the other hand, in entertaining the appeal, the Secretary of Labor relied on Section 25 of Rep. Act. No. 6715, which took effect on 21 March 1989, providing for the direct filing of appeal from
the Med-Arbiter to the Office of the Secretary of Labor and Employment instead of to the Director of the Bureau of Labor Relations in cases involving certification election orders.
III
Findings in Both Cases.
There can be no question that diplomatic immunity has, in fact, been granted ICMC and IRRI.
Article II of the Memorandum of Agreement between the Philippine Government and ICMC provides that ICMC shall have a status "similar to that of a specialized agency." Article III, Sections 4
and 5 of the Convention on the Privileges and Immunities of Specialized Agencies, adopted by the UN General Assembly on 21 November 1947 and concurred in by the Philippine Senate through
Resolution No. 19 on 17 May 1949, explicitly provides:
Art. III, Section 4. The specialized agencies, their property and assets, wherever located and by whomsoever held, shall enjoy immunity from every form of legal
process except insofar as in any particular case they have expressly waived their immunity. It is, however, understood that no waiver of immunity shall extend to any
measure of execution.
Sec. 5. The premises of the specialized agencies shall be inviolable. The property and assets of the specialized agencies, wherever located and by whomsoever held shall
be immune from search, requisition, confiscation, expropriation and any other form of interference, whether by executive, administrative, judicial or legislative action.
(Emphasis supplied).
IRRI is similarly situated, Pres. Decree No. 1620, Article 3, is explicit in its grant of immunity, thus:
Art. 3. Immunity from Legal Process. The Institute shall enjoy immunity from any penal, civil and administrative proceedings, except insofar as that immunity has been
expressly waived by the Director-General of the Institute or his authorized representatives.
Thus it is that the DEFORAF, through its Legal Adviser, sustained ICMC'S invocation of immunity when in a Memorandum, dated 17 October 1988, it expressed the view that "the Order of the
Director of the Bureau of Labor Relations dated 21 September 1988 for the conduct of Certification Election within ICMC violates the diplomatic immunity of the organization." Similarly, in respect
of IRRI, the DEFORAF speaking through The Acting Secretary of Foreign Affairs, Jose D. Ingles, in a letter, dated 17 June 1987, to the Secretary of Labor, maintained that "IRRI enjoys immunity
from the jurisdiction of DOLE in this particular instance."
The foregoing opinions constitute a categorical recognition by the Executive Branch of the Government that ICMC and IRRI enjoy immunities accorded to international organizations, which
determination has been held to be a political question conclusive upon the Courts in order not to embarrass a political department of Government.
It is a recognized principle of international law and under our system of separation of powers that diplomatic immunity is essentially a political question and courts should
refuse to look beyond a determination by the executive branch of the government, and where the plea of diplomatic immunity is recognized and affirmed by the executive
branch of the government as in the case at bar, it is then the duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal law officer of the
government . . . or other officer acting under his direction. Hence, in adherence to the settled principle that courts may not so exercise their jurisdiction . . . as to embarrass

the executive arm of the government in conducting foreign relations, it is accepted doctrine that in such cases the judicial department of (this) government follows the action
of the political branch and will not embarrass the latter by assuming an antagonistic jurisdiction. 3
"Specialized agencies" are international organizations having functions in particular fields. The term appears in Articles 57 8 and 63 9 of the Charter of the United Nations:
The Charter, while it invests the United Nations with the general task of promoting progress and international cooperation in economic, social, health, cultural, educational
and related matters, contemplates that these tasks will be mainly fulfilled not by organs of the United Nations itself but by autonomous international organizations
established by inter-governmental agreements outside the United Nations. There are now many such international agencies having functions in many different fields, e.g. in
posts, telecommunications, railways, canals, rivers, sea transport, civil aviation, meteorology, atomic energy, finance, trade, education and culture, health and refugees. Some
are virtually world-wide in their membership, some are regional or otherwise limited in their membership. The Charter provides that those agencies which have "wide
international responsibilities" are to be brought into relationship with the United Nations by agreements entered into between them and the Economic and Social Council,
are then to be known as "specialized agencies." 10
The rapid growth of international organizations under contemporary international law has paved the way for the development of the concept of international immunities.
It is now usual for the constitutions of international organizations to contain provisions conferring certain immunities on the organizations themselves, representatives of
their member states and persons acting on behalf of the organizations. A series of conventions, agreements and protocols defining the immunities of various international
organizations in relation to their members generally are now widely in force; . . . 11
There are basically three propositions underlying the grant of international immunities to international organizations. These principles, contained in the ILO Memorandum are stated thus: 1)
international institutions should have a status which protects them against control or interference by any one government in the performance of functions for the effective discharge of which they are
responsible to democratically constituted international bodies in which all the nations concerned are represented; 2) no country should derive any national financial advantage by levying fiscal
charges on common international funds; and 3) the international organization should, as a collectivity of States members, be accorded the facilities for the conduct of its official business customarily
extended to each other by its individual member States. 12 The theory behind all three propositions is said to be essentially institutional in character. "It is not concerned with the status, dignity or
privileges of individuals, but with the elements of functional independence necessary to free international institutions from national control and to enable them to discharge their responsibilities
impartially on behalf of all their members. 13 The raison d'etre for these immunities is the assurance of unimpeded performance of their functions by the agencies concerned.
The grant of immunity from local jurisdiction to ICMC and IRRI is clearly necessitated by their international character and respective purposes. The objective is to avoid the danger of partiality and
interference by the host country in their internal workings. The exercise of jurisdiction by the Department of Labor in these instances would defeat the very purpose of immunity, which is to shield
the affairs of international organizations, in accordance with international practice, from political pressure or control by the host country to the prejudice of member States of the organization, and to
ensure the unhampered performance of their functions.
ICMC's and IRRI's immunity from local jurisdiction by no means deprives labor of its basic rights, which are guaranteed by Article II, Section 18, 14 Article III, Section 8, 15 and Article XIII,
Section 3 (supra), of the 1987 Constitution; and implemented by Articles 243 and 246 of the Labor Code, 16 relied on by the BLR Director and by Kapisanan.
For, ICMC employees are not without recourse whenever there are disputes to be settled. Section 31 of the Convention on the Privileges and Immunities of the Specialized Agencies of the United
Nations 17 provides that "each specialized agency shall make provision for appropriate modes of settlement of: (a) disputes arising out of contracts or other disputes of private character to which the
specialized agency is a party." Moreover, pursuant to Article IV of the Memorandum of Agreement between ICMC the the Philippine Government, whenever there is any abuse of privilege by
ICMC, the Government is free to withdraw the privileges and immunities accorded. Thus:
Art. IV. Cooperation with Government Authorities. 1. The Commission shall cooperate at all times with the appropriate authorities of the Government to ensure the
observance of Philippine laws, rules and regulations, facilitate the proper administration of justice and prevent the occurrences of any abuse of the privileges and immunities
granted its officials and alien employees in Article III of this Agreement to the Commission.
2. In the event that the Government determines that there has been an abuse of the privileges and immunities granted under this Agreement, consultations shall be held
between the Government and the Commission to determine whether any such abuse has occurred and, if so, the Government shall withdraw the privileges and immunities
granted the Commission and its officials.
Neither are the employees of IRRI without remedy in case of dispute with management as, in fact, there had been organized a forum for better management-employee relationship as evidenced by
the formation of the Council of IRRI Employees and Management (CIEM) wherein "both management and employees were and still are represented for purposes of maintaining mutual and
beneficial cooperation between IRRI and its employees." The existence of this Union factually and tellingly belies the argument that Pres. Decree No. 1620, which grants to IRRI the status,
privileges and immunities of an international organization, deprives its employees of the right to self-organization.
The immunity granted being "from every form of legal process except in so far as in any particular case they have expressly waived their immunity," it is inaccurate to state that a certification
election is beyond the scope of that immunity for the reason that it is not a suit against ICMC. A certification election cannot be viewed as an independent or isolated process. It could tugger off a
series of events in the collective bargaining process together with related incidents and/or concerted activities, which could inevitably involve ICMC in the "legal process," which includes "any
penal, civil and administrative proceedings." The eventuality of Court litigation is neither remote and from which international organizations are precisely shielded to safeguard them from the
disruption of their functions. Clauses on jurisdictional immunity are said to be standard provisions in the constitutions of international Organizations. "The immunity covers the organization
concerned, its property and its assets. It is equally applicable to proceedings in personam and proceedings in rem." 18
We take note of a Manifestation, dated 28 September 1989, in the ICMC Case (p. 161, Rollo), wherein TUPAS calls attention to the case entitled "International Catholic Migration Commission v.
NLRC, et als., (G.R. No. 72222, 30 January 1989, 169 SCRA 606), and claims that, having taken cognizance of that dispute (on the issue of payment of salary for the unexpired portion of a sixmonth probationary employment), the Court is now estopped from passing upon the question of DOLE jurisdiction petition over ICMC.
We find no merit to said submission. Not only did the facts of said controversy occur between 1983-1985, or before the grant to ICMC on 15 July 1988 of the status of a specialized agency with
corresponding immunities, but also because ICMC in that case did not invoke its immunity and, therefore, may be deemed to have waived it, assuming that during that period (1983-1985) it was
tacitly recognized as enjoying such immunity.
Anent the procedural issue raised in the IRRI Case, suffice it to state that the Decision of the BLR Director, dated 15 February 1989, had not become final because of a Motion for Reconsideration
filed by IRRI Said Motion was acted upon only on 30 March 1989 when Rep. Act No. 6715, which provides for direct appeals from the Orders of the Med-Arbiter to the Secretary of Labor in
certification election cases either from the order or the results of the election itself, was already in effect, specifically since 21 March 1989. Hence, no grave abuse of discretion may be imputed to
respondent Secretary of Labor in his assumption of appellate jurisdiction, contrary to Kapisanan's allegations. The pertinent portion of that law provides:
Art. 259. Any party to an election may appeal the order or results of the election as determined by the Med-Arbiter directly to the Secretary of Labor and Employment on
the ground that the rules and regulations or parts thereof established by the Secretary of Labor and Employment for the conduct of the election have been violated. Such
appeal shall be decided within 15 calendar days (Emphasis supplied).
En passant, the Court is gratified to note that the heretofore antagonistic positions assumed by two departments of the executive branch of government have been rectified and the resultant
embarrassment to the Philippine Government in the eyes of the international community now, hopefully, effaced.
WHEREFORE, in G.R. No. 85750 (the ICMC Case), the Petition is GRANTED, the Order of the Bureau of Labor Relations for certification election is SET ASIDE, and the Temporary Restraining
Order earlier issued is made PERMANENT.
In G.R. No. 89331 (the IRRI Case), the Petition is Dismissed, no grave abuse of discretion having been committed by the Secretary of Labor and Employment in dismissing the Petition for
Certification Election.
No pronouncement as to costs.
SO ORDERED.
Padilla, Sarmiento and Regalado, JJ., concur.
Paras, J., is on leave

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182301

January 31, 2011

JAIME ALFEREZ, Petitioner,


vs.
PEOPLE OF THE PHILIPPINES and PINGPING CO, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) Decision 1 dated December 13, 2007 and Resolution2 dated March 4, 2008 in CAG.R. CEB-CR No. 00300.
The facts of the case, as culled from the records, are as follows:
Petitioner Jaime Alferez purchased construction materials from Cebu ABC Sales Commercial. As payment for the goods, he issued three (3) checks for the total amount of P830,998.40. However,
the checks were dishonored for having been drawn against a closed account. Petitioner was thus charged with three (3) counts of violation of Batas Pambansa Bilang (B.P. Blg.) 22 before the
Municipal Trial Court in Cities (MTCC), Cebu City. The cases were raffled to Branch 3 and docketed as Criminal Case Nos. 40985-R to 40987-R. 3 During the trial, the prosecution presented its
lone witness, private complainant Pingping Co.4 Thereafter, the prosecution formally offered the following documentary evidence:
1. BPI Check No. 492089 dated 29 April 1994 in the sum of P78, 889.95;
2. BPI Check No. 492010 dated 22 June 1994 in the sum of P30,745.90;
3. BPI Check No. 492011 dated 22 June 1994 in the sum of P721,362.55;
4. The demand letter dated 7 July 1994 addressed to petitioner;
5. The registry receipt of the Post Office;
6. The face of the Registry Return Receipt;
7. The dorsal side of the Registry Return Receipt;
8. The Returned Check Ticket dated 23 June 1994; and
9. The reason for the dishonor.5
Instead of presenting evidence, petitioner filed a Demurrer to Evidence6 on August 8, 2003, or approximately ten (10) months after the prosecution rested its case. Petitioner averred that the
prosecution failed to show that he received the notice of dishonor or demand letter.
On March 4, 2005, the MTCC issued a resolution7 denying petitioners Demurrer to Evidence, and rendering judgment finding petitioner guilty as charged, the dispositive portion of which reads:
WHEREFORE, the Court finds the accused guilty beyond reasonable doubt of the crime of issuing bouncing checks as defined and penalized under Section 1 of Batas Pambansa Blg. 22 and hereby
sentences the accused the following:
1. To pay a fine of Php830,998.40 and in case of insolvency to suffer subsidiary imprisonment;
2. To pay private complainant the total face value of the checks in the amount of Php830,998.40 plus 1% interest per month beginning from the filing of the complaint.
SO ORDERED.8
Aggrieved, petitioner appealed to the Regional Trial Court (RTC), Branch 21, Cebu City. The RTC rendered Judgment 9 affirming in toto the MTCC decision. Petitioner moved for reconsideration,
but it was denied in an Order10 dated December 16, 2005. In the same Order, the RTC modified the MTCC resolution by sentencing petitioner to suffer the penalty of imprisonment for six (6)
months for each count of violation of B.P Blg. 22, instead of fine as originally imposed.
Undaunted, petitioner elevated the matter to the CA via a petition for review under Rule 42 of the Rules of Court. In the assailed Decision, the CA dismissed the petition for lack of merit. It sustained
petitioners conviction as the elements of the crime had been sufficiently established. As to the service on petitioner of the notice of dishonor, the appellate court pointed out that petitioner did not
testify, and that he did not object to the prosecutions evidence aimed at proving the fact of receipt of the notice of dishonor. Consequently, the registry receipt and the return card adequately show the
fact of receipt. As to petitioners contention that he was denied his right to present evidence after the denial of his demurrer to evidence, the CA held that there was no such denial since it was merely
the consequence of the filing of demurrer without leave of court. Finally, as to the imposition of the penalty of imprisonment instead of fine, the CA found no grave abuse of discretion on the part of
the RTC since it was shown that petitioner acted in bad faith.11
On March 4, 2008, the CA denied petitioners motion for reconsideration. Hence, this petition anchored on the following issues:
Whether the Registry Receipt and Registry Return Receipt alone without presenting the person who mailed and/or served the demand letter is sufficient notice of dishonor as required by BP 22.
Whether the filing of the Demurrer of (sic) Evidence without leave and denied by the trial court is a waiver of the right of the petitioner (the accused before the trial court) to present his evidence in
support and to rebut the evidence of the respondent particularly with respect to the civil aspect of the case.
On the alternative (if the petitioner is guilty), whether the accused should only be mete[d] the penalty of fine as imposed by the trial court (MTCC).12
The petition is partly meritorious.
After a careful evaluation of the records of the case, we believe and so hold that the totality of the evidence presented does not support petitioners conviction for violation of B.P. Blg. 22.
Section 1 of B.P. Blg. 22 defines the offense, as follows:13
Section 1. Checks without sufficient funds.Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but
not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or
to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.
Accordingly, this Court has held that the elements of the crime are, as follows: (1) the making, drawing, and issuance of any check to apply on account or for value; (2) the knowledge of the maker,
drawer, or issuer that at the time of issue he does not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its presentment; and (3) the subsequent dishonor
of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment.14
In this case, the first and third elements of the crime have been adequately established. The prosecution, however, failed to prove the second element. Because this element involves a state of mind
which is difficult to establish, Section 2 of B.P. Blg. 22 creates a presumption of knowledge of insufficiency of funds under the following circumstances:15

Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing, and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such
bank, when presented within ninety days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder
thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the
drawee.
In Suarez v. People,16 which is on all fours with the instant case, two Informations for violation of B.P. Blg. 22 were filed against petitioner therein. After the prosecution presented its evidence,
petitioner filed a Demurrer to Evidence without leave of court on the ground that no notice of dishonor had been sent to and received by him. When the case reached this Court, we acquitted
petitioner on reasonable doubt as there was insufficient proof that he received notice of dishonor. We explained that:
The presumption arises when it is proved that the issuer had received this notice, and that within five banking days from its receipt, he failed to pay the amount of the check or to make arrangements
for its payment. The full payment of the amount appearing in the check within five banking days from notice of dishonor is a complete defense. Accordingly, procedural due process requires that a
notice of dishonor be sent to and received by the petitioner to afford the opportunity to avert prosecution under B.P. Blg. 22.
x x x. [I]t is not enough for the prosecution to prove that a notice of dishonor was sent to the petitioner. It is also incumbent upon the prosecution to show "that the drawer of the check received the
said notice because the fact of service provided for in the law is reckoned from receipt of such notice of dishonor by the drawee of the check.
A review of the records shows that the prosecution did not prove that the petitioner received the notice of dishonor. Registry return cards must be authenticated to serve as proof of receipt of letters
sent through registered mail.17
In this case, the prosecution merely presented a copy of the demand letter, together with the registry receipt and the return card, allegedly sent to petitioner. However, there was no attempt to
authenticate or identify the signature on the registry return card.18 Receipts for registered letters and return receipts do not by themselves prove receipt; they must be properly authenticated to serve
as proof of receipt of the letter, claimed to be a notice of dishonor.19 To be sure, the presentation of the registry card with an unauthenticated signature, does not meet the required proof beyond
reasonable doubt that petitioner received such notice. It is not enough for the prosecution to prove that a notice of dishonor was sent to the drawee of the check. The prosecution must also prove
actual receipt of said notice, because the fact of service provided for in the law is reckoned from receipt of such notice of dishonor by the drawee of the check. 20 The burden of proving notice rests
upon the party asserting its existence. Ordinarily, preponderance of evidence is sufficient to prove notice. In criminal cases, however, the quantum of proof required is proof beyond reasonable doubt.
Hence, for B.P. Blg. 22 cases, there should be clear proof of notice.21 Moreover, for notice by mail, it must appear that the same was served on the addressee or a duly authorized agent of the
addressee. From the registry receipt alone, it is possible that petitioner or his authorized agent did receive the demand letter. 22 Possibilities, however, cannot replace proof beyond reasonable
doubt.23 The consistent rule is that penal statutes have to be construed strictly against the State and liberally in favor of the accused. 24 The absence of a notice of dishonor necessarily deprives the
accused an opportunity to preclude a criminal prosecution.25 As there is insufficient proof that petitioner received the notice of dishonor, the presumption that he had knowledge of insufficiency of
funds cannot arise.26
This is so even if petitioner did not present his evidence to rebut the documentary evidence of the prosecution as he had waived his right to present evidence for having filed a demurrer to evidence
without leave of court. We must emphasize that the prosecution has the burden of proving beyond reasonable doubt each element of the crime as its case will rise or fall on the strength of its own
evidence, never on the weakness or even absence of that of the defense.27 The failure of the prosecution to prove the receipt by petitioner of the requisite notice of dishonor and that he was given at
least five (5) banking days within which to settle his account constitutes sufficient ground for his acquittal.28
Nonetheless, petitioners acquittal for failure of the prosecution to prove all elements of the offense beyond reasonable doubt does not include the extinguishment of his civil liability for the
dishonored checks.29 In case of acquittal, the accused may still be adjudged civilly liable. The extinction of the penal action does not carry with it the extinction of the civil action where (a) the
acquittal is based on reasonable doubt as only preponderance of evidence is required; (b) the court declares that the liability of the accused is only civil; and (c) the civil liability of the accused does
not arise from or is not based upon the crime of which the accused was acquitted. 30 In a number of similar cases, we have held that an acquittal based on reasonable doubt does not preclude the
award of civil damages.31
In view of the foregoing, we sustain the findings of the trial court, as affirmed by the CA, as to petitioners civil liability.1wphi1
Finally, in answer to petitioners insistence that he should have been allowed by the trial court to present his evidence on the civil aspect of the case, suffice it to state that when petitioner filed a
demurrer to evidence without leave of court, the whole case was submitted for judgment on the basis of the evidence presented by the prosecution as the accused is deemed to have waived the right
to present evidence. At that juncture, the court is called upon to decide the case including its civil aspect.32
WHEREFORE, premises considered, the Court of Appeals Decision dated December 13, 2007 and Resolution dated March 4, 2008 in CA-G.R. CEB-CR No. 00300 are MODIFIED. Petitioner
Jaime Alferez is ACQUITTED on reasonable doubt of violation of B.P. Blg. 22. However, the civil liability imposed on petitioner is AFFIRMED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 182729

September 29, 2010

KUKAN INTERNATIONAL CORPORATION, Petitioner,


vs.
HON. AMOR REYES, in her capacity as Presiding Judge of the Regional Trial Court of Manila, Branch 21, and ROMEO M. MORALES, doing business under the name and style "RM
Morales Trophies and Plaques," Respondents.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify and reverse the January 23, 2008 Decision1and the April 16, 2008 Resolution2 rendered by the Court of Appeals (CA) in CAG.R. SP No. 100152.
The assailed CA decision affirmed the March 12, 20073 and June 7, 20074 Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in Civil Case No. 99-93173, entitled Romeo M. Morales,
doing business under the name and style RM Morales Trophies and Plaques v. Kukan, Inc . In the said orders, the RTC disregarded the separate corporate identities of Kukan, Inc. and Kukan
International Corporation and declared them to be one and the same entity. Accordingly, the RTC held Kukan International Corporation, albeit not impleaded in the underlying complaint of Romeo
M. Morales, liable for the judgment award decreed in a Decision dated November 28, 20025 in favor of Morales and against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the supply and installation of signages in a building being constructed in Makati City. Morales tendered the winning bid and was
awarded the PhP 5 million contract. Some of the items in the project award were later excluded resulting in the corresponding reduction of the contract price to PhP 3,388,502. Despite his
compliance with his contractual undertakings, Morales was only paid the amount of PhP 1,976,371.07, leaving a balance of PhP 1,412,130.93, which Kukan, Inc. refused to pay despite demands.
Shortchanged, Morales filed a Complaint6 with the RTC against Kukan, Inc. for a sum of money, the case docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of the court.
Following the joinder of issues after Kukan, Inc. filed an answer with counterclaim, trial ensued. However, starting November 2000, Kukan, Inc. no longer appeared and participated in the
proceedings before the trial court, prompting the RTC to declare Kukan, Inc. in default and paving the way for Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding for Morales and against Kukan, Inc., disposing as follows:

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan,
Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from
February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS, (P20,000.00) as reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.
For lack of factual foundation, the counterclaim is DISMISSED.
IT IS SO ORDERED.7
After the above decision became final and executory, Morales moved for and secured a writ of execution8 against Kukan, Inc. The sheriff then levied upon various personal properties found at what
was supposed to be Kukan, Inc.s office at Unit 2205, 88 Corporate Center, Salcedo Village, Makati City. Alleging that it owned the properties thus levied and that it was a different corporation from
Kukan, Inc., Kukan International Corporation (KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was incorporated in August 2000, or shortly after Kukan, Inc. had stopped participating in
Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus Motion dated April 30, 2003. In it, Morales prayed, applying the principle of piercing the veil of corporate fiction, that an order be
issued for the satisfaction of the judgment debt of Kukan, Inc. with the properties under the name or in the possession of KIC, it being alleged that both corporations are but one and the same entity.
KIC opposed Morales motion. By Order of May 29, 20039as reiterated in a subsequent order, the court denied the omnibus motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus determine the true relationship between the two, Morales filed a Motion for Examination of Judgment Debtors dated May 4,
2005. In this motion Morales sought that subponae be issued against the primary stockholders of Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was denied by the trial court
in an Order dated May 24, 2005.10
Morales then sought the inhibition of the presiding judge, Eduardo B. Peralta, Jr., who eventually granted the motion. The case was re-raffled to Branch 21, presided by public respondent Judge
Amor Reyes.
Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce the Veil of Corporate Fiction to declare KIC as having no existence separate from Kukan, Inc. This time around, the RTC, by
Order dated March 12, 2007, granted the motion, the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby GRANTED. The Court hereby declares as follows:
1. defendant Kukan, Inc. and newly created Kukan International Corp. as one and the same corporation;
2. the levy made on the properties of Kukan International Corp. is hereby valid;
3. Kukan International Corp. and Michael Chan are jointly and severally liable to pay the amount awarded to plaintiff pursuant to the decision of November [28], 2002 which has long
been final and executory.
SO ORDERED.
From the above order, KIC moved but was denied reconsideration in another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid March 12 and June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the dispositive portion of which states:
WHEREFORE, premises considered, the petition is hereby DENIED and the assailed Orders dated March 12, 2007 and June 7, 2007 of the court a quo are both AFFIRMED. No costs.
SO ORDERED.11
The CA later denied KICs motion for reconsideration in the assailed resolution.
Hence, the instant petition for review, with the following issues KIC raises for the Courts consideration:
1. There is no legal basis for the [CA] to resolve and declare that petitioners Constitutional Right to Due Process was not violated by the public respondent in rendering the Orders dated
March 12, 2007 and June 7, 2007 and in declaring petitioner to be liable for the judgment obligations of the corporation "Kukan, Inc." to private respondent as petitioner is a stranger
to the case and was never made a party in the case before the trial court nor was it ever served a summons and a copy of the complaint.
2. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner liable to the
judgment obligations of the corporation "Kukan, Inc." to private respondent are valid as said orders of the public respondent modify and/or amend the trial courts final and executory
decision rendered on November 28, 2002.
3. There is no legal basis for the [CA] to resolve and declare that the Orders dated March 12, 2007 and June 7, 2007 rendered by public respondent declaring the petitioner [KIC] and the
corporation "Kukan, Inc." as one and the same, and, therefore, the Veil of Corporate Fiction between them be pierced as the procedure undertaken by public respondent which the [CA]
upheld is not sanctioned by the Rules of Court and/or established jurisprudence enunciated by this Honorable Supreme Court.12
In gist, the issues to be resolved boil down to the question of, first, whether the trial court can, after the judgment against Kukan, Inc. has attained finality, execute it against the property of
KIC; second, whether the trial court acquired jurisdiction over KIC; and third, whether the trial and appellate courts correctly applied, under the premises, the principle of piercing the veil of
corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the trial court can, after adjudging Kukan, Inc. liable for a sum of money in a final and executory judgment, execute such judgment
debt against the property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja,13 the Court ruled that the deciding court has supervisory control over the execution of its judgment:
A case in which an execution has been issued is regarded as still pending so that all proceedings on the execution are proceedings in the suit. There is no question that the court which rendered the
judgment has a general supervisory control over its process of execution, and this power carries with it the right to determine every question of fact and law which may be involved in the execution.
We reiterated the above holding in Javier v. Court of Appeals14 in this wise: "The said branch has a general supervisory control over its processes in the execution of its judgment with a right to
determine every question of fact and law which may be involved in the execution."
The courts supervisory control does not, however, extend as to authorize the alteration or amendment of a final and executory decision, save for certain recognized exceptions, among which is the
correction of clerical errors. Else, the court violates the principle of finality of judgment and its immutability, concepts which the Court, in Tan v. Timbal,15 defined:
As we held in Industrial Management International Development Corporation vs. NLRC:

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of a decision or order is the controlling factor as to settlement of rights of
the parties. Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. It thereby becomes
immutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and void for lack of jurisdiction, including the entire proceedings held
for that purpose. An order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity. (Emphasis supplied.)
Republic v. Tango16 expounded on the same principle and its exceptions:
Deeply ingrained in our jurisprudence is the principle that a decision that has acquired finality becomes immutable and unalterable. As such, it may no longer be modified in any respect even
if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land. x x x
The doctrine of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at the risk of occasional error, the judgment of courts and the award of quasijudicial agencies must become final on some definite date fixed by law. The only exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause
no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision which render its execution unjust and inequitable. None of the exceptions obtains
here to merit the review sought. (Emphasis added.)
So, did the RTC, in breach of the doctrine of immutability and inalterability of judgment, order the execution of its final decision in a manner as would amount to its prohibited alteration or
modification?
We repair to the dispositive portion of the final and executory RTC decision. Pertinently, it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiff, ordering Kukan,
Inc.:
1. to pay the sum of ONE MILLION TWO HUNDRED ONE THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS (P1,201,724.00) with legal interest at 12% per annum from
February 17, 1999 until full payment;
2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
3. to pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and
4. to pay the sum of SEVEN THOUSAND NINE HUNDRED SIXTY PESOS and SIX CENTAVOS (P7,960.06) as litigation expenses.
x x x x (Emphasis supplied.)
As may be noted, the above decision, in unequivocal terms, directed Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC, thru the medium of a writ of execution,
answerable for the above judgment liability is a clear case of altering a decision, an instance of granting relief not contemplated in the decision sought to be executed. And the change does not fall
under any of the recognized exceptions to the doctrine of finality and immutability of judgment. It is a settled rule that a writ of execution must conform to the fallo of the judgment; as an inevitable
corollary, a writ beyond the terms of the judgment is a nullity.17
Thus, on this ground alone, the instant petition can already be granted. Nonetheless, an examination of the other issues raised by KIC would be proper.
Second Issue: Propriety of the RTC
Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court authorized against KIC and its property, given that it was neither made a party nor impleaded in Civil Case No. 99-93173, let alone
served with summons. In other words, did the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to have voluntarily submitted itself to the jurisdiction of the trial court owing to its filing of four (4) pleadings adverted to earlier, namely: (a)
the Affidavit of Third-Party Claim;18 (b) the Comment and Opposition to Plaintiffs Omnibus Motion;19 (c) the Motion for Reconsideration of the RTC Order dated March 12, 2007;20 and (d) the
Motion for Leave to Admit Reply.21 The CA, citing Section 20, Rule 14 of the Rules of Court, stated that "the procedural rule on service of summons can be waived by voluntary submission to the
courts jurisdiction through any form of appearance by the party or its counsel."22
We cannot give imprimatur to the appellate courts appreciation of the thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc.23 explains how courts acquire jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint. On the other hand, jurisdiction over the defendants in a civil case is acquired either through the service of summons
upon them or through their voluntary appearance in court and their submission to its authority. (Emphasis supplied.)
In the fairly recent Palma v. Galvez,24 the Court reiterated its holding in Orion Security Corporation, stating: "[I]n civil cases, the trial court acquires jurisdiction over the person of the defendant
either by the service of summons or by the latters voluntary appearance and submission to the authority of the former."
The courts jurisdiction over a party-defendant resulting from his voluntary submission to its authority is provided under Sec. 20, Rule 14 of the Rules, which states:
Section 20. Voluntary appearance. The defendants voluntary appearance in the actions shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from
lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.
To be sure, the CAs ruling that any form of appearance by the party or its counsel is deemed as voluntary appearance finds support in the kindred Republic v. Ker & Co., Ltd. 25 and De Midgely v.
Ferandos.26
Republic and De Midgely, however, have already been modified if not altogether superseded27 by La Naval Drug Corporation v. Court of Appeals,28 wherein the Court essentially ruled and
elucidated on the current view in our jurisdiction, to wit: "[A] special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant
invokes other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the
jurisdiction of the court."29
In the instant case, KIC was not made a party-defendant in Civil Case No. 99-93173. Even if it is conceded that it raised affirmative defenses through its aforementioned pleadings, KIC never
abandoned its challenge, however implicit, to the RTCs jurisdiction over its person. The challenge was subsumed in KICs primary assertion that it was not the same entity as Kukan, Inc.
Pertinently, in its Comment and Opposition to Plaintiffs Omnibus Motion dated May 20, 2003, KIC entered its " special but not voluntary appearance" alleging therein that it was a different entity
and has a separate legal personality from Kukan, Inc. And KIC would consistently reiterate this assertion in all its pleadings, thus effectively resisting all along the RTCs jurisdiction of its person. It
cannot be overemphasized that KIC could not file before the RTC a motion to dismiss and its attachments in Civil Case No. 99-93173, precisely because KIC was neither impleaded nor served with
summons. Consequently, KIC could only assert and claim through its affidavits, comments, and motions filed by special appearance before the RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation,30 KIC cannot be deemed to have waived its objection to the courts lack of jurisdiction over its person. It would defy logic to say that KIC unequivocally
submitted itself to the jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are different entities. In the scheme of things obtaining, KIC had no other option but to insist on its
separate identity and plead for relief consistent with that position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and appellate courts correctly applied the principle of piercing the veil of corporate entitycalled also as disregarding the fiction of a
separate juridical personality of a corporationto support a conclusion that Kukan, Inc. and KIC are but one and the same corporation with respect to the contract award referred to at the outset.
This principle finds its context on the postulate that a corporation is an artificial being invested with a personality separate and distinct from those of the stockholders and from other corporations to
which it may be connected or related.31
In Pantranco Employees Association (PEA-PTGWO) v. National Labor Relations Commission,32 the Court revisited the subject principle of piercing the veil of corporate fiction and wrote:
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled

by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as
one and the same.
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved . However, any piercing of the corporate veil has to be done
with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. x x x (Emphasis supplied.)
The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used
as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.33 (Emphasis supplied.)
Now, as before the appellate court, petitioner KIC maintains that the RTC violated its right to due process when, in the execution of its November 28, 2002 Decision, the court authorized the
issuance of the writ against KIC for Kukan, Inc.s judgment debt, albeit KIC has never been a party to the underlying suit. As a counterpoint, Morales argues that KICs specific concern on due
process and on the validity of the writ to execute the RTCs November 28, 2002 Decision would be mooted if it were established that KIC and Kukan, Inc. are indeed one and the same corporation.
Morales contention is untenable.
The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically
applied only to determine established liability;34 it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case. Elsewise put, a
corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation
and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. Aguedo Agbayani, a recognized authority on Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of liability not of jurisdiction. x x x
This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation . Hence,
before this doctrine can be applied, based on the evidence presented, it is imperative that the court must first have jurisdiction over the corporation.35 x x x (Emphasis supplied.)
The implication of the above comment is twofold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its or their separate personalities are disregarded;
and (2) the doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of
the court by way of service of summons or what passes as such service.
The issue of jurisdiction or the lack of it over KIC has already been discussed. Anent the matter of the time and manner of raising the principle in question, it is undisputed that no full-blown trial
involving KIC was had when the RTC disregarded the corporate veil of KIC. The reason for this actuality is simple and undisputed: KIC was not impleaded in Civil Case No. 99-93173 and that the
RTC did not acquire jurisdiction over it. It was dragged to the case after it reacted to the improper execution of its properties and veritably hauled to court, not thru the usual process of service of
summons, but by mere motion of a party with whom it has no privity of contract and after the decision in the main case had already become final and executory. As to the propriety of a plea for the
application of the principle by mere motion, the following excerpts are instructive:
Generally, a motion is appropriate only in the absence of remedies by regular pleadings, and is not available to settle important questions of law, or to dispose of the merits of the case. A motion is
usually a proceeding incidental to an action, but it may be a wholly distinct or independent proceeding. A motion in this sense is not within this discussion even though the relief demanded is
denominated an "order."
A motion generally relates to procedure and is often resorted to in order to correct errors which have crept in along the line of the principal actions progress. Generally, where there is a procedural
defect in a proceeding and no method under statute or rule of court by which it may be called to the attention of the court, a motion is an appropriate remedy. In many jurisdictions, the motion has
replaced the common-law pleas testing the sufficiency of the pleadings, and various common-law writs, such as writ of error coram nobis and audita querela. In some cases, a motion may be one of
several remedies available. For example, in some jurisdictions, a motion to vacate an order is a remedy alternative to an appeal therefrom.
Statutes governing motions are given a liberal construction.36 (Emphasis supplied.)
The bottom line issue of whether Morales can proceed against KIC for the judgment debt of Kukan, Inc.assuming hypothetically that he can, applying the piercing the corporate veil principle
resolves itself into the question of whether a mere motion is the appropriate vehicle for such purpose.
Verily, Morales espouses the application of the principle of piercing the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to defraud him through the use of the separate and
distinct personality of another corporation, KIC. In net effect, Morales adverted motion to pierce the veil of corporate fiction dated January 3, 2007 stated a new cause of action, i.e., for the liability
of judgment debtor Kukan, Inc. to be borne by KIC on the alleged identity of the two corporations. This new cause of action should be properly ventilated in another complaint and subsequent trial
where the doctrine of piercing the corporate veil can, if appropriate, be applied, based on the evidence adduced. Establishing the claim of Morales and the corresponding liability of KIC for Kukan
Inc.s indebtedness could hardly be the subject, under the premises, of a mere motion interposed after the principal action against Kukan, Inc. alone had peremptorily been terminated. After all, a
complaint is one where the plaintiff alleges causes of action.
In any event, the principle of piercing the veil of corporate fiction finds no application to the instant case.
As a general rule, courts should be wary of lifting the corporate veil between corporations, however related. Philippine National Bank v. Andrada Electric Engineering Company37 explains why:
A corporation is an artificial being created by operation of law. x x x It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be
related. This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons.
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established;
it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.
This Court has pierced the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from a debt, or to
perpetuate fraud and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up an otherwise blatant violation of the prohibition against forum-shopping. Only in
these and similar instances may the veil be pierced and disregarded. (Emphasis supplied.)
In fine, to justify the piercing of the veil of corporate fiction, it must be shown by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed
to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. To be sure, the Court has, on numerous occasions,38 applied the principle where a corporation is dissolved
and its assets are transferred to another to avoid a financial liability of the first corporation with the result that the second corporation should be considered a continuation and successor of the first
entity.
In those instances when the Court pierced the veil of corporate fiction of two corporations, there was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a second corporation to avoid a financial liability of the first corporation; and
3. Both corporations are owned and controlled by the same persons such that the second corporation should be considered as a continuation and successor of the first corporation.
In the instant case, however, the second and third factors are conspicuously absent. There is, therefore, no compelling justification for disregarding the fiction of corporate entity separating Kukan,
Inc. from KIC. In applying the principle, both the RTC and the CA miserably failed to identify the presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan, Inc. and KIC based on the following premises and arguments:

While it is true that a corporation has a separate and distinct personality from its stockholder, director and officers, the law expressly provides for an exception. When Michael Chan, the Managing
Director of defendant Kukan, Inc. (majority stockholder of the newly formed corporation [KIC]) confirmed the award to plaintiff to supply and install interior signages in the Enterprise Center he
(Michael Chan, Managing Director of defendant Kukan, Inc.) knew that there was no sufficient corporate funds to pay its obligation/account, thus implying bad faith on his part and fraud in
contracting the obligation. Michael Chan neither returned the interior signages nor tendered payment to the plaintiff. This circumstance may warrant the piercing of the veil of corporation fiction.
Having been guilty of bad faith in the management of corporate matters the corporate trustee, director or officer may be held personally liable. x x x
Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. x x x [A]nd the circumstances are: the signature of Michael Chan,
Managing Director of Kukan, Inc. appearing in the confirmation of the award sent to the plaintiff; signature of Chan Kai Kit, a British National appearing in the Articles of Incorporation and
signature of Michael Chan also a British National appearing in the Articles of Incorporation [of] Kukan International Corp. give the impression that they are one and the same person, that Michael
Chan and Chan Kai Kit are both majority stockholders of Kukan International Corp. and Kukan, Inc. holding 40% of the stocks; that Kukan International Corp. is practically doing the same kind of
business as that of Kukan, Inc.39 (Emphasis supplied.)
As is apparent from its disquisition, the RTC brushed aside the separate corporate existence of Kukan, Inc. and KIC on the main argument that Michael Chan owns 40% of the common shares of
both corporations, obviously oblivious that overlapping stock ownership is a common business phenomenon. It must be remembered, however, that KICs properties were the ones seized upon levy
on execution and not that of Kukan, Inc. or of Michael Chan for that matter. Mere ownership by a single stockholder or by another corporation of a substantial block of shares of a corporation does
not, standing alone, provide sufficient justification for disregarding the separate corporate personality.40 For this ground to hold sway in this case, there must be proof that Chan had control or
complete dominion of Kukan and KICs finances, policies, and business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss complained of
by Morales. The absence of any of the elements prevents the piercing of the corporate veil.41 And indeed, the records do not show the presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc. entered into a contractual obligation x x x worth more than three million pesos although it had only Php5,000.00 paid-up capital; [KIC] was
incorporated shortly before Kukan, Inc. suddenly ceased to appear and participate in the trial; [KICs] purpose is related and somewhat akin to that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a.,
Chan Kai Kit, holds forty percent of the outstanding stocks, while he formerly held the same amount of stocks in Kukan Inc. These would lead to the inescapable conclusion that Kukan, Inc.
committed fraudulent representation by awarding to the private respondent the contract with full knowledge that it was not in a position to comply with the obligation it had assumed because of
inadequate paid-up capital. It bears stressing that shareholders should in good faith put at the risk of the business, unencumbered capital reasonably adequate for its prospective liabilities. The capital
should not be illusory or trifling compared with the business to be done and the risk of loss.
Further, it is clear that [KIC] is a continuation and successor of Kukan, Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares in both business enterprises. The emergence of the
former was cleverly timed with the hasty withdrawal of the latter during the trial to avoid the financial liability that was eventually suffered by the latter. The two companies have a related business
purpose. Considering these circumstances, the obvious conclusion is that the creation of Kukan International Corporation served as a device to evade the obligation incurred by Kukan, Inc. and yet
profit from the goodwill attained by the name "Kukan" by continuing to engage in the same line of business with the same list of clients.42 (Emphasis supplied.)
Evidently, the CA found the meager paid-up capitalization of Kukan, Inc. and the similarity of the business activities in which both corporations are engaged as a jumping board to its conclusion that
the creation of KIC "served as a device to evade the obligation incurred by Kukan, Inc." The appellate court, however, left a gaping hole by failing to demonstrate that Kukan, Inc. and its
stockholders defrauded Morales. In fine, there is no showing that the incorporation, and the separate and distinct personality, of KIC was used to defeat Morales right to recover from Kukan, Inc.
Judging from the records, no serious attempt was made to levy on the properties of Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to avoid liability or had no property
against which to proceed.
Morales further contends that Kukan, Inc.s closure is evidenced by its failure to file its 2001 General Information Sheet (GIS) with the Securities and Exchange Commission. However, such fact
does not necessarily mean that Kukan, Inc. had altogether ceased operations, as Morales would have this Court believe, for it is stated on the face of the GIS that it is only upon a failure to file the
corporate GIS for five (5) consecutive years that non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP 3.3 million contract when it only had a paid-up capital of PhP 5,000 is not an indication of the intent on the part of its management to defraud creditors.
Paid-up capital is merely seed money to start a corporation or a business entity. As in this case, it merely represented the capitalization upon incorporation in 1997 of Kukan, Inc. Paid-up
capitalization of PhP 5,000 is not and should not be taken as a reflection of the firms capacity to meet its recurrent and long-term obligations. It must be borne in mind that the equity portion cannot
be equated to the viability of a business concern, for the best test is the working capital which consists of the liquid assets of a given business relating to the nature of the business concern.lawphil
Neither should the level of paid-up capital of Kukan, Inc. upon its incorporation be viewed as a badge of fraud, for it is in compliance with Sec. 13 of the Corporation Code, 43 which only requires a
minimum paid-up capital of PhP 5,000.1avvphi1
The suggestion that KIC is but a continuation and successor of Kukan, Inc., owned and controlled as they are by the same stockholders, stands without factual basis. It is true that Michael Chan,
a.k.a. Chan Kai Kit, owns 40% of the outstanding capital stock of both corporations. But such circumstance, standing alone, is insufficient to establish identity. There must be at least a substantial
identity of stockholders for both corporations in order to consider this factor to be constitutive of corporate identity.
It would not avail Morales any to rely44 on General Credit Corporation v. Alsons Development and Investment Corporation.45 General Credit Corporation is factually not on all fours with the
instant case. There, the common stockholders of the corporations represented 90% of the outstanding capital stock of the companies, unlike here where Michael Chan merely represents 40% of the
outstanding capital stock of both KIC and Kukan, Inc., not even a majority of it. In that case, moreover, evidence was adduced to support the finding that the funds of the second corporation came
from the first. Finally, there was proof in General Credit Corporation of complete control, such that one corporation was a mere dummy or alter ego of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot justify the application of the principle of piercing the veil of corporate fiction to the instant case. As shown by the records, the
name Michael Chan, the similarity of business activities engaged in, and incidentally the word "Kukan" appearing in the corporate names provide the nexus between Kukan, Inc. and KIC. As
illustrated, these circumstances are insufficient to establish the identity of KIC as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned upon. Accordingly, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the
corporations are set up to justify a wrong, protect fraud, or perpetrate a deception. In the concrete and on the assumption that the RTC has validly acquired jurisdiction over the party concerned,
Morales ought to have proved by convincing evidence that Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated to defraud him. Morales has not to us discharged his burden.
WHEREFORE, the petition is hereby GRANTED. The CAs January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No. 100152 are hereby REVERSED and SET ASIDE. The
levy placed upon the personal properties of Kukan International Corporation is hereby ordered lifted and the personal properties ordered returned to Kukan International Corporation. The RTC of
Manila, Branch 21 is hereby directed to execute the RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable dispatch.
No costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

THIRD DIVISION
G.R. No. 186063

January 15, 2014

PHILIPPINE NATIONAL BANK, Petitioner,


vs.
SAN MIGUEL CORPORATION, Respondent.
DECISION
PERALTA, J.:
This treats of the petition for review on certiorari of the Decision1 and Resolution2 of the Court of Appeals (CA), dated June 7 2008 and December 15, 2008, respectively, in CA-G.R. SP No. 01249MIN.
The facts, as summarized by the CA, are as follows:

On July 1, 1996, respondent San Miguel Corporation (SMC, for brevity) entered into an Exclusive Dealership Agreement with a certain Rodolfo R. Goroza (Goroza, hereafter), wherein the latter
was given by SMC the right to trade, deal, market or otherwise sell its various beer products.
Goroza applied for a credit line with SMC, but one of the requirements for the credit line was a letter of credit. Thus, Goroza applied for and was granted a letter of credit by the PNB in the amount
of two million pesos (P2,000,000.00). Under the credit agreement, the PNB has the obligation to release the proceeds of Goroza's credit line to SMC upon presentation of the invoices and official
receipts of Goroza's purchases of SMC beer products to the PNB, Butuan Branch.
On August 1, 1996, Goroza availed of his credit line with PNB and started selling SMC's beer products x x x.
On February 11, 1997, Goroza applied for an additional credit line with the PNB. The latter granted Goroza a one (1) year revolving credit line in the amount not exceeding two million four hundred
thousand pesos (P2,400,000.00). Thus, Goroza's total credit line reached four million four hundred thousand pesos ( P4,400,000.00) x x x. Initially, Goroza was able to pay his credit purchases with
SMC x x x. Sometime in January 1998, however, Goroza started to become delinquent with his accounts.
Demands to pay the amount of three million seven hundred twenty-two thousand four hundred forty pesos and 88/100 ( P3,722,440.88) were made by SMC against Goroza and PNB, but neither of
them paid. Thus, on April 23, 2003, SMC filed a Complaint for collection of sum of money against PNB and Goroza with the respondent Regional Trial Court Branch 3, Butuan City.3
After summons, herein petitioner filed its Answer,4 while Goroza did not. Upon respondent's Motion to Declare Defendant in Default,5 Goroza was declared in default.
Trial ensued insofar as Goroza was concerned and respondent presented its evidence ex parte against the former. Respondent made a formal offer of its exhibits on April 6, 2004 and the trial court
admitted them on June 16, 2004.
Thereafter, on January 21, 2005, pre-trial between PNB and SMC was held.6
On May 10, 2005, the RTC rendered a Decision,7 disposing as follows:
WHEREFORE, the Court hereby renders judgment in favor of plaintiff [SMC] ordering defendant Rodolfo Goroza to pay plaintiff the following:
1. The principal amount of P3,722,440.00;
2. The interest of 12% per annum on the principal amount reckoned from January 27, 1998 up to the time of execution of the Judgment of this case;
3. Attorney's fees of P30,000.00;
4. Litigation expenses of P20,000.00.
SO ORDERED.8
Goroza filed a Notice of Appeal,9 while SMC filed a Motion for Reconsideration.10
On July 14, 2005, the RTC granted SMC's motion for reconsideration. The trial court amended its Decision by increasing the award of litigation expenses to P90,652.50.11
Thereafter, on July 25, 2005, the RTC issued an Order,12 pertinent portions of which read as follows:
xxxx
Finding the Notice of Appeal filed within the reglementary period and the corresponding appeal fee paid, x x x. The same is hereby given due course.
Considering that the case as against defendant PNB is still on-going, let the Record in this case insofar as defendant Rodolfo R. Goroza is concerned, be reproduced at the expense of defendantappellant so that the same can be forwarded to the Court of Appeals, together with the exhibits and transcript of stenographic notes in the required number of copies.
SO ORDERED.13
In the meantime, trial continued with respect to PNB.
On September 27, 2005, PNB filed an Urgent Motion to Terminate Proceedings14 on the ground that a decision was already rendered on May 10, 2005 finding Goroza solely liable.
The RTC denied PNB's motion in its Resolution15 dated October 11, 2005.
On October 14, 2005, the RTC issued a Supplemental Judgment,16 thus:
The Court omitted by inadvertence to insert in its decision dated May 10, 2005 the phrase "without prejudice to the decision that will be made against the other co-defendant, PNB, which was not
declared in default."
WHEREFORE, the phrase "without prejudice to the decision made against the other defendant PNB which was not declared in default" shall be inserted in the dispositive portion of said decision.
SO ORDERED.17
On even date, the RTC also issued an Amended Order,18 to wit:
The Court's Order dated July 25, 2005 is hereby amended to include the phrase "this appeal applies only to defendant Rolando Goroza and without prejudice to the continuance of the hearing on the
other defendant Philippine National Bank".
SO ORDERED.19
PNB then filed a Motion for Reconsideration20 of the above-quoted Supplemental Judgment and Amended Order, but the RTC denied the said motion via its Resolution21 dated July 6, 2006.
Aggrieved, PNB filed a special civil action for certiorari with the CA imputing grave abuse of discretion on the part of the RTC for having issued its July 6, 2006 Resolution.22
On June 17, 2008, the CA rendered its questioned Decision denying the petition and affirming the assailed Resolution of the RTC.
PNB filed a Motion for Reconsideration,23 but the CA denied it in its assailed Resolution. Hence, the instant petition with the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT WAS CORRECT IN RENDERING A SUPPLEMENTAL JUDGMENT AND AMENDED ORDER AGAINST
THE BANK DESPITE THE PERFECTION OF APPEAL OF ONE OF THE DEFENDANTS.
THE COURT OF APPEALS ERRED IN HOLDING THAT PROCEEDINGS MAY CONTINUE AGAINST PNB DESPITE THE COMPLETE ADJUDICATION OF RELIEF
IN FAVOR OF SMC.24
PNB contends that the CA erred in holding that the RTC was correct in rendering its Supplemental Judgment and Amended Order despite the perfection of Goroza's appeal. PNB claims that when
Goroza's appeal was perfected, the RTC lost jurisdiction over the entire case making the assailed Supplemental Judgment and Amended Order void for having been issued without or in excess of
jurisdiction.
PNB also argues that the CA erred in ruling that proceedings against it may continue in the RTC, despite the trial court's complete adjudication of relief in favor of SMC. PNB avers that the May 10,
2005 Decision of the RTC, finding Goroza solely liable to pay the entire amount sought to be recovered by SMC, has settled the obligation of both Goroza and PNB, and that there is no longer any
ground to hold PNB for trial and make a separate judgment against it; otherwise, SMC will recover twice for the same cause of action.
The petition lacks merit.

It is clear from the proceedings held before and the orders issued by the RTC that the intention of the trial court is to conduct separate proceedings to determine the respective liabilities of Goroza
and PNB, and thereafter, to render several and separate judgments for or against them. While ideally, it would have been more prudent for the trial court to render a single decision with respect to
Goroza and PNB, the procedure adopted the RTC is, nonetheless, allowed under Section 4, Rule 36 of the Rules of Court, which provides that "in an action against several defendants, the court may,
when a several judgment is proper, render judgment against one or more of them, leaving the action to proceed against the others." In addition, Section 5 of the same Rule states that "when more
than one claim for relief is presented in an action, the court at any stage, upon a determination of the issues material to a particular claim and all counterclaims arising out of the transaction or
occurrence which is the subject matter of the claim may render a separate judgment disposing of such claim." Further, the same provision provides that "the judgment shall terminate the action with
respect to the claim so disposed of and the action shall proceed as to the remaining claims." Thus, the appeal of Goroza, assailing the judgment of the RTC finding him liable, will not prevent the
continuation of the ongoing trial between SMC and PNB. The RTC retains jurisdiction insofar as PNB is concerned, because the appeal made by Goroza was only with respect to his own liability. In
fact, PNB itself, in its Reply to respondent's Comment, admitted that the May 10, 2005 judgment of the RTC was "decided solely against defendant Rodolfo Goroza."25
The propriety of a several judgment is borne by the fact that SMC's cause of action against PNB stems from the latter's alleged liability under the letters of credit which it issued. On the other hand,
SMC's cause of action against Goroza is the latter's failure to pay his obligation to the former.1wphi1 As to the separate judgment, PNB has a counterclaim against SMC which is yet to be resolved
by the RTC.
Indeed, the issues between SMC and PNB which are to be resolved by the RTC, as contained in the trial court's Pre-Trial Order dated January 21, 2005, were not addressed by the RTC in its
Decision rendered against Goroza. In particular, the RTC judgment against Goroza did not make any determination as to whether or not PNB is liable under the letter of credit it issued and, if so, up
to what extent is its liability. In fact, contrary to PNB's claim, there is nothing in the RTC judgment which ruled that Goroza is "solely liable" to pay the amount which SMC seeks to recover.
In this regard, this Court's disquisition on the import of a letter of credit, in the case ofTransfield Philippines, Inc. v. Luzon Hydro Corporation,26 as correctly cited by the CA, is instructive, to wit:
By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment
of debt therefor to the addressee. A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing
and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.
xxxx
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures
the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished
or not. Under this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery,
value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the
goods, or any other person whomsoever.
xxxx
As discussed above, in a letter of credit transaction, such as in this case, where the credit is stipulated as irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary
provided that the stipulated documents are presented and the conditions of the credit are complied with. Precisely, the independence principle liberates the issuing bank from the duty of ascertaining
compliance by the parties in the main contract. As the principle's nomenclature clearly suggests, the obligation under the letter of credit is independent of the related and originating contract. In brief,
the letter of credit is separate and distinct from the underlying transaction.27
In other words, PNB cannot evade responsibility on the sole ground that the RTC judgment found Goroza liable and ordered him to pay the amount sought to be recovered by SMC. PNB's liability, if
any, under the letter of credit is yet to be determined.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals, dated June 17, 2008, and its Resolution dated December 15, 2008, both in CA-G.R. SP No. 01249-MIN, are
AFFIRMED.
SO ORDERED.
DIOSDADO M. PERLATA
Associate Justice
WE CONCUR:
SECOND DIVISION
G.R. No. 183054

September 29, 2010

NFD INTERNATIONAL MANNING AGENTS, INC./BARBER SHIP MANAGEMENT LTD., Petitioners,


vs.
ESMERALDO C. ILLESCAS, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of the Court of Appeals Decision dated October 23, 2007 in CA-G.R. SP No. 97941, and its Resolution dated May 9, 2008 denying petitioners motion for
reconsideration. The Decision of the Court of Appeals nullified and set aside the decision of the National Labor Relations Commission (NLRC), and ordered petitioners to pay respondent the amount
of US$90,000.00 as disability benefit. The Resolution dated May 9, 2008 denied petitioners motion for reconsideration and awarded respondent attorneys fees.
The facts are as follows:
On September 6, 2002, respondent Esmeraldo C. Illescas entered into a Contract of Employment with petitioner NFD International Manning Agents, Inc., acting for and in behalf of its foreign
principal, co-petitioner Barber Ship Management, Ltd. Under the contract, respondent was employed as Third Officer of M/V Shinrei for a period of nine months, with a basic monthly salary of
US$854.00. The employment contract complied with the Philippine Overseas Employment Administration (POEA) Standard Contract for Seafarers, and the standard terms and conditions governing
the employment of Filipino seafarers on board ocean-going vessels under Department Order No. 4, series of 2000.
After respondent passed the pre-employment medical examination, he boarded the vessel and started performing his job on October 6, 2002.
On May 16, 2003, when respondent had been on board the vessel for seven months, Captain Jaspal Singh and Chief Officer Maydeo Rajev ordered respondent to carry 25 fire hydrant caps from the
deck to the engine workshop, then back to the deck to refit the caps. The next day, while carrying a heavy basketful of fire hydrant caps, respondent felt a sudden snap on his back, with pain that
radiated down to the left side of his hips. He immediately informed the ship captain about his condition, and he was advised to take pain relievers. As the pain was initially tolerable, he continued
with his work. After a few days, the pain became severe, and respondent had difficulty walking.
On May 27, 2003, when the vessel was in Japan, respondent was brought to the Higashiogishima Clinic. Respondent was diagnosed to be suffering from lumbago and sprain. The doctor gave
respondent medication and advised him to wear a corset, avoid lifting heavy objects and get further examination and treatment if the symptoms persisted.2
Despite the lighter work assigned to respondent, he continued to experience excruciating pain. On June 13, 2003, petitioner was referred to a doctor upon arrival of M/V Shinrei at the port of Hay
Point, Australia. The doctor declared that respondent was unfit to work, and recommended that respondent return home for further management.3
On June 14, 2003, respondent was repatriated to the Philippines. On June 17, 2003, respondent was referred to the Alegre Medical Clinic under the care of Dr. Natalio G. Alegre II. Dr. Alegre
advised respondent to undergo a lumbo-sacral x-ray, and later a Magnetic Resonance Imaging (MRI) of his lumbo-sacral spine. The MRI revealed multi-level disc dessication, broad-based central
and left-sided posterior disc herniation, L4 L5, with severe canal stenosis.4 Dr. Alegre recommended laminectomy and discectomy.5
On August 27, 2003, respondent underwent a laminectomy with discectomy at the St. Luke's Medical Center. He was discharged from the hospital on September 6, 2003. Thereafter, he underwent
physical rehabilitation. Nevertheless, medical examinations showed that there was still restriction in respondents truncal mobility and in the lifting power of his trunk.
As his condition did not improve, respondent sought the expertise of Dr. Marciano F. Almeda, Jr., a specialist in occupational medicine and orthopedics, at the Medical Center Muntinlupa for the
assessment and evaluation of his health condition and/or disability. Dr. Almeda found that respondent sustained partial permanent disability with an impediment Grade of 11 (14.93%), described as

"slight rigidity or one-third loss of motion or lifting power of the trunk" under the POEA Standard Contract for Seafarers.6 Dr. Almeda declared that respondent was unfit to work at sea in any
capacity as a seaman.7
On December 29, 2003, petitioners received a letter8 dated December 16, 2003 from respondents counsel, demanding the payment of disability benefit. The claim was referred to Pandiman
Philippines, Inc., the local correspondent of the P&I Club with which petitioner Barber Ship Management Ltd. was affiliated. In the meantime, respondent filed a Complaint with the Arbitration
Branch of the NLRC.
During the preliminary conferences in this case, the parties explored the possibility of settlement. In a letter9dated April 12, 20004, Pandiman Philippines, Inc, in behalf of petitioners, offered to pay
respondent disability benefit in the amount of US$16,795.00, corresponding to Grade 8 disability under the POEA Standard Contract for Seafarers. Respondent, through counsel, refused the offer on
the ground that the injury sustained by him was caused by an accident, which was compensable in the amount of US$90,000.00 under the Collective Bargaining Agreement (CBA), thus:
If a seafarer/officer, due to no fault of his own, suffers permanent disability as a result of an accident while serving on board or while traveling to or from the vessel on Company's business or due to
marine peril, and as a result, his ability to work is permanently reduced, totally or partially, the Company shall pay him a disability compensation which, including the amounts stipulated by the
POEA's Rules and Regulations Part II, Section C, shall be maximum of US$70,000 for ratings and US$90,000 for officers.10
Since the parties failed to arrive at an agreement, the NLRC directed them to file their Position Papers.
In his Position Paper,11 respondent submitted that Section 20 (B.6) of the POEA Standard Contract for Seafarers provides:
xxxx
In case of permanent total or partial disability of a seafarer during the term of employment caused by either injury or illness, the seafarer shall be compensated in accordance with the schedule of
benefits enumerated in Section 32 of his Contract. Computation of his benefits arising from the illness or disease shall be governed by the rates and the rules of compensation applicable at the time
the illness or disease was contracted.
However, respondent stated that he is a member of the Associated Marine Officers' and Seamen's Union of the Philippines (AMOSUP), which has a CBA with petitioners. Under the CBA, he is
entitled to a higher disability benefit in the amount of US$90,000.00, since his injury resulted from an accident while carrying a basketful of heavy fire hydrant caps on board the vessel.12
Respondent prayed that petitioners be ordered to pay him disability benefit in the amount of US$90,000.00, illness allowance equivalent to 120 days, as well as moral and exemplary damages, and
attorneys fees.
In their Position Paper,13 petitioners countered that it is the POEA Standard Contract for Seafarers, and not the CBA, that governs this case. They stated that Blacks Law Dictionary defined
"accident" as an unusual, fortuitous, unexpected, unforeseen or unlooked for event. They argued that respondent's disability was not the result of an accident, as respondent was merely performing
his normal duty of transporting fire hydrant caps from the deck to the engine workshop, then back to the deck to refit the caps. During the performance thereof, no unusual, unforeseen and
unexpected event transpired as proved by the absence of any accident report. Moreover, respondents Affidavit did not mention the occurrence of any accident which gave rise to his injury.
Petitioners argued that, since no accident took place, the disability benefits under the CBA do not apply to this case.
Petitioners further averred that based on the assessment of its accredited-clinic, the Alegre Medical Clinic, respondent suffered from Grade 8 disability, described as "moderate rigidity or two-thirds
(2/3) loss of motion or lifting power of the trunk." During the preliminary conference, they offered to pay respondent disability benefit in the amount of US$16,795.00 for the Grade 8 disability
under Section 32 of the POEA Standard Contract for Seafarers.14
The main issue for resolution before the Labor Arbiter was whether the disability of complainant (respondent) was compensable under the provision of Article 13 of the CBA in the amount of
US$90,000.00.
On January 6, 2005, the Labor Arbiter rendered a Decision15 finding respondent entitled to disability benefit under the CBA in the amount of US$90,000.00 as 100% compensation; US$3,456.00
(US$864 x 4) as sickness allowance equivalent to 120 days; and US$9,345.60 as attorney's fees, or a total of US$102,801.60. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering the respondents NFD International Manning Agents, Inc. and Barber Ship Management Ltd. to jointly and severally pay
complainant Esmeraldo C. Illescas the amount of ONE HUNDRED TWO THOUSAND EIGHT HUNDRED ONE US DOLLARS & 60/100 (US$102,801.60) in its equivalent in Philippine Peso at
the prevailing rate of exchange at the time of actual payment representing his disability benefits, sickness wages and attorney's fees.
All other claims are DlSMISSED for lack of merit.16
The Labor Arbiter held that the injury suffered by respondent was the result of an accident arising out of, and in the course of, his employment while carrying the heavy fire hydrant caps, and that his
injury was unexpected and unforeseen by him.
Moreover, the Labor Arbiter stated that respondent was declared unfit to work by the physician who treated him in Australia, which was confirmed by Dr. Marciano Almeda, Jr. of the Medical Center
in Muntinlupa when he declared complainant "unfit to work back at sea in any capacity as a Seaman." The Labor Arbiter also noted that both Dr. Natalio Alegre, the company physician, and Dr.
Marciano Almeda, Jr., respondents independent doctor, assessed respondents disability as "partial and permanent disability." Hence, the Labor Arbiter held that respondents disability was 100%
compensable under the CBA in the amount of US$90,000.00, and not merely under the Standard Crew Contract.
Petitioners appealed the Labor Arbiters decision to the NLRC.
In a Decision17 dated July 13, 2006, the NLRC modified the decision of the Labor Arbiter, as it awarded respondent disability benefit under Section 32
of the POEA Standard Contract for Seafarers.18 The dispositive portion of the NLRC Decision reads:
WHEREFORE, premises considered, the assailed decision is hereby modified by deleting the award of US$102,801.60 and instead ordering respondent NFD International Manning Agents, Inc. and
Barber Ship Management Ltd. to jointly and severally pay complainant Esmeraldo C. Illescas the amount of Sixteen Thousand Seven Hundred Ninety-Five US Dollars (US$16,795.00) at the
prevailing rate of exchange at the time of actual payment representing his disability benefit.19
The NLRC held that the injury sustained by respondent was not the result of an accident, although it arose out of his work. It stated that the task of carrying hydrant caps was not a fortuitous, unusual
or unforeseen event, or a marine peril. According to the NLRC, back pains or chest-trunk-spine injuries are inherent in the job of carrying heavy objects, and the injury may occur over a period of
time or on the spot depending upon the physical strength and posture of the workers.
The NLRC deleted the award for sickness allowance based on the letter dated June 9, 2004 of petitioner NFD International Manning Agents, Inc. to Pandiman Philippines, Inc. The letter stated that
respondent's illness allowance from June 15, 2003 to October 14, 2003 (120 days) had already been processed and remitted to respondents bank account. The NLRC held that the payment of the
sickness allowance may be presumed, since respondent did not dispute the letter.
The NLRC also deleted the attorney's fees awarded to respondent on the ground that there was no unlawful withholding of payment of benefits in view of petitioners compromise offer of
US$16,795.00, which was the amount of disability benefit awarded by the NLRC to respondent.
Respondent's motion for reconsideration20 was denied by the NLRC for lack of merit in a Resolution21 dated December 7, 2006.
Respondent filed a special civil action for certiorari with the Court of Appeals, alleging that the NLRC committed grave abuse of discretion amounting to lack or excess of jurisdiction in holding that
his injury was not the result of an accident on board the vessel; in not applying the pertinent provisions of the CBA; and in deleting the award of attorneys fees.
On October 23, 2007, the Court of Appeals rendered a Decision22 in favor of respondent. The dispositive portion of the Decision states:
WHEREFORE, finding merit in the petition, We hereby GRANT the same. The assailed Decision and Resolution of the NLRC are NULLIFIED and SET ASIDE. Private respondents are
ORDERED to pay petitioner the amount of US$90,000.00 as disability benefits.23
The Court of Appeals, citing Jarco Marketing v. Court of Appeals,24 held that respondents disability resulted from an accident as the injury was unforeseen and happened without any fault on his
part.
The appellate court declared that the Labor Arbiter correctly applied Article 13 of the CBA25 in awarding respondent disability benefit in the amount of US$90,000.00. It ruled that the NLRC acted
with grave abuse of discretion amounting to lack or excess of jurisdiction in disregarding the CBA.

Petitioners and respondent filed separate motions for reconsideration. Petitioners contended that the absence of an accident report negated the appellate courts finding that the injury suffered by
respondent was the result of an accident arising out of, and in the course of, his employment. Respondents motion for partial reconsideration sought an additional award of attorneys fees equivalent
to 10% of the total monetary award.
In a Resolution dated May 9, 2008, the Court of Appeals denied the motion for reconsideration of petitioners, but granted the motion for partial reconsideration of respondent. The dispositive portion
of the Resolution reads:
WHEREFORE, finding merit in the Motion for Partial Reconsideration filed by petitioner, the same is hereby GRANTED. The Decision dated October 23, 2007 is MODIFIED in that private
respondents are further ordered to pay TEN PERCENT (10%) of the total monetary award as attorneys fees.
The motion for reconsideration filed by private respondents is DENIED.
SO ORDERED.26
The Court of Appeals justified the award of attorneys fees under Article 11127 of the Labor Code and Article 220828 of the Civil Code, as respondent was forced to litigate and has incurred
expenses to protect his right and interest.
Petitioners filed this petition raising the following issues:
I.
THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT RESPONDENT'S MEDICAL CONDITION WAS A RESULT OF AN ACCIDENT DURING THE
TERM OF HIS EMPLOYMENT WITH PETITIONERS, AND HENCE, COVERED BY THE PROVISIONS OF THE CBA.
II.
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT ORDERED THE PAYMENT OF ATTORNEY'S FEES TO RESPONDENT.29
The issues raised before this Court are: (1) whether or not the disability suffered by respondent was caused by an accident; (2) whether or not the disability is compensable under the CBA; and (3)
whether or not respondent is entitled to attorneys fees.
Petitioners contend that respondent did not suffer a disability as a result of an "accident" as defined under existing laws or jurisprudence. They argue that Jarco Marketing v. Court of Appeals,30 the
case citied by the Court of Appeals to support its decision, defined an "accident" as:
x x x an unforeseen event in which no fault or negligence attaches to the defendant. It is "a fortuitous circumstance, event or happening; an event happening without any human agency, or if
happening wholly or partly through human agency, an event which under the circumstances is unusual or unexpected by the person to whom it happens."
Petitioners point out that the above definition of the word "accident," subscribed to by the Court of Appeals, explicitly states that it pertains to a fortuitous circumstance, event or
happening.31 Petitioners cited Lasam v. Smith,32 which defined "fortuitous event" as "an unexpected event or act of God which could neither be foreseen or resisted, such as floods, torrents,
shipwrecks, conflagrations, lightning, compulsion, insurrections, destruction of buildings by unforeseen accidents and other occurrences of similar nature." Petitioners contend that the term
"accident," as contemplated by the subject CBA provision, refers to a separate event or incident which gives riseto the injury of the seafarer.
Petitioners argue that in this case, no such unusual, fortuitous, unexpected or unforeseen event took place or was reported. Respondent merely went about his normal duties when he transported fire
hydrant caps from the deck to the engine workshop, then back to the deck to refit the caps. The sudden snap respondent felt on his back while carrying the fire hydrant caps cannot, by itself, qualify
as an accident.
Hence, petitioners assert that respondent is not entitled to the benefits provided under the CBA. They add that if the ruling of the Court of Appeals would be sustained, it would open the floodgates
for absurd claims for double or higher indemnity, especially in insurance cases, considering that an employee who suffers a stroke, congenital heart failure, or even appendicitis, while at work, would
now be considered as resulting from an accident, since the same may be regarded as an unusual and unexpected occurrence which happened without the employees fault.
Petitioners also contend that there is no basis for the award of attorney's fees, as they did not act in gross and evident bad faith. They merely acted in the interest of what was just and right, since
respondent was not entitled to full disability benefit under the CBA.
The petition is denied.
The provisions of the CBA, which are relevant to this case, are as follows:
Art. 13 (Compensation for Death and Disability)
If a seafarer/officer, due to no fault of his own, suffers permanent disability as a result of an accident while serving on board or while traveling to or from the vessel on Company's business or due to
marine peril, and as a result, his ability to work is permanently reduced, totally or partially, the Company shall pay him a disability compensation which including the amounts stipulated by the
POEA's Rules and Regulations Part II, Section C, shall be maximum of US$70,000.00 for ratings and US$90,000.00 for officers.
The degree of disability, which the Company, subject to this Agreement, is liable to pay, shall be determined by a doctor appointed by the Company. If a doctor appointed by the Seafarer and his
Union disagrees with the assessment, a third doctor may be agreed jointly between the Company and the seafarer and his/her Union, and third doctors decision shall be final and binding on both
parties.
A seafarer who is disabled as a result of an injury, and whose permanent disability in accordance with the POEA schedule is assessed at 50% or more shall, for the purpose of this paragraph, be
regarded as permanently disabled and be entitled to 100% compensation (USD90,000 for officers and USD70,000 for ratings).
A seafarer/officer who is disabled as a result of any injury, and who is assessed as less than 50% permanently disabled, but permanently unfit for further service at sea in any capacity, shall also be
entitled to a 100% compensation.
xxxx
The applicable disability compensation shall be in accordance with the degree of disability and rate of compensation indicated in the table hereunder, to wit:
RATE OF COMPENSATION
DEGREE OF DISABILITY
%

RATINGS

OFFICERS
US$

100

70,000

90,000

75

52,500

67,500

60

42,000

54,000

xxxx
Any payment effected under any section of this article shall be without prejudice to any claim for compensation made in law, but such payments shall be deducted from any award of damages.33
Was respondents disability the result of an accident?

Blacks Law Dictionary34 defines "accident" as "[a]n unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could not be reasonably
anticipated, x x x [a]n unforeseen and injurious occurrence not attributable to mistake, negligence, neglect or misconduct."
The Philippine Law Dictionary35 defines the word "accident" as "[t]hat which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen."
"Accident," in its commonly accepted meaning, or in its ordinary sense, has been defined as:
[A] fortuitous circumstance, event, or happening, an event happening without any human agency, or if happening wholly or partly through human agency, an event which under the circumstances is
unusual and unexpected by the person to whom it happens x x x.
The word may be employed as denoting a calamity, casualty, catastrophe, disaster, an undesirable or unfortunate happening; any unexpected personal injury resulting from any unlooked for mishap
or occurrence; any unpleasant or unfortunate occurrence, that causes injury, loss, suffering or death; some untoward occurrence aside from the usual course of events."36
The Court holds that the snap on the back of respondent was not an accident, but an injury sustained by respondent from carrying the heavy basketful of fire hydrant caps, which injury resulted in his
disability. The injury cannot be said to be the result of an accident, that is, an unlooked for mishap, occurrence, or fortuitous event, because the injury resulted from the performance of a duty.
Although respondent may not have expected the injury, yet, it is common knowledge that carrying heavy objects can cause back injury, as what happened in this case. Hence, the injury cannot be
viewed as unusual under the circumstances, and is not synonymous with the term "accident" as defined above.
Although the disability of respondent was not caused by an accident, his disability is still compensable under Article 13 of the CBA under the following provision:
A seafarer/officer who is disabled as a result of any injury, and who is assessed as less than 50% permanently disabled, but permanently unfit for further service at sea in any capacity, shall also be
entitled to a 100% compensation.
The Court notes that the CBA states that the degree of disability, which the company is liable to pay, shall be determined by a doctor appointed by the company. In this case, the POEA schedule is the
basis of the assessment whether a seafarers permanent disability is 50 percent or more, or less than 50 percent. 37 The Alegre Medical Clinic, petitioners accredited clinic, found that respondent had
a Grade 8 disability (33.59%), described as "moderate rigidity or two-thirds (2/3) loss of motion or lifting power of the trunk." Dr. Almeda, respondents independent doctor, on the other hand, found
respondent to be suffering from Grade 11 disability (14.93%), described as "slight rigidity or one-third (1/3) loss of motion or lifting power of the trunk."
In HFS Philippines, Inc. v. Pilar,38 the Court held that a claimant may dispute the company-designated physicians report by seasonably consulting another doctor. In such a case, the medical report
issued by the latter shall be evaluated by the labor tribunal and the court based on its inherent merit. 39 In this case, petitioners never questioned the weight given by the Labor Arbiter and the Court
of Appeals to the findings of respondents independent doctor in regard to the disability of respondent.
Dr. Almeda, respondents independent doctor, and petitioners accredited medical clinic, both assessed respondents disability in accordance with the POEA schedule as less than 50% permanently
disabled. Moreover, Dr. Almeda, who is a specialist in occupational medicine and orthopedics, found that respondent was unfit to work in any capacity as a seaman. The Medical Report 40 of Dr.
Almeda states:
xxxx
He is now three months post surgery, but still, Mr. Illescas continue to have back pain. There is still on and off pain and numbness on his left thigh. He is also unable to tolerate prolonged standing
and walking. With his present complaints, Mr. Illescas cannot withstand the demands of his previous work at sea. Doing so could aggravate his existing back problem. I therefore recommend a
partial permanent disability with Grade 11 Impediment based on the POEA Contract.
Justification of Impediment:
Grade 11 (14.93%)
Slight rigidity or one-third (1/3) loss of motion or lifting power of the trunk.
Mr. Illescas started having back problems in a workplace incident where he lifted a basketful of hydrant caps. He underwent surgery which he claimed as afforded him partial relief initially.
However, up to the present time, the residual symptoms continue to bother him. This has restricted him in the active performance of certain tasks.
Often, symptoms following surgery are relieved only to recur after a variable period. The causes may include insufficient removal of disc material and further extrusion, rupture of another disc,
adhesions about the nerve root and formation of an osteophyte at the site of removal of bone. Even a successful disc removal, therefore, does not guarantee a permanent cure as fibrosis can produce a
dense constricting scar tissue, which is presumed to be a prime cause of recurrent symptoms.
Diagnostic imaging studies, although important, is but a single facet of the overall evaluation of patients with suspected disc herniation or spinal stenosis, which must include thorough history taking
and physical examination. It is not surprising to encounter some variation between the neurologic symptoms and the result of the patient's imaging studies. Each individual has a different spinal canal
diameter. While a mild herniation may not produce any symptom at all in one person, it may be significant in one with a narrow spinal canal.
Surgery can never stop the pathological process nor restore the back to its previous state. Similar poor results have been found with repeated attempts at surgical intervention for the relief of chronic
low back pain. If long term relief is desired, continued mechanical stress of postural or occupational type must be avoided. Resuming his usual work, which includes increased loading, twisting, or
bending and extension of the back, will further expose Mr. lllescas to dangers of enhancing his discomfort even more.1avvphi1
It is for this reason that I find him UNFIT to work back at sea in any capacity as a Seaman.41
The Court finds merit in the reasons stated by Dr. Almeda in his Medical Report for declaring respondent unfit to work in any capacity as a seaman. Respondent is, therefore, entitled to disability
benefit in the amount of US$90,000.00 under the CBA, thus:
A seafarer/officer who is disabled as a result of any injury, and who is assessed as less than 50% permanently disabled, but permanently unfit for further service at sea in any capacity, shall also be
entitled to a 100% compensation.
xxxx
The applicable disability compensation shall be in accordance with the degree of disability and rate of compensation indicated in the table hereunder, to wit:
RATE OF COMPENSATION
DEGREE OF DISABILITY
%

RATINGS

OFFICERS
US$

100

70,000

90,000

75

52,500

67,500

60

42,000

54,000

xxxx
In regard to the award of attorneys fees, the Court agrees with the Court of Appeals that respondent is entitled to the same under Article 2208 of the Civil Code:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except:
xxxx
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
xxxx
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered.

This case involves the propriety of the award of disability compensation under the CBA to respondent, who worked as a seaman in the foreign vessel of petitioner Barber Ship Management Ltd. The
award of attorneys fees is justified under Article 2208 (2) of the Civil Code. Even if petitioners did not withhold payment of a smaller disability benefit, respondent was compelled to litigate to be
entitled to a higher disability benefit. Moreover, in HFS Philippines, Inc. v. Pilar42 and Iloreta v. Philippine Transmarine Carriers, Inc.,43 the Court sustained the NLRCs award of attorneys fees, in
addition to disability benefits to which the concerned seamen-claimants were entitled. It is no different in this case wherein respondent has been awarded disability benefit and attorneys fees by the
Labor Arbiter and the Court of Appeals. It is only just that respondent be also entitled to the award of attorneys fees. In Iloreta v. Philippine Transmarine Carriers, Inc.,44 the Court found the amount
of US$1,000.00 as reasonable award of attorneys fees.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated October 23, 2007 in CA-G.R. SP No. 97941, and its Resolution dated May 9, 2008 are AFFIRMED insofar as
respondent is awarded disability benefit in the amount of US$90,000.00, as well as attorneys fees, which is reduced to US$1,000.00. Petitioners NFD International Manning Agents, Inc. and Barber
Ship Management Ltd. are hereby ORDERED to jointly and severally pay respondent Esmeraldo C. Illescas disability benefit in the amount of NINETY THOUSAND DOLLARS (US$90,000.00)
and attorneys fees in the amount of ONE THOUSAND DOLLARS (US$1,000.00) in its equivalent in Philippine Peso at the prevailing rate of exchange at the time of actual payment.
Costs against petitioners.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 171101

November 22, 2011

HACIENDA LUISITA, INCORPORATED, Petitioner,


LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING CORPORATION,Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA,
INC. and WINDSOR ANDAYA, Respondents.
RESOLUTION
VELASCO, JR., J.:
For resolution are the (1) Motion for Clarification and Partial Reconsideration dated July 21, 2011 filed by petitioner Hacienda Luisita, Inc. (HLI); (2) Motion for Partial Reconsideration dated July
20, 2011 filed by public respondents Presidential Agrarian Reform Council (PARC) and Department of Agrarian Reform (DAR); (3) Motion for Reconsideration dated July 19, 2011 filed by private
respondent Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita (AMBALA); (4) Motion for Reconsideration dated July 21, 2011 filed by respondent-intervenor Farmworkers Agrarian
Reform Movement, Inc. (FARM); (5) Motion for Reconsideration dated July 21, 2011 filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group of Hacienda Luisita, Inc.
(Supervisory Group) and Windsor Andaya (collectively referred to as "Mallari, et al."); and (6) Motion for Reconsideration dated July 22, 2011 filed by private respondents Rene Galang and
AMBALA.2
On July 5, 2011, this Court promulgated a Decision3 in the above-captioned case, denying the petition filed by HLI and affirming Presidential Agrarian Reform Council (PARC) Resolution No.
2005-32-01 dated December 22, 2005 and PARC Resolution No. 2006-34-01 dated May 3, 2006 with the modification that the original 6,296 qualified farmworker-beneficiaries of Hacienda Luisita
(FWBs) shall have the option to remain as stockholders of HLI.
In its Motion for Clarification and Partial Reconsideration dated July 21, 2011, HLI raises the following issues for Our consideration:
A
IT IS NOT PROPER, EITHER IN LAW OR IN EQUITY, TO DISTRIBUTE TO THE ORIGINAL FWBs OF 6,296 THE UNSPENT OR UNUSED BALANCE OF THE PROCEEDS OF THE
SALE OF THE 500 HECTARES AND 80.51 HECTARES OF THE HLI LAND, BECAUSE:
(1) THE PROCEEDS OF THE SALE BELONG TO THE CORPORATION, HLI, AS CORPORATE CAPITAL AND ASSETS IN SUBSTITUTION FOR THE
PORTIONS OF ITS LAND ASSET WHICH WERE SOLD TO THIRD PARTY;
(2) TO DISTRIBUTE THE CASH SALES PROCEEDS OF THE PORTIONS OF THE LAND ASSET TO THE FWBs, WHO ARE STOCKHOLDERS OF HLI, IS
TO DISSOLVE THE CORPORATION AND DISTRIBUTE THE PROCEEDS AS LIQUIDATING DIVIDENDS WITHOUT EVEN PAYING THE CREDITORS
OF THE CORPORATION;
(3) THE DOING OF SAID ACTS WOULD VIOLATE THE STRINGENT PROVISIONS OF THE CORPORATION CODE AND CORPORATE PRACTICE.
B
IT IS NOT PROPER, EITHER IN LAW OR IN EQUITY, TO RECKON THE PAYMENT OF JUST COMPENSATION FROM NOVEMBER 21, 1989 WHEN THE PARC,
THEN UNDER THE CHAIRMANSHIP OF DAR SECRETARY MIRIAM DEFENSOR-SANTIAGO, APPROVED THE STOCK DISTRIBUTION PLAN (SDP) PROPOSED
BY TADECO/HLI, BECAUSE:
(1) THAT PARC RESOLUTION NO. 89-12-2 DATED NOVEMBER 21, 1989 WAS NOT THE "ACTUAL TAKING" OF THE TADECOs/HLIs
AGRICULTURAL LAND;
(2) THE RECALL OR REVOCATION UNDER RESOLUTION NO. 2005-32-01 OF THAT SDP BY THE NEW PARC UNDER THE CHAIRMANSHIP OF DAR
SECRETARY NASSER PANGANDAMAN ON DECEMBER 22, 2005 OR 16 YEARS EARLIER WHEN THE SDP WAS APPROVED DID NOT RESULT IN
"ACTUAL TAKING" ON NOVEMBER 21, 1989;
(3) TO PAY THE JUST COMPENSATION AS OF NOVEMBER 21, 1989 OR 22 YEARS BACK WOULD BE ARBITRARY, UNJUST, AND OPPRESSIVE,
CONSIDERING THE IMPROVEMENTS, EXPENSES IN THE MAINTENANCE AND PRESERVATION OF THE LAND, AND RISE IN LAND PRICES OR
VALUE OF THE PROPERTY.
On the other hand, PARC and DAR, through the Office of the Solicitor General (OSG), raise the following issues in their Motion for Partial Reconsideration dated July 20, 2011:
THE DOCTRINE OF OPERATIVE FACT DOES NOT APPLY TO THIS CASE FOR THE FOLLOWING REASONS:

I
THERE IS NO LAW OR RULE WHICH HAS BEEN INVALIDATED ON THE GROUND OF UNCONSTITUTIONALITY; AND
II
THIS DOCTRINE IS A RULE OF EQUITY WHICH MAY BE APPLIED ONLY IN THE ABSENCE OF A LAW. IN THIS CASE, THERE IS A POSITIVE LAW WHICH
MANDATES THE DISTRIBUTION OF THE LAND AS A RESULT OF THE REVOCATION OF THE STOCK DISTRIBUTION PLAN (SDP).
For its part, AMBALA poses the following issues in its Motion for Reconsideration dated July 19, 2011:
I
THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT SECTION 31 OF REPUBLIC ACT 6657 (RA
6657) IS CONSTITUTIONAL.
II
THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT ONLY THE [PARCS] APPROVAL OF HLIs
PROPOSAL FOR STOCK DISTRIBUTION UNDER CARP AND THE [SDP] WERE REVOKED AND NOT THE STOCK DISTRIBUTION OPTION AGREEMENT
(SDOA).
III
THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN APPLYING THE DOCTRINE OF OPERATIVE FACTS AND
IN MAKING THE [FWBs] CHOOSE TO OPT FOR ACTUAL LAND DISTRIBUTION OR TO REMAIN AS STOCKHOLDERS OF [HLI].
IV
THE MAJORITY OF THE MEMBERS OF THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT IMPROVING THE ECONOMIC STATUS OF
FWBs IS NOT AMONG THE LEGAL OBLIGATIONS OF HLI UNDER THE SDP AND AN IMPERATIVE IMPOSITION BY [RA 6657] AND DEPARTMENT OF
AGRARIAN REFORM ADMINISTRATIVE ORDER NO. 10 (DAO 10).
V
THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT THE CONVERSION OF THE AGRICULTURAL LANDS DID NOT VIOLATE THE
CONDITIONS OF RA 6657 AND DAO 10.
VI
THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT PETITIONER IS ENTITLED TO PAYMENT OF JUST COMPENSATION. SHOULD
THE HONORABLE COURT AFFIRM THE ENTITLEMENT OF THE PETITIONER TO JUST COMPENSATION, THE SAME SHOULD BE PEGGED TO FORTY
THOUSAND PESOS (PhP 40,000.00) PER HECTARE.
VII
THE HONORABLE COURT, WITH DUE RESPECT, ERRED IN HOLDING THAT LUISITA INDUSTRIAL PARK CORP. (LIPCO) AND RIZAL COMMERCIAL
BANKING CORPORATION (RCBC) ARE INNOCENT PURCHASERS FOR VALUE.
In its Motion for Reconsideration dated July 21, 2011, FARM similarly puts forth the following issues:
I
THE HONORABLE SUPREME COURT SHOULD HAVE STRUCK DOWN SECTION 31 OF [RA 6657] FOR BEING UNCONSTITUTIONAL. THE
CONSTITUTIONALITY ISSUE THAT WAS RAISED BY THE RESPONDENTS-INTERVENORS IS THE LIS MOTA OF THE CASE.
II
THE HONORABLE SUPREME COURT SHOULD NOT HAVE APPLIED THE DOCTRINE OF "OPERATIVE FACT" TO THE CASE. THE OPTION GIVEN TO THE
FARMERS TO REMAIN AS STOCKHOLDERS OF HACIENDA LUISITA IS EQUIVALENT TO AN OPTION FOR HACIENDA LUISITA TO RETAIN LAND IN DIRECT
VIOLATION OF THE COMPREHENSIVE AGRARIAN REFORM LAW. THE DECEPTIVE STOCK DISTRIBUTION OPTION / STOCK DISTRIBUTION PLAN
CANNOT JUSTIFY SUCH RESULT, ESPECIALLY AFTER THE SUPREME COURT HAS AFFIRMED ITS REVOCATION.
III
THE HONORABLE SUPREME COURT SHOULD NOT HAVE CONSIDERED [LIPCO] AND [RCBC] AS INNOCENT PURCHASERS FOR VALUE IN THE INSTANT
CASE.
Mallari, et al., on the other hand, advance the following grounds in support of their Motion for Reconsideration dated July 21, 2011:
(1) THE HOMELOTS REQUIRED TO BE DISTRIBUTED HAVE ALL BEEN DISTRIBUTED PURSUANT TO THE MEMORANDUM OF AGREEMENT. WHAT REMAINS
MERELY IS THE RELEASE OF TITLE FROM THE REGISTER OF DEEDS.

(2) THERE HAS BEEN NO DILUTION OF SHARES. CORPORATE RECORDS WOULD SHOW THAT IF EVER NOT ALL OF THE 18,804.32 SHARES WERE GIVEN TO THE
ACTUAL ORIGINAL FARMWORKER BENEFICIARY, THE RECIPIENT OF THE DIFFERENCE IS THE NEXT OF KIN OR CHILDREN OF SAID ORIGINAL [FWBs]. HENCE,
WE RESPECTFULLY SUBMIT THAT SINCE THE SHARES WERE GIVEN TO THE SAME "FAMILY BENEFICIARY", THIS SHOULD BE DEEMED AS SUBSTANTIAL
COMPLIANCE WITH THE PROVISIONS OF SECTION 4 OF DAO 10.
(3) THERE HAS BEEN NO VIOLATION OF THE 3-MONTH PERIOD TO IMPLEMENT THE [SDP] AS PROVIDED FOR BY SECTION 11 OF DAO 10 AS THIS PROVISION
MUST BE READ IN LIGHT OF SECTION 10 OF EXECUTIVE ORDER NO. 229, THE PERTINENT PORTION OF WHICH READS, "THE APPROVAL BY THE PARC OF A
PLAN FOR SUCH STOCK DISTRIBUTION, AND ITS INITIAL IMPLEMENTATION, SHALL BE DEEMED COMPLIANCE WITH THE LAND DISTRIBUTION
REQUIREMENT OF THE CARP."
(4) THE VALUATION OF THE LAND CANNOT BE BASED AS OF NOVEMBER 21, 1989, THE DATE OF APPROVAL OF THE STOCK DISTRIBUTION OPTION. INSTEAD,
WE RESPECTFULLY SUBMIT THAT THE "TIME OF TAKING" FOR VALUATION PURPOSES IS A FACTUAL ISSUE BEST LEFT FOR THE TRIAL COURTS TO DECIDE.
(5) TO THOSE WHO WILL CHOOSE LAND, THEY MUST RETURN WHAT WAS GIVEN TO THEM UNDER THE SDP. IT WOULD BE UNFAIR IF THEY ARE ALLOWED TO
GET THE LAND AND AT THE SAME TIME HOLD ON TO THE BENEFITS THEY RECEIVED PURSUANT TO THE SDP IN THE SAME WAY AS THOSE WHO WILL
CHOOSE TO STAY WITH THE SDO.
Lastly, Rene Galang and AMBALA, through the Public Interest Law Center (PILC), submit the following grounds in support of their Motion for Reconsideration dated July 22, 2011:
I
THE HONORABLE COURT, WITH DUE RESPECT, GRAVELY ERRED IN ORDERING THE HOLDING OF A VOTING OPTION INSTEAD OF TOTALLY
REDISTRIBUTING THE SUBJECT LANDS TO [FWBs] in [HLI].
A. THE HOLDING OF A VOTING OPTION HAS NO LEGAL BASIS. THE REVOCATION OF THE [SDP] CARRIES WITH IT THE REVOCATION OF THE
[SDOA].
B. GIVING THE [FWBs] THE OPTION TO REMAIN AS STOCKHOLDERS OF HLI WITHOUT MAKING THE NECESSARY CHANGES IN THE
CORPORATE STRUCTURE WOULD ONLY SUBJECT THEM TO FURTHER MANIPULATION AND HARDSHIP.
C. OTHER VIOLATIONS COMMITTED BY HLI UNDER THE [SDOA] AND PERTINENT LAWS JUSTIFY TOTAL LAND REDISTRIBUTION OF
HACIENDA LUISITA.
II
THE HONORABLE COURT, WITH DUE RESPECT, GRAVELY ERRED IN HOLDING THAT THE [RCBC] AND [LIPCO] ARE INNOCENT PURCHASERS FOR VALUE
OF THE 300-HECTARE PROPERTY IN HACIENDA LUISITA THAT WAS SOLD TO THEM PRIOR TO THE INCEPTION OF THE PRESENT CONTROVERSY.
Ultimately, the issues for Our consideration are the following: (1) applicability of the operative fact doctrine; (2) constitutionality of Sec. 31 of RA 6657 or the Comprehensive Agrarian Reform Law
of 1988; (3) coverage of compulsory acquisition; (4) just compensation; (5) sale to third parties; (6) the violations of HLI; and (7) control over agricultural lands.
We shall discuss these issues accordingly.
I. Applicability of the Operative Fact Doctrine
In their motion for partial reconsideration, DAR and PARC argue that the doctrine of operative fact does not apply to the instant case since: (1) there is no law or rule which has been invalidated on
the ground of unconstitutionality;4 (2) the doctrine of operative fact is a rule of equity which may be applied only in the absence of a law, and in this case, they maintain that there is a positive law
which mandates the distribution of the land as a result of the revocation of the stock distribution plan (SDP).5
Echoing the stance of DAR and PARC, AMBALA submits that the operative fact doctrine should only be made to apply in the extreme case in which equity demands it, which allegedly is not in the
instant case.6 It further argues that there would be no undue harshness or injury to HLI in case lands are actually distributed to the farmworkers, and that the decision which orders the farmworkers
to choose whether to remain as stockholders of HLI or to opt for land distribution would result in inequity and prejudice to the farmworkers. 7 The foregoing views are also similarly shared by Rene
Galang and AMBALA, through the PILC.8 In addition, FARM posits that the option given to the FWBs is equivalent to an option for HLI to retain land in direct violation of RA 6657.9
(a) Operative Fact Doctrine Not Limited to
Invalid or Unconstitutional Laws
Contrary to the stance of respondents, the operative fact doctrine does not only apply to laws subsequently declared unconstitutional or unlawful, as it also applies to executive acts subsequently
declared as invalid. As We have discussed in Our July 5, 2011 Decision:
That the operative fact doctrine squarely applies to executive actsin this case, the approval by PARC of the HLI proposal for stock distributionis well-settled in our jurisprudence. In Chavez v.
National Housing Authority, We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case because it is an equitable doctrine which could not be used to countenance an inequitable result that is
contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various agreements implementing the SMDRP is an operative fact that can no longer be disturbed or simply
ignored, citing Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive act, prior to its being declared as unconstitutional by the courts, is
valid and must be complied with, thus:
xxx

xxx

xxx

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason to do so, much less retroactively apply such nullification to deprive private respondent of a
compelling and valid reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon past acts or omissions done
in reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are attached. It would indeed be
ghastly unfair to prevent private respondent from relying upon the order of suspension in lieu of a formal leave application.
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in Rieta v. People, thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No. 4754 was invalid, as the law upon which it was predicated General Order No. 60, issued by then
President Ferdinand E. Marcos was subsequently declared by the Court, in Taada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained pursuant thereto is
inadmissible in evidence.

We do not agree. In Taada, the Court addressed the possible effects of its declaration of the invalidity of various presidential issuances. Discussing therein how such a declaration might affect acts
done on a presumption of their validity, the Court said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter Bank to wit:
The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no
duties, and hence affording no basis for the challenged decree. . . . It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with
qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always
be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects with respect to particular conduct, private and official.
Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute
and of its previous application, demand examination. These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.
xxx

xxx

xxx

"Similarly, the implementation/ enforcement of presidential decrees prior to their publication in the Official Gazette is an operative fact which may have consequences which cannot be justly
ignored. The past cannot always be erased by a new judicial declaration . . . that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."
The Chicot doctrine cited in Taada advocates that, prior to the nullification of a statute, there is an imperative necessity of taking into account its actual existence as an operative fact negating the
acceptance of "a principle of absolute retroactive invalidity." Whatever was done while the legislative or the executive act was in operation should be duly recognized and presumed to be valid in all
respects. The ASSO that was issued in 1979 under General Order No. 60 long before our Decision in Taada and the arrest of petitioner is an operative fact that can no longer be disturbed or
simply ignored. (Citations omitted; emphasis in the original.)
Bearing in mind that PARC Resolution No. 89-12-210an executive actwas declared invalid in the instant case, the operative fact doctrine is clearly applicable.
Nonetheless, the minority is of the persistent view that the applicability of the operative fact doctrine should be limited to statutes and rules and regulations issued by the executive department that
are accorded the same status as that of a statute or those which are quasi-legislative in nature. Thus, the minority concludes that the phrase "executive act" used in the case of De Agbayani v.
Philippine National Bank11 refers only to acts, orders, and rules and regulations that have the force and effect of law. The minority also made mention of the Concurring Opinion of Justice Enrique
Fernando in Municipality of Malabang v. Benito,12 where it was supposedly made explicit that the operative fact doctrine applies to executive acts, which are ultimately quasi-legislative in nature.
We disagree. For one, neither the De Agbayani case nor the Municipality of Malabang case elaborates what "executive act" mean. Moreover, while orders, rules and regulations issued by the
President or the executive branch have fixed definitions and meaning in the Administrative Code and jurisprudence, the phrase "executive act" does not have such specific definition under existing
laws. It should be noted that in the cases cited by the minority, nowhere can it be found that the term "executive act" is confined to the foregoing. Contrarily, the term "executive act" is broad enough
to encompass decisions of administrative bodies and agencies under the executive department which are subsequently revoked by the agency in question or nullified by the Court.
A case in point is the concurrent appointment of Magdangal B. Elma (Elma) as Chairman of the Presidential Commission on Good Government (PCGG) and as Chief Presidential Legal Counsel
(CPLC) which was declared unconstitutional by this Court in Public Interest Center, Inc. v. Elma. 13 In said case, this Court ruled that the concurrent appointment of Elma to these offices is in
violation of Section 7, par. 2, Article IX-B of the 1987 Constitution, since these are incompatible offices. Notably, the appointment of Elma as Chairman of the PCGG and as CPLC is, without a
question, an executive act. Prior to the declaration of unconstitutionality of the said executive act, certain acts or transactions were made in good faith and in reliance of the appointment of Elma
which cannot just be set aside or invalidated by its subsequent invalidation.
In Tan v. Barrios,14 this Court, in applying the operative fact doctrine, held that despite the invalidity of the jurisdiction of the military courts over civilians, certain operative facts must be
acknowledged to have existed so as not to trample upon the rights of the accused therein. Relevant thereto, in Olaguer v. Military Commission No. 34,15 it was ruled that "military tribunals pertain
to the Executive Department of the Government and are simply instrumentalities of the executive power, provided by the legislature for the President as Commander-in-Chief to aid him in properly
commanding the army and navy and enforcing discipline therein, and utilized under his orders or those of his authorized military representatives."16
Evidently, the operative fact doctrine is not confined to statutes and rules and regulations issued by the executive department that are accorded the same status as that of a statute or those which are
quasi-legislative in nature.
Even assuming that De Agbayani initially applied the operative fact doctrine only to executive issuances like orders and rules and regulations, said principle can nonetheless be applied, by analogy,
to decisions made by the President or the agencies under the executive department. This doctrine, in the interest of justice and equity, can be applied liberally and in a broad sense to encompass said
decisions of the executive branch. In keeping with the demands of equity, the Court can apply the operative fact doctrine to acts and consequences that resulted from the reliance not only on a law or
executive act which is quasi-legislative in nature but also on decisions or orders of the executive branch which were later nullified. This Court is not unmindful that such acts and consequences must
be recognized in the higher interest of justice, equity and fairness.
Significantly, a decision made by the President or the administrative agencies has to be complied with because it has the force and effect of law, springing from the powers of the President under the
Constitution and existing laws. Prior to the nullification or recall of said decision, it may have produced acts and consequences in conformity to and in reliance of said decision, which must be
respected. It is on this score that the operative fact doctrine should be applied to acts and consequences that resulted from the implementation of the PARC Resolution approving the SDP of HLI.
More importantly, respondents, and even the minority, failed to clearly explain how the option to remain in HLI granted to individual farmers would result in inequity and prejudice. We can only
surmise that respondents misinterpreted the option as a referendum where all the FWBs will be bound by a majority vote favoring the retention of all the 6,296 FWBs as HLI stockholders.
Respondents are definitely mistaken. The fallo of Our July 5, 2011 Decision is unequivocal that only those FWBs who signified their desire to remain as HLI stockholders are entitled to 18,804.32
shares each, while those who opted not to remain as HLI stockholders will be given land by DAR. Thus, referendum was not required but only individual options were granted to each FWB whether
or not they will remain in HLI.
The application of the operative fact doctrine to the FWBs is not iniquitous and prejudicial to their interests but is actually beneficial and fair to them. First, they are granted the right to remain in
HLI as stockholders and they acquired said shares without paying their value to the corporation. On the other hand, the qualified FWBs are required to pay the value of the land to the Land Bank of
the Philippines (LBP) if land is awarded to them by DAR pursuant to RA 6657. If the qualified FWBs really want agricultural land, then they can simply say no to the option. And second, if the
operative fact doctrine is not applied to them, then the FWBs will be required to return to HLI the 3% production share, the 3% share in the proceeds of the sale of the 500-hectare converted land,
and the 80.51-hectare Subic-Clark-Tarlac Expressway (SCTEX) lot, the homelots and other benefits received by the FWBs from HLI. With the application of the operative fact doctrine, said
benefits, homelots and the 3% production share and 3% share from the sale of the 500-hectare and SCTEX lots shall be respected with no obligation to refund or return them. The receipt of these
things is an operative fact "that can no longer be disturbed or simply ignored."
(b) The Operative Fact Doctrine as Recourse in Equity
As mentioned above, respondents contend that the operative fact doctrine is a rule of equity which may be applied only in the absence of a law, and that in the instant case, there is a positive law
which mandates the distribution of the land as a result of the revocation of the SDP.
Undeniably, the operative fact doctrine is a rule of equity.17 As a complement of legal jurisdiction, equity "seeks to reach and complete justice where courts of law, through the inflexibility of their
rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance
rather than the circumstance, as it is variously expressed by different courts."18 Remarkably, it is applied only in the absence of statutory law and never in contravention of said law.19
In the instant case, respondents argue that the operative fact doctrine should not be applied since there is a positive law, particularly, Sec. 31 of RA 6657, which directs the distribution of the land as a
result of the revocation of the SDP. Pertinently, the last paragraph of Sec. 31 of RA 6657 states:
If within two (2) years from the approval of this Act, the land or stock transfer envisioned above is not made or realized or the plan for such stock distribution approved by the PARC within the same
period, the agricultural land of the corporate owners or corporation shall be subject to the compulsory coverage of this Act. (Emphasis supplied.)
Markedly, the use of the word "or" under the last paragraph of Sec. 31 of RA 6657 connotes that the law gives the corporate landowner an "option" to avail of the stock distribution option or to have
the SDP approved within two (2) years from the approval of RA 6657. This interpretation is consistent with the well-established principle in statutory construction that "[t]he word or is a disjunctive
term signifying disassociation and independence of one thing from the other things enumerated; it should, as a rule, be construed in the sense in which it ordinarily implies, as a disjunctive
word."20 In PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc.,21 this Court held:
Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the return of the equipment; only either one of the two was required. The demand letter was prepared and
signed by Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a simple typographical error, bearing in mind
the nature of the demand, the amount involved, and the fact that it was made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference exists between "and" and "or" in the
manner that the word was employed in the letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of one thing from other things enumerated unless the context requires a different
interpretation.22
In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often connects a series of words or propositions indicating a choice of either. When
"or" is used, the various members of the enumeration are to be taken separately.23
The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other things enumerated.24 (Emphasis in the original.)
Given that HLI secured approval of its SDP in November 1989, well within the two-year period reckoned from June 1988 when RA 6657 took effect, then HLI did not violate the last paragraph of
Sec. 31 of RA 6657. Pertinently, said provision does not bar Us from applying the operative fact doctrine.
Besides, it should be recognized that this Court, in its July 5, 2011 Decision, affirmed the revocation of Resolution No. 89-12-2 and ruled for the compulsory coverage of the agricultural lands of
Hacienda Luisita in view of HLIs violation of the SDP and DAO 10. By applying the operative fact doctrine, this Court merely gave the qualified FWBs the option to remain as stockholders of HLI
and ruled that they will retain the homelots and other benefits which they received from HLI by virtue of the SDP.
It bears stressing that the application of the operative fact doctrine by the Court in its July 5, 2011 Decision is favorable to the FWBs because not only were the FWBs allowed to retain the benefits
and homelots they received under the stock distribution scheme, they were also given the option to choose for themselves whether they want to remain as stockholders of HLI or not. This is in
recognition of the fact that despite the claims of certain farmer groups that they represent the qualified FWBs in Hacienda Luisita, none of them can show that they are duly authorized to speak on
their behalf. As We have mentioned, "To date, such authorization document, which would logically include a list of the names of the authorizing FWBs, has yet to be submitted to be part of the
records."
II. Constitutionality of Sec. 31, RA 6657
FARM insists that the issue of constitutionality of Sec. 31 of RA 6657 is the lis mota of the case, raised at the earliest opportunity, and not to be considered as moot and academic.25
This contention is unmeritorious. As We have succinctly discussed in Our July 5, 2011 Decision:
While there is indeed an actual case or controversy, intervenor FARM, composed of a small minority of 27 farmers, has yet to explain its failure to challenge the constitutionality of Sec. 3l of RA
6657, since as early as November 21, l989 when PARC approved the SDP of Hacienda Luisita or at least within a reasonable time thereafter and why its members received benefits from the SDP
without so much of a protest. It was only on December 4, 2003 or 14 years after approval of the SDP via PARC Resolution No. 89-12-2 dated November 21, 1989 that said plan and approving
resolution were sought to be revoked, but not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the AMBALA petition did NOT question the constitutionality of
Sec. 31 of RA 6657, but concentrated on the purported flaws and gaps in the subsequent implementation of the SDP. Even the public respondents, as represented by the Solicitor General, did not
question the constitutionality of the provision. On the other hand, FARM, whose 27 members formerly belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it
filed its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657 which is
quite too late in the day. The FARM members slept on their rights and even accepted benefits from the SDP with nary a complaint on the alleged unconstitutionality of Sec. 31 upon which the
benefits were derived. The Court cannot now be goaded into resolving a constitutional issue that FARM failed to assail after the lapse of a long period of time and the occurrence of numerous events
and activities which resulted from the application of an alleged unconstitutional legal provision.
It has been emphasized in a number of cases that the question of constitutionality will not be passed upon by the Court unless it is properly raised and presented in an appropriate case at the first
opportunity. FARM is, therefore, remiss in belatedly questioning the constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional question should be raised at the earliest
possible opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue must be the very lis mota of the case does not likewise obtain. The lis mota aspect is not present, the constitutional issue tendered
not being critical to the resolution of the case. The unyielding rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a statute or governmental act. If some other
grounds exist by which judgment can be made without touching the constitutionality of a law, such recourse is favored. Garcia v. Executive Secretary explains why:
Lis Mota the fourth requirement to satisfy before this Court will undertake judicial review means that the Court will not pass upon a question of unconstitutionality, although properly
presented, if the case can be disposed of on some other ground, such as the application of the statute or the general law. The petitioner must be able to show that the case cannot be legally resolved
unless the constitutional question raised is determined. This requirement is based on the rule that every law has in its favor the presumption of constitutionality; to justify its nullification, there must
be a clear and unequivocal breach of the Constitution, and not one that is doubtful, speculative, or argumentative.
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to which the FARM members previously belonged) and the Supervisory Group, is the alleged noncompliance by HLI with the conditions of the SDP to support a plea for its revocation. And before the Court, the lis mota is whether or not PARC acted in grave abuse of discretion when it ordered
the recall of the SDP for such non-compliance and the fact that the SDP, as couched and implemented, offends certain constitutional and statutory provisions. To be sure, any of these key issues may
be resolved without plunging into the constitutionality of Sec. 31 of RA 6657. Moreover, looking deeply into the underlying petitions of AMBALA, et al., it is not the said section per se that is
invalid, but rather it is the alleged application of the said provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700, amending Sec. 7 of RA 6657, has all but superseded Sec. 31 of RA 6657 vis--vis the stock distribution component of said Sec. 31. In
its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June 30, 2009, the modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition." Thus, for all intents and
purposes, the stock distribution scheme under Sec. 31 of RA 6657 is no longer an available option under existing law. The question of whether or not it is unconstitutional should be a moot issue.
(Citations omitted; emphasis in the original.)
Based on the foregoing disquisitions, We maintain that this Court is NOT compelled to rule on the constitutionality of Sec. 31 of RA 6657. In this regard, We clarify that this Court, in its July 5, 2011
Decision, made no ruling in favor of the constitutionality of Sec. 31 of RA 6657. There was, however, a determination of the existence of an apparent grave violation of the Constitution that may
justify the resolution of the issue of constitutionality, to which this Court ruled in the negative. Having clarified this matter, all other points raised by both FARM and AMBALA concerning the
constitutionality of RA 6657 deserve scant consideration.
III. Coverage of Compulsory Acquisition
FARM argues that this Court ignored certain material facts when it limited the maximum area to be covered to 4,915.75 hectares, whereas the area that should, at the least, be covered is 6,443
hectares,26 which is the agricultural land allegedly covered by RA 6657 and previously held by Tarlac Development Corporation (Tadeco).27
We cannot subscribe to this view. Since what is put in issue before the Court is the propriety of the revocation of the SDP, which only involves 4,915.75 has. of agricultural land and not 6,443 has.,
then We are constrained to rule only as regards the 4,915.75 has. of agricultural land.
Moreover, as admitted by FARM itself, this issue was raised for the first time by FARM in its Memorandum dated September 24, 2010 filed before this Court. 28 In this regard, it should be noted
that "[a]s a legal recourse, the special civil action of certiorari is a limited form of review." 29 The certiorari jurisdiction of this Court is narrow in scope as it is restricted to resolving errors of
jurisdiction and grave abuse of discretion, and not errors of judgment.30 To allow additional issues at this stage of the proceedings is violative of fair play, justice and due process.31
Nonetheless, it should be taken into account that this should not prevent the DAR, under its mandate under the agrarian reform law, from subsequently subjecting to agrarian reform other agricultural
lands originally held by Tadeco that were allegedly not transferred to HLI but were supposedly covered by RA 6657.
DAR, however, contends that the declaration of the area32 to be awarded to each FWB is too restrictive. It stresses that in agricultural landholdings like Hacienda Luisita, there are roads, irrigation
canals, and other portions of the land that are considered commonly-owned by farmworkers, and this may necessarily result in the decrease of the area size that may be awarded per FWB. 33 DAR
also argues that the July 5, 2011 Decision of this Court does not give it any leeway in adjusting the area that may be awarded per FWB in case the number of actual qualified FWBs decreases.34
The argument is meritorious. In order to ensure the proper distribution of the agricultural lands of Hacienda Luisita per qualified FWB, and considering that matters involving strictly the
administrative implementation and enforcement of agrarian reform laws are within the jurisdiction of the DAR, 35 it is the latter which shall determine the area with which each qualified FWB will
be awarded.
(a) Conversion of Agricultural Lands
AMBALA insists that the conversion of the agricultural lands violated the conditions of RA 6657 and DAO 10, stating that "keeping the land intact and unfragmented is one of the essential
conditions of [the] SD[P], RA 6657 and DAO 10."36 It asserts that "this provision or conditionality is not mere decoration and is intended to ensure that the farmers can continue with the tillage of
the soil especially since it is the only occupation that majority of them knows."37
We disagree. As We amply discussed in Our July 5, 2011 Decision:

Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita unfragmented is also not among the imperative impositions by the SDP, RA 6657, and DAO 10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the PARC effectively assured the intended stock beneficiaries that the physical integrity of the farm shall remain
inviolate. Accordingly, the Terminal Report and the PARC-assailed resolution would take HLI to task for securing approval of the conversion to non-agricultural uses of 500 hectares of the hacienda.
In not too many words, the Report and the resolution view the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the continued operation of the corporation with its
agricultural land intact and unfragmented is viable with potential for growth and increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)just like the succeeding Sec. 5(b) of DAO 10 on increased income and greater benefits to qualified beneficiariesis but one of the stated criteria to guide PARC in
deciding on whether or not to accept an SDP. Said Sec. 5(a) does not exact from the corporate landowner-applicant the undertaking to keep the farm intact and unfragmented ad infinitum. And there
is logic to HLIs stated observation that the key phrase in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is not the agricultural land remaining intact x x x but
the viability of the corporate operations with its agricultural land being intact and unfragmented. Corporate operation may be viable even if the corporate agricultural land does not remain intact or
[un]fragmented."38
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of any issuance, let alone undermining the viability of Hacienda Luisitas operation, as the DAR Secretary
approved the land conversion applied for and its disposition via his Conversion Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:
Sec. 65. Conversion of Lands.After the lapse of five years from its award when the land ceases to be economically feasible and sound for agricultural purposes, or the locality has become
urbanized and the land will have a greater economic value for residential, commercial or industrial purposes, the DAR upon application of the beneficiary or landowner with due notice to the
affected parties, and subject to existing laws, may authorize the x x x conversion of the land and its dispositions. x x x
Moreover, it is worth noting that the application for conversion had the backing of 5,000 or so FWBs, including respondents Rene Galang, and Jose Julio Suniga, then leaders of the AMBALA and
the Supervisory Group, respectively, as evidenced by the Manifesto of Support they signed and which was submitted to the DAR. 39 If at all, this means that AMBALA should be estopped from
questioning the conversion of a portion of Hacienda Luisita, which its leader has fully supported.
(b) LIPCO and RCBC as Innocent Purchasers for Value
The AMBALA, Rene Galang and the FARM are in accord that Rizal Commercial Banking Corporation (RCBC) and Luisita Industrial Park Corporation (LIPCO) are not innocent purchasers for
value. The AMBALA, in particular, argues that LIPCO, being a wholly-owned subsidiary of HLI, is conclusively presumed to have knowledge of the agrarian dispute on the subject land and could
not feign ignorance of this fact, especially since they have the same directors and stockholders. 40 This is seconded by Rene Galang and AMBALA, through the PILC, which intimate that a look at
the General Information Sheets of the companies involved in the transfers of the 300-hectare portion of Hacienda Luisita, specifically, Centennary Holdings, Inc. (Centennary), LIPCO and RCBC,
would readily reveal that their directors are interlocked and connected to Tadeco and HLI. 41 Rene Galang and AMBALA, through the PILC, also allege that "with the clear-cut involvement of the
leadership of all the corporations concerned, LIPCO and RCBC cannot feign ignorance that the parcels of land they bought are under the coverage of the comprehensive agrarian reform program
[CARP] and that the conditions of the respective sales are imbued with public interest where normal property relations in the Civil Law sense do not apply."42
Avowing that the land subject of conversion still remains undeveloped, Rene Galang and AMBALA, through the PILC, further insist that the condition that "[t]he development of the land should be
completed within the period of five [5] years from the issuance of this Order" was not complied with. AMBALA also argues that since RCBC and LIPCO merely stepped into the shoes of HLI, then
they must comply with the conditions imposed in the conversion order.43
In addition, FARM avers that among the conditions attached to the conversion order, which RCBC and LIPCO necessarily have knowledge of, are (a) that its approval shall in no way amend,
diminish, or alter the undertaking and obligations of HLI as contained in the [SDP] approved on November 21, 1989; and (b) that the benefits, wages and the like, received by the FWBs shall not in
any way be reduced or adversely affected, among others.44
The contentions of respondents are wanting. In the first place, there is no denying that RCBC and LIPCO knew that the converted lands they bought were under the coverage of CARP. Nevertheless,
as We have mentioned in Our July 5, 2011 Decision, this does not necessarily mean that both LIPCO and RCBC already acted in bad faith in purchasing the converted lands. As this Court explained:
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were previously covered by the SDP. Good faith "consists in the possessors belief that the person from whom
he received it was the owner of the same and could convey his title. Good faith requires a well-founded belief that the person from whom title was received was himself the owner of the land, with
the right to convey it. There is good faith where there is an honest intention to abstain from taking any unconscientious advantage from another." It is the opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to CARP coverage by means of a stock distribution plan, as the DAR conversion order was annotated at the
back of the titles of the lots they acquired. However, they are of the honest belief that the subject lots were validly converted to commercial or industrial purposes and for which said lots were taken
out of the CARP coverage subject of PARC Resolution No. 89-12-2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA 6657 explicitly allows conversion and
disposition of agricultural lands previously covered by CARP land acquisition "after the lapse of five (5) years from its award when the land ceases to be economically feasible and sound for
agricultural purposes or the locality has become urbanized and the land will have a greater economic value for residential, commercial or industrial purposes." Moreover, DAR notified all the
affected parties, more particularly the FWBs, and gave them the opportunity to comment or oppose the proposed conversion. DAR, after going through the necessary processes, granted the
conversion of 500 hectares of Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to determine and adjudicate agrarian reform matters and its original exclusive
jurisdiction over all matters involving the implementation of agrarian reform. The DAR conversion order became final and executory after none of the FWBs interposed an appeal to the CA. In this
factual setting, RCBC and LIPCO purchased the lots in question on their honest and well-founded belief that the previous registered owners could legally sell and convey the lots though these were
previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith in acquiring the subject lots. (Emphasis supplied.)
In the second place, the allegation that the converted lands remain undeveloped is contradicted by the evidence on record, particularly, Annex "X" of LIPCOs Memorandum dated September 23,
2010,45 which has photographs showing that the land has been partly developed.46 Certainly, it is a general rule that the factual findings of administrative agencies are conclusive and binding on
the Court when supported by substantial evidence.47However, this rule admits of certain exceptions, one of which is when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.48
In the third place, by arguing that the companies involved in the transfers of the 300-hectare portion of Hacienda Luisita have interlocking directors and, thus, knowledge of one may already be
imputed upon all the other companies, AMBALA and Rene Galang, in effect, want this Court to pierce the veil of corporate fiction. However, piercing the veil of corporate fiction is warranted "only
in cases when the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the
corporations as merged into one."49 As succinctly discussed by the Court in Velarde v. Lopez, Inc.:50
Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when
the separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged
into one. The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed activities.
In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have
been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. (Citations omitted.)
Nowhere, however, in the pleadings and other records of the case can it be gathered that respondent has complete control over Sky Vision, not only of finances but of policy and business practice in
respect to the transaction attacked, so that Sky Vision had at the time of the transaction no separate mind, will or existence of its own. The existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations.
Absent any allegation or proof of fraud or other public policy considerations, the existence of interlocking directors, officers and stockholders is not enough justification to pierce the veil of
corporate fiction as in the instant case.
And in the fourth place, the fact that this Court, in its July 5, 2011 Decision, ordered the payment of the proceeds of the sale of the converted land, and even of the 80.51-hectare land sold to the
government, through the Bases Conversion Development Authority, to the qualified FWBs, effectively fulfils the conditions in the conversion order, to wit: (1) that its approval shall in no way
amend, diminish, or alter the undertaking and obligations of HLI as contained in the SDP approved on November 21, 1989; and (2) that the benefits, wages and the like, received by the FWBs shall
not in any way be reduced or adversely affected, among others.
A view has also been advanced that the 200-hectare lot transferred to Luisita Realty Corporation (LRC) should be included in the compulsory coverage because the corporation did not intervene.
We disagree. Since the 200-hectare lot formed part of the SDP that was nullified by PARC Resolution 2005-32-01, this Court is constrained to make a ruling on the rights of LRC over the said lot.
Moreover, the 500-hectare portion of Hacienda Luisita, of which the 200-hectare portion sold to LRC and the 300-hectare portion subsequently acquired by LIPCO and RCBC were part of, was

already the subject of the August 14, 1996 DAR Conversion Order. By virtue of the said conversion order, the land was already reclassified as industrial/commercial land not subject to compulsory
coverage. Thus, if We place the 200-hectare lot sold to LRC under compulsory coverage, this Court would, in effect, be disregarding the DAR Conversion Order, which has long attained its finality.
And as this Court held in Berboso v. CA,51 "Once final and executory, the Conversion Order can no longer be questioned." Besides, to disregard the Conversion Order through the revocation of the
approval of the SDP would create undue prejudice to LRC, which is not even a party to the proceedings below, and would be tantamount to deprivation of property without due process of law.
Nonethess, the minority is of the adamant view that since LRC failed to intervene in the instant case and was, therefore, unable to present evidence supporting its good faith purchase of the 200hectare converted land, then LRC should be given full opportunity to present its case before the DAR. This minority view is a contradiction in itself. Given that LRC did not intervene and is,
therefore, not a party to the instant case, then it would be incongruous to order them to present evidence before the DAR. Such an order, if issued by this Court, would not be binding upon the LRC.
Moreover, LRC may be considered to have waived its right to participate in the instant petition since it did not intervene in the DAR proceedings for the nullification of the PARC Resolution No. 8912-2 which approved the SDP.
(c) Proceeds of the sale of the 500-hectare converted land
and of the 80.51-hectare land used for the SCTEX
As previously mentioned, We ruled in Our July 5, 2011 Decision that since the Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot
acquired by the government from compulsory coverage, then HLI and its subsidiary, Centennary, should be liable to the FWBs for the price received for said lots. Thus:
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory coverage has
taken place, the FWBs should have their corresponding share of the lands value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2 has been nullified, then all
the lands subject of the SDP will automatically be subject of compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare lot subject of the August 14, 1996 Conversion
Order and the 80.51-hectare SCTEX lot acquired by the government from the area covered by SDP, then HLI and its subsidiary, Centennary, shall be liable to the FWBs for the price received for said
lots. HLI shall be liable for the value received for the sale of the 200-hectare land to LRC in the amount of PhP 500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary,
Centennary, for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-hectare
SCTEX lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the payment of taxes and
expenses relating to the transfer of the land and HLIs statement that most, if not all, of the proceeds were used for legitimate corporate purposes. In order to determine once and for all whether or not
all the proceeds were properly utilized by HLI and its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be approved by the parties to audit the books of HLI to
determine if the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate corporate purposes, titling expenses and in compliance with the
August 14, 1996 Conversion Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that there remains a balance from the proceeds of the sale, then the balance
shall be distributed to the qualified FWBs.
HLI, however, takes exception to the above-mentioned ruling and contends that it is not proper to distribute the unspent or unused balance of the proceeds of the sale of the 500-hectare converted
land and 80.51-hectare SCTEX lot to the qualified FWBs for the following reasons: (1) the proceeds of the sale belong to the corporation, HLI, as corporate capital and assets in substitution for the
portions of its land asset which were sold to third parties; (2) to distribute the cash sales proceeds of the portions of the land asset to the FWBs, who are stockholders of HLI, is to dissolve the
corporation and distribute the proceeds as liquidating dividends without even paying the creditors of the corporation; and (3) the doing of said acts would violate the stringent provisions of the
Corporation Code and corporate practice.52
Apparently, HLI seeks recourse to the Corporation Code in order to avoid its liability to the FWBs for the price received for the 500-hectare converted lot and the 80.51-hectare SCTEX lot.
However, as We have established in Our July 5, 2011 Decision, the rights, obligations and remedies of the parties in the instant case are primarily governed by RA 6657 and HLI cannot shield itself
from the CARP coverage merely under the convenience of being a corporate entity. In this regard, it should be underscored that the agricultural lands held by HLI by virtue of the SDP are no
ordinary assets. These are special assets, because, originally, these should have been distributed to the FWBs were it not for the approval of the SDP by PARC. Thus, the government cannot renege
on its responsibility over these assets. Likewise, HLI is no ordinary corporation as it was formed and organized precisely to make use of these agricultural lands actually intended for distribution to
the FWBs. Thus, it cannot shield itself from the coverage of CARP by invoking the Corporation Code. As explained by the Court:
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation Code, instead of to RA 6657, in determining their rights, obligations and remedies. The Code, it adds,
should be the applicable law on the disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear
that HLI was precisely created in order to comply with RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the SDP.53It is, thus, paradoxical for HLI to shield itself
from the coverage of CARP by invoking exclusive applicability of the Corporation Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI are also stockholders, its applicability is limited as the rights of the parties arising from the
SDP should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevailgeneralia specialibus non derogant. 54 Besides, the present impasse between HLI and the private respondents is not an intracorporate dispute which necessitates the application of the Corporation Code. What private respondents questioned before the DAR is the proper implementation of the SDP and HLIs compliance
with RA 6657. Evidently, RA 6657 should be the applicable law to the instant case. (Emphasis supplied.)
Considering that the 500-hectare converted land, as well as the 80.51-hectare SCTEX lot, should have been included in the compulsory coverage were it not for their conversion and valid transfers,
then it is only but proper that the price received for the sale of these lots should be given to the qualified FWBs. In effect, the proceeds from the sale shall take the place of the lots.
The Court, in its July 5, 2011 Decision, however, takes into account, inter alia, the payment of taxes and expenses relating to the transfer of the land, as well as HLIs statement that most, if not all, of
the proceeds were used for legitimate corporate purposes. Accordingly, We ordered the deduction of the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures
incurred by HLI and Centennary for legitimate corporate purposes, among others.
On this note, DAR claims that the "[l]egitimate corporate expenses should not be deducted as there is no basis for it, especially since only the auditing to be conducted on the financial records of HLI
will reveal the amounts to be offset between HLI and the FWBs."55
The contention is unmeritorious. The possibility of an offsetting should not prevent Us from deducting the legitimate corporate expenses incurred by HLI and Centennary. After all, the Court has
ordered for a proper auditing "[i]n order to determine once and for all whether or not all the proceeds were properly utilized by HLI and its subsidiary, Centennary." In this regard, DAR is tasked to
"engage the services of a reputable accounting firm to be approved by the parties to audit the books of HLI to determine if the proceeds of the sale of the 500-hectare land and the 80.51-hectare
SCTEX lot were actually used for legitimate corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion Order." Also, it should be noted that it is HLI which shall
shoulder the cost of audit to reduce the burden on the part of the FWBs. Concomitantly, the legitimate corporate expenses incurred by HLI and Centennary, as will be determined by a reputable
accounting firm to be engaged by DAR, shall be among the allowable deductions from the proceeds of the sale of the 500-hectare land and the 80.51-hectare SCTEX lot.
We, however, find that the 3% production share should not be deducted from the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot. The 3% production share,
like the homelots, was among the benefits received by the FWBs as farmhands in the agricultural enterprise of HLI and, thus, should not be taken away from the FWBs.
Contrarily, the minority is of the view that as a consequence of the revocation of the SDP, the parties should be restored to their respective conditions prior to its execution and approval, subject to
the application of the principle of set-off or compensation. Such view is patently misplaced.
The law on contracts, i.e. mutual restitution, does not apply to the case at bar. To reiterate, what was actually revoked by this Court, in its July 5, 2011 Decision, is PARC Resolution No. 89-12-2
approving the SDP. To elucidate, it was the SDP, not the SDOA, which was presented for approval by Tadeco to DAR. 56 The SDP explained the mechanics of the stock distribution but did not make
any reference nor correlation to the SDOA. The pertinent portions of the proposal read:
MECHANICS OF STOCK DISTRIBUTION PLAN
Under Section 31 of Republic Act No. 6657, a corporation owning agricultural land may distribute among the qualified beneficiaries such proportion or percentage of its capital stock that the value
of the agricultural land actually devoted to agricultural activities, bears in relation to the corporations total assets. Conformably with this legal provision, Tarlac Development Corporation hereby
submits for approval a stock distribution plan that envisions the following:57 (Terms and conditions omitted; emphasis supplied)
xxxx

The above stock distribution plan is hereby submitted on the basis of all these benefits that the farmworker-beneficiaries of Hacienda Luisita will receive under its provisions in addition to their
regular compensation as farmhands in the agricultural enterprise and the fringe benefits granted to them by their collective bargaining agreement with management.58
Also, PARC Resolution No. 89-12-2 reads as follows:
RESOLUTION APPROVING THE STOCK DISTRIBUTION PLAN OF TARLAC DEVELOPMENT COMPANY/HACIENDA LUISITA INCORPORATED (TDC/HLI)
NOW THEREFORE, on motion duly seconded,
RESOLVED, as it is hereby resolved, to approve the stock distribution plan of TDC/HLI.
UNANIMOUSLY APPROVED.59 (Emphasis supplied)
Clearly, what was approved by PARC is the SDP and not the SDOA. There is, therefore, no basis for this Court to apply the law on contracts to the revocation of the said PARC Resolution.
IV. Just Compensation
In Our July 5, 2011 Decision, We stated that "HLI shall be paid just compensation for the remaining agricultural land that will be transferred to DAR for land distribution to the FWBs." We also
ruled that the date of the "taking" is November 21, 1989, when PARC approved HLIs SDP per PARC Resolution No. 89-12-2.
In its Motion for Clarification and Partial Reconsideration, HLI disagrees with the foregoing ruling and contends that the "taking" should be reckoned from finality of the Decision of this Court, or at
the very least, the reckoning period may be tacked to January 2, 2006, the date when the Notice of Coverage was issued by the DAR pursuant to PARC Resolution No. 2006-34-01 recalling/revoking
the approval of the SDP.60
For their part, Mallari, et al. argue that the valuation of the land cannot be based on November 21, 1989, the date of approval of the SDP. Instead, they aver that the date of "taking" for valuation
purposes is a factual issue best left to the determination of the trial courts.61
At the other end of the spectrum, AMBALA alleges that HLI should no longer be paid just compensation for the agricultural land that will be distributed to the FWBs, since the Manila Regional Trial
Court (RTC) already rendered a decision ordering "the Cojuangcos to transfer the control of Hacienda Luisita to the Ministry of Agrarian Reform, which will distribute the land to small farmers after
compensating the landowners P3.988 million."62 In the event, however, that this Court will rule that HLI is indeed entitled to compensation, AMBALA contends that it should be pegged at forty
thousand pesos (PhP 40,000) per hectare, since this was the same value that Tadeco declared in 1989 to make sure that the farmers will not own the majority of its stocks.63
Despite the above propositions, We maintain that the date of "taking" is November 21, 1989, the date when PARC approved HLIs SDP per PARC Resolution No. 89-12-2, in view of the fact that
this is the time that the FWBs were considered to own and possess the agricultural lands in Hacienda Luisita. To be precise, these lands became subject of the agrarian reform coverage through the
stock distribution scheme only upon the approval of the SDP, that is, November 21, 1989. Thus, such approval is akin to a notice of coverage ordinarily issued under compulsory acquisition. Further,
any doubt should be resolved in favor of the FWBs. As this Court held in Perez-Rosario v. CA:64
It is an established social and economic fact that the escalation of poverty is the driving force behind the political disturbances that have in the past compromised the peace and security of the people
as well as the continuity of the national order. To subdue these acute disturbances, the legislature over the course of the history of the nation passed a series of laws calculated to accelerate agrarian
reform, ultimately to raise the material standards of living and eliminate discontent. Agrarian reform is a perceived solution to social instability. The edicts of social justice found in the Constitution
and the public policies that underwrite them, the extraordinary national experience, and the prevailing national consciousness, all command the great departments of government to tilt the balance in
favor of the poor and underprivileged whenever reasonable doubt arises in the interpretation of the law. But annexed to the great and sacred charge of protecting the weak is the diametric function to
put every effort to arrive at an equitable solution for all parties concerned: the jural postulates of social justice cannot shield illegal acts, nor do they sanction false sympathy towards a certain class,
nor yet should they deny justice to the landowner whenever truth and justice happen to be on her side. In the occupation of the legal questions in all agrarian disputes whose outcomes can
significantly affect societal harmony, the considerations of social advantage must be weighed, an inquiry into the prevailing social interests is necessary in the adjustment of conflicting demands and
expectations of the people, and the social interdependence of these interests, recognized. (Emphasis supplied.)
The minority contends that it is the date of the notice of coverage, that is, January 2, 2006, which is determinative of the just compensation HLI is entitled to for its expropriated lands. To support its
contention, it cited numerous cases where the time of the taking was reckoned on the date of the issuance of the notice of coverage.
However, a perusal of the cases cited by the minority would reveal that none of them involved the stock distribution scheme. Thus, said cases do not squarely apply to the instant case. Moreover, it
should be noted that it is precisely because the stock distribution option is a distinctive mechanism under RA 6657 that it cannot be treated similarly with that of compulsory land acquisition as these
are two (2) different modalities under the agrarian reform program. As We have stated in Our July 5, 2011 Decision, RA 6657 "provides two (2) alternative modalities, i.e., land or stock transfer,
pursuant to either of which the corporate landowner can comply with CARP."
In this regard, it should be noted that when HLI submitted the SDP to DAR for approval, it cannot be gainsaid that the stock distribution scheme is clearly HLIs preferred modality in order to
comply with CARP. And when the SDP was approved, stocks were given to the FWBs in lieu of land distribution. As aptly observed by the minority itself, "[i]nstead of expropriating lands, what the
government took and distributed to the FWBs were shares of stock of petitioner HLI in proportion to the value of the agricultural lands that should have been expropriated and turned over to the
FWBs." It cannot, therefore, be denied that upon the approval of the SDP submitted by HLI, the agricultural lands of Hacienda Luisita became subject of CARP coverage. Evidently, the approval of
the SDP took the place of a notice of coverage issued under compulsory acquisition.
Also, it is surprising that while the minority opines that under the stock distribution option, "title to the property remains with the corporate landowner, which should presumably be dominated by
farmers with majority stockholdings in the corporation," it still insists that the just compensation that should be given to HLI is to be reckoned on January 2, 2006, the date of the issuance of the
notice of coverage, even after it found that the FWBs did not have the majority stockholdings in HLI contrary to the supposed avowed policy of the law. In effect, what the minority wants is to
prejudice the FWBs twice. Given that the FWBs should have had majority stockholdings in HLI but did not, the minority still wants the government to pay higher just compensation to HLI. Even if
it is the government which will pay the just compensation to HLI, this will also affect the FWBs as they will be paying higher amortizations to the government if the "taking" will be considered to
have taken place only on January 2, 2006.
The foregoing notwithstanding, it bears stressing that the DAR's land valuation is only preliminary and is not, by any means, final and conclusive upon the landowner. The landowner can file an
original action with the RTC acting as a special agrarian court to determine just compensation. The court has the right to review with finality the determination in the exercise of what is admittedly a
judicial function.65
A view has also been advanced that HLI should pay the qualified FWBs rental for the use and possession of the land up to the time it surrenders possession and control over these lands. What this
view fails to consider is the fact that the FWBs are also stockholders of HLI prior to the revocation of PARC Resolution No. 89-12-2. Also, the income earned by the corporation from its possession
and use of the land ultimately redounded to the benefit of the FWBs based on its business operations in the form of salaries, benefits voluntarily granted by HLI and other fringe benefits under their
Collective Bargaining Agreement. That being so, there would be unjust enrichment on the part of the FWBs if HLI will still be required to pay rent for the use of the land in question.
V. Sale to Third Parties
There is a view that since the agricultural lands in Hacienda Luisita were placed under CARP coverage through the SDOA scheme on May 11, 1989, then the 10-year period prohibition on the
transfer of awarded lands under RA 6657 lapsed on May 10, 1999, and, consequently, the qualified FWBs should already be allowed to sell these lands with respect to their land interests to third
parties, including HLI, regardless of whether they have fully paid for the lands or not.
The proposition is erroneous. Sec. 27 of RA 6657 states:
SEC. 27. Transferability of Awarded Lands. - Lands acquired by beneficiaries under this Act may not be sold, transferred or conveyed except through hereditary succession, or to the government, or
to the LBP, or to other qualified beneficiaries for a period of ten (10) years: Provided, however, That the children or the spouse of the transferor shall have a right to repurchase the land from the
government or LBP within a period of two (2) years. Due notice of the availability of the land shall be given by the LBP to the Barangay Agrarian Reform Committee (BARC) of the barangay where
the land is situated. The Provincial Agrarian Coordinating Committee (PARCCOM), as herein provided, shall, in turn, be given due notice thereof by the BARC.
If the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or conveyed, with prior approval of the DAR, to any heir of the beneficiary or to any other
beneficiary who, as a condition for such transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the land shall be transferred to the LBP which shall give due notice of
the availability of the land in the manner specified in the immediately preceding paragraph.

In the event of such transfer to the LBP, the latter shall compensate the beneficiary in one lump sum for the amounts the latter has already paid, together with the value of improvements he has made
on the land. (Emphasis supplied.)
To implement the above-quoted provision, inter alia, DAR issued Administrative Order No. 1, Series of 1989 (DAO 1) entitled Rules and Procedures Governing Land Transactions. Said Rules set
forth the rules on validity of land transactions, to wit:
II. RULES ON VALIDITY OF LAND TRANSACTIONS
A. The following transactions are valid:
1. Those executed by the original landowner in favor of the qualified beneficiary from among those certified by DAR.
2. Those in favor of the government, DAR or the Land Bank of the Philippines.
3. Those covering lands retained by the landowner under Section 6 of R.A. 6657 duly certified by the designated DAR Provincial Agrarian Reform Officer (PARO) as a retention area,
executed in favor of transferees whose total landholdings inclusive of the land to be acquired do not exceed five (5) hectares; subject, however, to the right of pre-emption and/or
redemption of tenant/lessee under Section 11 and 12 of R.A. 3844, as amended.
xxxx
4. Those executed by beneficiaries covering lands acquired under any agrarian reform law in favor of the government, DAR, LBP or other qualified beneficiaries certified by DAR.
5. Those executed after ten (10) years from the issuance and registration of the Emancipation Patent or Certificate of Land Ownership Award.
B. The following transactions are not valid:
1. Sale, disposition, lease management contract or transfer of possession of private lands executed by the original landowner prior to June 15, 1988, which are registered on or before
September 13, 1988, or those executed after June 15, 1988, covering an area in excess of the five-hectare retention limit in violation of R.A. 6657.
2. Those covering lands acquired by the beneficiary under R.A. 6657 and executed within ten (10) years from the issuance and registration of an Emancipation Patent or Certificate of
Land Ownership Award.
3. Those executed in favor of a person or persons not qualified to acquire land under R.A. 6657.
4. Sale, transfer, conveyance or change of nature of the land outside of urban centers and city limits either in whole or in part as of June 15, 1988, when R.A. 6657 took effect, except as
provided for under DAR Administrative Order No. 15, series of 1988.
5. Sale, transfer or conveyance by beneficiary of the right to use or any other usufructuary right over the land he acquired by virtue of being a beneficiary, in order to circumvent the law.
x x x x (Emphasis supplied.)
Without a doubt, under RA 6657 and DAO 1, the awarded lands may only be transferred or conveyed after ten (10) years from the issuance and registration of the emancipation patent (EP) or
certificate of land ownership award (CLOA). Considering that the EPs or CLOAs have not yet been issued to the qualified FWBs in the instant case, the 10-year prohibitive period has not even
started. Significantly, the reckoning point is the issuance of the EP or CLOA, and not the placing of the agricultural lands under CARP coverage.
Moreover, if We maintain the position that the qualified FWBs should be immediately allowed the option to sell or convey the agricultural lands in Hacienda Luisita, then all efforts at agrarian
reform would be rendered nugatory by this Court, since, at the end of the day, these lands will just be transferred to persons not entitled to land distribution under CARP. As aptly noted by the late
Senator Neptali Gonzales during the Joint Congressional Conference Committee on the Comprehensive Agrarian Reform Program Bills:
SEN. GONZALES. My point is, as much as possible let the said lands be distributed under CARP remain with the beneficiaries and their heirs because that is the lesson that we have to learn from
PD No. 27. If you will talk with the Congressmen representing Nueva Ecija, Pampanga and Central Luzon provinces, law or no law, you will find out that more than one-third of the original, of the
lands distributed under PD 27 are no longer owned, possessed or being worked by the grantees or the awardees of the same, something which we ought to avoid under the CARP bill that we are
going to enact.66 (Emphasis supplied.)
Worse, by raising that the qualified beneficiaries may sell their interest back to HLI, this smacks of outright indifference to the provision on retention limits 67 under RA 6657, as this Court, in effect,
would be allowing HLI, the previous landowner, to own more than five (5) hectares of agricultural land, which We cannot countenance. There is a big difference between the ownership of
agricultural lands by HLI under the stock distribution scheme and its eventual acquisition of the agricultural lands from the qualified FWBs under the proposed buy-back scheme. The rule on
retention limits does not apply to the former but only to the latter in view of the fact that the stock distribution scheme is sanctioned by Sec. 31 of RA 6657, which specifically allows corporations to
divest a proportion of their capital stock that "the agricultural land, actually devoted to agricultural activities, bears in relation to the companys total assets." On the other hand, no special rules exist
under RA 6657 concerning the proposed buy-back scheme; hence, the general rules on retention limits should apply.
Further, the position that the qualified FWBs are now free to transact with third parties concerning their land interests, regardless of whether they have fully paid for the lands or not, also transgresses
the second paragraph of Sec. 27 of RA 6657, which plainly states that "[i]f the land has not yet been fully paid by the beneficiary, the right to the land may be transferred or conveyed, with prior
approval of the DAR, to any heir of the beneficiary or to any other beneficiary who, as a condition for such transfer or conveyance, shall cultivate the land himself. Failing compliance herewith, the
land shall be transferred to the LBP x x x." When the words and phrases in the statute are clear and unequivocal, the law is applied according to its express terms.68 Verba legis non est recedendum,
or from the words of a statute there should be no departure.69
The minority, however, posits that "[t]o insist that the FWBs rights sleep for a period of ten years is unrealistic, and may seriously deprive them of real opportunities to capitalize and maximize the
victory of direct land distribution." By insisting that We disregard the ten-year restriction under the law in the case at bar, the minority, in effect, wants this Court to engage in judicial legislation,
which is violative of the principle of separation of powers.70 The discourse by Ruben E. Agpalo, in his book on statutory construction, is enlightening:
Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no choice but to see to it that its mandate is obeyed. Where the law is clear and free from
doubt or ambiguity, there is no room for construction or interpretation. Thus, where what is not clearly provided in the law is read into the law by construction because it is more logical and wise, it
would be to encroach upon legislative prerogative to define the wisdom of the law, which is judicial legislation. For whether a statute is wise or expedient is not for the courts to determine. Courts
must administer the law, not as they think it ought to be but as they find it and without regard to consequences.71 (Emphasis supplied.)
And as aptly stated by Chief Justice Renato Corona in his Dissenting Opinion in Ang Ladlad LGBT Party v. COMELEC:72
Regardless of the personal beliefs and biases of its individual members, this Court can only apply and interpret the Constitution and the laws. Its power is not to create policy but to recognize, review
or reverse the policy crafted by the political departments if and when a proper case is brought before it. Otherwise, it will tread on the dangerous grounds of judicial legislation.
Considerably, this Court is left with no other recourse but to respect and apply the law.
VI. Grounds for Revocation of the SDP
AMBALA and FARM reiterate that improving the economic status of the FWBs is among the legal obligations of HLI under the SDP and is an imperative imposition by RA 6657 and DAO
10.73 FARM further asserts that "[i]f that minimum threshold is not met, why allow [stock distribution option] at all, unless the purpose is not social justice but a political accommodation to the
powerful."74
Contrary to the assertions of AMBALA and FARM, nowhere in the SDP, RA 6657 and DAO 10 can it be inferred that improving the economic status of the FWBs is among the legal obligations of
HLI under the SDP or is an imperative imposition by RA 6657 and DAO 10, a violation of which would justify discarding the stock distribution option. As We have painstakingly explained in Our
July 5, 2011 Decision:
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and improve the quality
of lives of the FWBs through greater productivity of agricultural lands. We disagree.
Sec. 2 of RA 6657 states:

SECTION 2. Declaration of Principles and Policies.It is the policy of the State to pursue a Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and farm
workers will receive the highest consideration to promote social justice and to move the nation towards sound rural development and industrialization, and the establishment of owner cultivatorship
of economic-sized farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to the rights of landowners to just compensation and to the ecological needs of the nation, shall be undertaken to
provide farmers and farm workers with the opportunity to enhance their dignity and improve the quality of their lives through greater productivity of agricultural lands.
The agrarian reform program is founded on the right of farmers and regular farm workers, who are landless, to own directly or collectively the lands they till or, in the case of other farm workers, to
receive a share of the fruits thereof. To this end, the State shall encourage the just distribution of all agricultural lands, subject to the priorities and retention limits set forth in this Act, having taken
into account ecological, developmental, and equity considerations, and subject to the payment of just compensation. The State shall respect the right of small landowners and shall provide incentives
for voluntary land-sharing.
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable distribution and ownership of land x x x shall be undertaken to provide farmers and farm workers with the
opportunity to enhance their dignity and improve the quality of their lives through greater productivity of agricultural lands." Of note is the term "opportunity" which is defined as a favorable chance
or opening offered by circumstances. Considering this, by no stretch of imagination can said provision be construed as a guarantee in improving the lives of the FWBs. At best, it merely provides for
a possibility or favorable chance of uplifting the economic status of the FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a violation of which
would justify discarding the stock distribution option. Nothing in that option agreement, law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits exclusive of
free hospital and medical benefits to their immediate family. And attached as Annex "G" to HLIs Memorandum is the certified true report of the finance manager of Jose Cojuangco & Sons
Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA, INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option was Approved by PARC/CARP,"
detailing what HLI gave their workers from 1989 to 2005. The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out (Salaries/Wages & Cash Benefits) = PhP
2,927,848; Total Non-Direct Cash Out (Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report, include the cost of homelots; the PhP 150 million or so representing
3% of the gross produce of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of the 500-hectare converted lands. While not included in the report, HLI manifests
having given the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by the SCTEX. On top of these, it is worth remembering that the shares of stocks were given by HLI to
the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not anyway earned profits through the years, it cannot be over-emphasized that, as a matter of common business
sense, no corporation could guarantee a profitable run all the time. As has been suggested, one of the key features of an SDP of a corporate landowner is the likelihood of the corporate vehicle not
earning, or, worse still, losing money.
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the advisability of approving a stock distribution plan is the likelihood that the plan "would result in
increased income and greater benefits to [qualified beneficiaries] than if the lands were divided and distributed to them individually." But as aptly noted during the oral arguments, DAO 10 ought to
have not, as it cannot, actually exact assurance of success on something that is subject to the will of man, the forces of nature or the inherent risky nature of business. 75 Just like in actual land
distribution, an SDP cannot guarantee, as indeed the SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial notice of the fact that there were many instances wherein
after a farmworker beneficiary has been awarded with an agricultural land, he just subsequently sells it and is eventually left with nothing in the end.
In all then, the onerous condition of the FWBs economic status, their life of hardship, if that really be the case, can hardly be attributed to HLI and its SDP and provide a valid ground for the plans
revocation. (Citations omitted; emphasis in the original.)
This Court, despite the above holding, still affirmed the revocation by PARC of its approval of the SDP based on the following grounds: (1) failure of HLI to fully comply with its undertaking to
distribute homelots to the FWBs under the SDP; (2) distribution of shares of stock to the FWBs based on the number of "man days" or "number of days worked" by the FWB in a years time; and (3)
30-year timeframe for the implementation or distribution of the shares of stock to the FWBs.
Just the same, Mallari, et al. posit that the homelots required to be distributed have all been distributed pursuant to the SDOA, and that what merely remains to be done is the release of title from the
Register of Deeds.76 They further assert that there has been no dilution of shares as the corporate records would show that if ever not all of the 18,804.32 shares were given to the actual original
FWB, the recipient of the difference is the next of kin or children of said original FWB.77 Thus, they submit that since the shares were given to the same "family beneficiary," this should be deemed
as substantial compliance with the provisions of Sec. 4 of DAO 10.78 Also, they argue that there has been no violation of the three-month period to implement the SDP as mandated by Sec. 11 of
DAO, since this provision must be read in light of Sec. 10 of Executive Order No. 229, the pertinent portion of which reads, "The approval by the PARC of a plan for such stock distribution, and its
initial implementation, shall be deemed compliance with the land distribution requirement of the CARP."79
Again, the matters raised by Mallari, et al. have been extensively discussed by the Court in its July 5, 2011 Decision. As stated:
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business associations owning or operating farms which opted for land distribution. Sec. 30 of RA 6657 states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.The individual members of the cooperatives or corporations mentioned in the preceding section shall be provided with homelots and
small farmlots for their family use, to be taken from the land owned by the cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.In the case of farms owned or operated by corporations or other business associations, the following rules
shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned collectively by the worker-beneficiaries who shall form a workers cooperative or association which will
deal with the corporation or business association. Until a new agreement is entered into by and between the workers cooperative or association and the corporation or business association, any
agreement existing at the time this Act takes effect between the former and the previous landowner shall be respected by both the workers cooperative or association and the corporation or business
association.
Noticeably, the foregoing provisions do not make reference to corporations which opted for stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not obliged to provide
for it except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among the qualified family-beneficiaries x x x residential or homelots of not more than 240 sq. m. each, with
each family beneficiary being assured of receiving and owning a homelot in the barrio or barangay where it actually resides," "within a reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC, and yet, it is still the contention of the FWBs that not all was given the 240-square meter homelots and, of
those who were already given, some still do not have the corresponding titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by submitting proof that the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified family beneficiaries were not given the 240 square meters each. So, can you also [prove] that the qualified
family beneficiaries were already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.
Other than the financial report, however, no other substantial proof showing that all the qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is constrained to rule
that HLI has not yet fully complied with its undertaking to distribute homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:

3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD PARTY [FWBs] on
the basis of number of days worked and at no cost to them of one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently owned and held by the
FIRST PARTY, until such time as the entire block of 118,391,976.85 shares shall have been completely acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs, albeit not entailing a cash out from them, is contingent on the number of "man days," that is, the number of
days that the FWBs have worked during the year. This formula deviates from Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the FWBs as the minimum ratio of
shares of stock for purposes of compliance with Sec. 31 of RA 6657. As stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.The [SDP] submitted by the corporate landowner-applicant shall provide for the distribution of an equal number of shares of the same class and value, with the
same rights and features as all other shares, to each of the qualified beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for purposes of compliance with Section 31 of
R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the corporate landowner-applicant may adopt additional stock distribution schemes taking into account factors
such as rank, seniority, salary, position and other circumstances which may be deemed desirable as a matter of sound company policy.
The above proviso gives two (2) sets or categories of shares of stock which a qualified beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier explained, to the
mandatory minimum ratio of shares of stock to be distributed to the FWBs in compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears in relation to the companys total assets." It is this set of shares of stock which, in line with Sec. 4 of DAO 10, is
supposed to be allocated "for the distribution of an equal number of shares of stock of the same class and value, with the same rights and features as all other shares, to each of the qualified
beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant, meaning that this set or category constitutes an augmentation share/s that the corporate landowner may
give under an additional stock distribution scheme, taking into account such variables as rank, seniority, salary, position and like factors which the management, in the exercise of its sound
discretion, may deem desirable.
Before anything else, it should be stressed that, at the time PARC approved HLIs SDP, HLI recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution program
envisaged under the plan, FWBs who came in after 1989, new FWBs in fine, may be accommodated, as they appear to have in fact been accommodated as evidenced by their receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on the number of "man days," HLI violated the afore-quoted rule on stock distribution and effectively
deprived the FWBs of equal shares of stock in the corporation, for, in net effect, these 6,296 qualified FWBs, who theoretically had given up their rights to the land that could have been distributed to
them, suffered a dilution of their due share entitlement. As has been observed during the oral arguments, HLI has chosen to use the shares earmarked for farmworkers as reward system chips to water
down the shares of the original 6,296 FWBs. Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Thats the only point I want to know x x x. Now, but they chose to enter SDOA instead of placing the land under CARP. And for that reason those who would have gotten their shares
of the land actually gave up their rights to this land in place of the shares of the stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the land because that way the government takes own [sic] the land and distribute it to the farmers and pay for the
land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the farmers at that time that numbered x x x those who signed five thousand four hundred ninety eight (5,498)
beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in from 1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who were not in the original
list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to them in 1989 when the land was supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original (interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be diluted, because the company has chosen to use the shares as reward system for new workers who come in? It is
not that the new workers, in effect, become just workers of the corporation whose stockholders were already fixed. The TADECO who has shares there about sixty six percent (66%) and the five
thousand four hundred ninety eight (5,498) farmers at the time of the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right to use this shares, to water down the
shares of those who should have been benefited, and to use it as a reward system decided by the company?
From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified beneficiaries at the time of the approval of the SDP, suffered from watering down of shares. As
determined earlier, each original FWB is entitled to 18,804.32 HLI shares. The original FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the acquisition and
distribution of the HLI shares were based on "man days" or "number of days worked" by the FWB in a years time. As explained by HLI, a beneficiary needs to work for at least 37 days in a fiscal
year before he or she becomes entitled to HLI shares. If it falls below 37 days, the FWB, unfortunately, does not get any share at year end. The number of HLI shares distributed varies depending on
the number of days the FWBs were allowed to work in one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs, such that, as indicated in the Compliance dated August 2,
2010 submitted by HLI to the Court, the total number of farmworkers of HLI as of said date stood at 10,502. All these farmworkers, which include the original 6,296 FWBs, were given shares out of
the 118,931,976.85 HLI shares representing the 33.296% of the total outstanding capital stock of HLI. Clearly, the minimum individual allocation of each original FWB of 18,804.32 shares was
diluted as a result of the use of "man days" and the hiring of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec. 11 of DAO 10
prescribes. Said Sec. 11 provides for the implementation of the approved stock distribution plan within three (3) months from receipt by the corporate landowner of the approval of the plan by
PARC. In fact, based on the said provision, the transfer of the shares of stock in the names of the qualified FWBs should be recorded in the stock and transfer books and must be submitted to the
SEC within sixty (60) days from implementation. As stated:
Section 11. Implementation/Monitoring of Plan.The approved stock distribution plan shall be implemented within three (3) months from receipt by the corporate landowner-applicant of the
approval thereof by the PARC, and the transfer of the shares of stocks in the names of the qualified beneficiaries shall be recorded in stock and transfer books and submitted to the Securities and
Exchange Commission (SEC) within sixty (60) days from the said implementation of the stock distribution plan.
It is evident from the foregoing provision that the implementation, that is, the distribution of the shares of stock to the FWBs, must be made within three (3) months from receipt by HLI of the
approval of the stock distribution plan by PARC. While neither of the clashing parties has made a compelling case of the thrust of this provision, the Court is of the view and so holds that the intent is
to compel the corporate landowner to complete, not merely initiate, the transfer process of shares within that three-month timeframe. Reinforcing this conclusion is the 60-day stock transfer
recording (with the SEC) requirement reckoned from the implementation of the SDP.

To the Court, there is a purpose, which is at once discernible as it is practical, for the three-month threshold. Remove this timeline and the corporate landowner can veritably evade compliance with
agrarian reform by simply deferring to absurd limits the implementation of the stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is justified by the fact that, under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP shall be made in
thirty (30) annual amortizations. To HLI, said section provides a justifying dimension to its 30-year stock distribution program.
HLIs reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the said provision clearly deals with land distribution.
SEC. 26. Payment by Beneficiaries.Lands awarded pursuant to this Act shall be paid for by the beneficiaries to the LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On the other hand, in the instant case, aside from the fact that what is involved is stock distribution, it is the
corporate landowner who has the obligation to distribute the shares of stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the cost of the land thus awarded them to make it less cumbersome for them to pay the government. To be
sure, the reason underpinning the 30-year accommodation does not apply to corporate landowners in distributing shares of stock to the qualified beneficiaries, as the shares may be issued in a much
shorter period of time.
Taking into account the above discussion, the revocation of the SDP by PARC should be upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC and the DAR have
the power to issue rules and regulations, substantive or procedural. Being a product of such rule-making power, DAO 10 has the force and effect of law and must be duly complied with. The PARC
is, therefore, correct in revoking the SDP. Consequently, the PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLIs SDP is nullified and voided. (Citations omitted; emphasis
in the original.)
Based on the foregoing ruling, the contentions of Mallari, et al. are either not supported by the evidence on record or are utterly misplaced. There is, therefore, no basis for the Court to reverse its
ruling affirming PARC Resolution No. 2005-32-01 and PARC Resolution No. 2006-34-01, revoking the previous approval of the SDP by PARC.
VII. Control over Agricultural Lands
After having discussed and considered the different contentions raised by the parties in their respective motions, We are now left to contend with one crucial issue in the case at bar, that is, control
over the agricultural lands by the qualified FWBs.
Upon a review of the facts and circumstances, We realize that the FWBs will never have control over these agricultural lands for as long as they remain as stockholders of HLI. In Our July 5, 2011
Decision, this Court made the following observations:
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on agrarian reform is that control over the agricultural land must always be in the hands of the farmers.
Then it falls on the shoulders of DAR and PARC to see to it the farmers should always own majority of the common shares entitled to elect the members of the board of directors to ensure that the
farmers will have a clear majority in the board. Before the SDP is approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and PARC, such that the value of the
agricultural land contributed to the corporation must always be more than 50% of the total assets of the corporation to ensure that the majority of the members of the board of directors are composed
of the farmers. The PARC composed of the President of the Philippines and cabinet secretaries must see to it that control over the board of directors rests with the farmers by rejecting the inclusion
of non-agricultural assets which will yield the majority in the board of directors to non-farmers. Any deviation, however, by PARC or DAR from the correct application of the formula prescribed by
the second paragraph of Sec. 31 of RA 6675 does not make said provision constitutionally infirm. Rather, it is the application of said provision that can be challenged. Ergo, Sec. 31 of RA 6657 does
not trench on the constitutional policy of ensuring control by the farmers. (Emphasis supplied.)
In line with Our finding that control over agricultural lands must always be in the hands of the farmers, We reconsider our ruling that the qualified FWBs should be given an option to remain as
stockholders of HLI, inasmuch as these qualified FWBs will never gain control given the present proportion of shareholdings in HLI.
A revisit of HLIs Proposal for Stock Distribution under CARP and the Stock Distribution Option Agreement (SDOA) upon which the proposal was based reveals that the total assets of HLI is PhP
590,554,220, while the value of the 4,915.7466 hectares is PhP 196,630,000. Consequently, the share of the farmer-beneficiaries in the HLI capital stock is 33.296% (196,630,000 divided by
590,554.220); 118,391,976.85 HLI shares represent 33.296%. Thus, even if all the holders of the 118,391,976.85 HLI shares unanimously vote to remain as HLI stockholders, which is unlikely,
control will never be placed in the hands of the farmer-beneficiaries.1awp++i1 Control, of course, means the majority of 50% plus at least one share of the common shares and other voting shares.
Applying the formula to the HLI stockholdings, the number of shares that will constitute the majority is 295,112,101 shares (590,554,220 divided by 2 plus one [1] HLI share). The 118,391,976.85
shares subject to the SDP approved by PARC substantially fall short of the 295,112,101 shares needed by the FWBs to acquire control over HLI. Hence, control can NEVER be attained by the
FWBs. There is even no assurance that 100% of the 118,391,976.85 shares issued to the FWBs will all be voted in favor of staying in HLI, taking into account the previous referendum among the
farmers where said shares were not voted unanimously in favor of retaining the SDP. In light of the foregoing consideration, the option to remain in HLI granted to the individual FWBs will have to
be recalled and revoked.
Moreover, bearing in mind that with the revocation of the approval of the SDP, HLI will no longer be operating under SDP and will only be treated as an ordinary private corporation; the FWBs who
remain as stockholders of HLI will be treated as ordinary stockholders and will no longer be under the protective mantle of RA 6657.
In addition to the foregoing, in view of the operative fact doctrine, all the benefits and homelots 80 received by all the FWBs shall be respected with no obligation to refund or return them, since, as
We have mentioned in our July 5, 2011 Decision, "the benefits x x x were received by the FWBs as farmhands in the agricultural enterprise of HLI and other fringe benefits were granted to them
pursuant to the existing collective bargaining agreement with Tadeco."
One last point, the HLI land shall be distributed only to the 6,296 original FWBs. The remaining 4,206 FWBs are not entitled to any portion of the HLI land, because the rights to said land were
vested only in the 6,296 original FWBs pursuant to Sec. 22 of RA 6657.
In this regard, DAR shall verify the identities of the 6,296 original FWBs, consistent with its administrative prerogative to identify and select the agrarian reform beneficiaries under RA 6657.81
WHEREFORE, the Motion for Partial Reconsideration dated July 20, 2011 filed by public respondents Presidential Agrarian Reform Council and Department of Agrarian Reform, the Motion for
Reconsideration dated July 19, 2011 filed by private respondent Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita, the Motion for Reconsideration dated July 21, 2011 filed by respondentintervenor Farmworkers Agrarian Reform Movement, Inc., and the Motion for Reconsideration dated July 22, 2011 filed by private respondents Rene Galang and AMBALA are PARTIALLY
GRANTED with respect to the option granted to the original farmworker-beneficiaries of Hacienda Luisita to remain with Hacienda Luisita, Inc., which is hereby RECALLED and SET ASIDE. The
Motion for Clarification and Partial Reconsideration dated July 21, 2011 filed by petitioner HLI and the Motion for Reconsideration dated July 21, 2011 filed by private respondents Noel Mallari,
Julio Suniga, Supervisory Group of Hacienda Luisita, Inc. and Windsor Andaya are DENIED.
The fallo of the Courts July 5, 2011 Decision is hereby amended and shall read:
PARC Resolution No. 2005-32-01 dated December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLIs SDP under compulsory coverage on mandated
land acquisition scheme of the CARP, are hereby AFFIRMED with the following modifications:
All salaries, benefits, the 3% of the gross sales of the production of the agricultural lands, the 3% share in the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare SCTEX lot
and the homelots already received by the 10,502 FWBs composed of 6,296 original FWBs and the 4,206 non-qualified FWBs shall be respected with no obligation to refund or return them. The
6,296 original FWBs shall forfeit and relinquish their rights over the HLI shares of stock issued to them in favor of HLI. The HLI Corporate Secretary shall cancel the shares issued to the said FWBs
and transfer them to HLI in the stocks and transfer book, which transfers shall be exempt from taxes, fees and charges. The 4,206 non-qualified FWBs shall remain as stockholders of HLI.
DAR shall segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of PARCs SDP-approving Resolution No. 89-12-2 the 500-hectare lot subject of the August 14, l996
Conversion Order and the 80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex. After the segregation process, as indicated, is done, the remaining area shall be
turned over to DAR for immediate land distribution to the original 6,296 FWBs or their successors-in-interest which will be identified by the DAR. The 4,206 non-qualified FWBs are not entitled to
any share in the land to be distributed by DAR.1wphi1
HLI is directed to pay the original 6,296 FWBs the consideration of PhP 500,000,000 received by it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares covered
by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000 received by its owned subsidiary, Centennary Holdings, Inc., for the sale of the remaining 300 hectares of the
aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of PhP 80,511,500 paid by the government through the Bases Conversion Development Authority for the sale of
the 80.51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000 + PhP 80,511,500 = PhP
1,330,511,500) shall be deducted the 3% of the proceeds of said transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures
incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable accounting firm approved by the parties to
audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were actually used or spent for legitimate
corporate purposes. Any unspent or unused balance and any disallowed expenditures as determined by the audit shall be distributed to the 6,296 original FWBs.

HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from November 21, 1989 which is the date of issuance of PARC Resolution No. 89-12-2.
DAR and LBP are ordered to determine the compensation due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after submission of the compliance report, quarterly reports on the execution of this
judgment within the first 15 days after the end of each quarter, until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.
PRESBITERO J. VELASCO

SECOND DIVISION
G.R. No. 172161

March 2, 2011

SLL INTERNATIONAL CABLES SPECIALIST and SONNY L. LAGON, Petitioners,


vs.
NATIONAL LABOR RELATIONS COMMISSION, 4th DIVISION, ROLDAN LOPEZ, EDGARDO ZUIGA and DANILO CAETE, Respondents.
DECISION
MENDOZA, J.:
Assailed in this petition for review on certiorari are the January 11, 2006 Decision 1 and the March 31, 2006 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 00598 which affirmed
with modification the March 31, 2004 Decision3 and December 15, 2004 Resolution4 of the National Labor Relations Commission (NLRC).The NLRC Decision found the petitioners, SLL
International Cables Specialist (SLL) and its manager, Sonny L. Lagon (petitioners), not liable for the illegal dismissal of Roldan Lopez, Danilo Caete and Edgardo Zuiga (private respondents) but
held them jointly and severally liable for payment of certain monetary claims to said respondents.
A chronicle of the factual antecedents has been succinctly summarized by the CA as follows:
Sometime in 1996, and January 1997, private respondents Roldan Lopez (Lopez for brevity) and Danilo Caete (Caete for brevity), and Edgardo Zuiga (Zuiga for brevity) respectively, were
hired by petitioner Lagon as apprentice or trainee cable/lineman. The three were paid the full minimum wage and other benefits but since they were only trainees, they did not report for work
regularly but came in as substitutes to the regular workers or in undertakings that needed extra workers to expedite completion of work. After their training, Zuiga, Caete and Lopez were engaged
as project employees by the petitioners in their Islacom project in Bohol. Private respondents started on March 15, 1997 until December 1997. Upon the completion of their project, their employment
was also terminated. Private respondents received the amount of P145.00, the minimum prescribed daily wage for Region VII. In July 1997, the amount of P145 was increased to P150.00 by the
Regional Wage Board (RWB) and in October of the same year, the latter was increased to P155.00. Sometime in March 1998, Zuiga and Caete were engaged again by Lagon as project employees
for its PLDT Antipolo, Rizal project, which ended sometime in (sic) the late September 1998. As a consequence, Zuiga and Caetes employment was terminated. For this project, Zuiga and
Caete received only the wage of P145.00 daily. The minimum prescribed wage for Rizal at that time was P160.00.
Sometime in late November 1998, private respondents re-applied in the Racitelcom project of Lagon in Bulacan. Zuiga and Caete were re-employed. Lopez was also hired for the said specific
project. For this, private respondents received the wage of P145.00. Again, after the completion of their project in March 1999, private respondents went home to Cebu City.
On May 21, 1999, private respondents for the 4th time worked with Lagons project in Camarin, Caloocan City with Furukawa Corporation as the general contractor. Their contract would expire on
February 28, 2000, the period of completion of the project. From May 21, 1997-December 1999, private respondents received the wage of P145.00. At this time, the minimum prescribed rate for
Manila was P198.00. In January to February 28, the three received the wage of P165.00. The existing rate at that time was P213.00.
For reasons of delay on the delivery of imported materials from Furukawa Corporation, the Camarin project was not completed on the scheduled date of completion. Face[d] with economic
problem[s], Lagon was constrained to cut down the overtime work of its worker[s][,] including private respondents. Thus, when requested by private respondents on February 28, 2000 to work
overtime, Lagon refused and told private respondents that if they insist, they would have to go home at their own expense and that they would not be given anymore time nor allowed to stay in the
quarters. This prompted private respondents to leave their work and went home to Cebu. On March 3, 2000, private respondents filed a complaint for illegal dismissal, non-payment of wages,
holiday pay, 13th month pay for 1997 and 1998 and service incentive leave pay as well as damages and attorneys fees.
In their answers, petitioners admit employment of private respondents but claimed that the latter were only project employees[,] for their services were merely engaged for a specific project or
undertaking and the same were covered by contracts duly signed by private respondents. Petitioners further alleged that the food allowance of P63.00 per day as well as private respondents allowance
for lodging house, transportation, electricity, water and snacks allowance should be added to their basic pay. With these, petitioners claimed that private respondents received higher wage rate than
that prescribed in Rizal and Manila.
Lastly, petitioners alleged that since the workplaces of private respondents were all in Manila, the complaint should be filed there. Thus, petitioners prayed for the dismissal of the complaint for lack
of jurisdiction and utter lack of merit. (Citations omitted.)
On January 18, 2001, Labor Arbiter Reynoso Belarmino (LA) rendered his decision5 declaring that his office had jurisdiction to hear and decide the complaint filed by private respondents. Referring
to Rule IV, Sec. 1 (a) of the NLRC Rules of Procedure prevailing at that time,6 the LA ruled that it had jurisdiction because the "workplace," as defined in the said rule, included the place where the
employee was supposed to report back after a temporary detail, assignment or travel, which in this case was Cebu.
As to the status of their employment, the LA opined that private respondents were regular employees because they were repeatedly hired by petitioners and they performed activities which were
usual, necessary and desirable in the business or trade of the employer.
With regard to the underpayment of wages, the LA found that private respondents were underpaid. It ruled that the free board and lodging, electricity, water, and food enjoyed by them could not be
included in the computation of their wages because these were given without their written consent.
The LA, however, found that petitioners were not liable for illegal dismissal. The LA viewed private respondents act of going home as an act of indifference when petitioners decided to prohibit
overtime work.7
In its March 31, 2004 Decision, the NLRC affirmed the findings of the LA. In addition, the NLRC noted that not a single report of project completion was filed with the nearest Public Employment
Office
as
required
by the Department of Labor and Employment (DOLE) Department Order No. 19, Series of 1993.8 The NLRC later denied9 the motion for reconsideration10 subsequently filed by petitioners.
When the matter was elevated to the CA on a petition for certiorari, it affirmed the findings that the private respondents were regular employees. It considered the fact that they performed functions
which were the regular and usual business of petitioners. According to the CA, they were clearly members of a work pool from which petitioners drew their project employees.
The CA also stated that the failure of petitioners to comply with the simple but compulsory requirement to submit a report of termination to the nearest Public Employment Office every time private
respondents employment was terminated was proof that the latter were not project employees but regular employees.
The CA likewise found that the private respondents were underpaid. It ruled that the board and lodging, electricity, water, and food enjoyed by the private respondents could not be included in the
computation of their wages because these were given without their written consent. The CA added that the private respondents were entitled to 13th month pay.
The CA also agreed with the NLRC that there was no illegal dismissal. The CA opined that it was the petitioners prerogative to grant or deny any request for overtime work and that the private
respondents act of leaving the workplace after their request was denied was an act of abandonment.
In modifying the decision of the labor tribunal, however, the CA noted that respondent Roldan Lopez did not work in the Antipolo project and, thus, was not entitled to wage differentials. Also, in
computing the differentials for the period January and February 2000, the CA disagreed in the award of differentials based on the minimum daily wage of P223.00, as the prevailing minimum daily
wage then was only P213.00. Petitioners sought reconsideration but the CA denied it in its March 31, 2006 Resolution.11
In this petition for review on certiorari,12 petitioners seek the reversal and setting aside of the CA decision anchored on this lone:
GROUND/ASSIGNMENT OF ERROR

THE PUBLIC RESPONDENT NLRC COMMITTED A SERIOUS ERROR IN LAW IN AWARDING WAGE DIFFERENTIALS TO THE PRIVATE COMPLAINANTS ON
THE BASES OF MERE TECHNICALITIES, THAT IS, FOR LACK OF WRITTEN CONFORMITY x x x AND LACK OF NOTICE TO THE DEPARTMENT OF LABOR
AND EMPLOYMENT (DOLE)[,] AND THUS, THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE NLRC DECISION IN THE
LIGHT OF THE RULING IN THE CASE OF JENNY M. AGABON and VIRGILIO AGABON vs, NLRC, ET AL., GR NO. 158963, NOVEMBER 17, 2004, 442 SCRA 573,
[AND SUBSEQUENTLY IN THE CASE OF GLAXO WELLCOME PHILIPPINES, INC. VS. NAGAKAKAISANG EMPLEYADO NG WELLCOME-DFA (NEW DFA), ET
AL., GR NO. 149349, 11 MARCH 2005], WHICH FINDS APPLICATION IN THE INSTANT CASE BY ANALOGY.13
Petitioners reiterated their position that the value of the facilities that the private respondents enjoyed should be included in the computation of the "wages" received by them. They argued that the
rulings in Agabon v. NLRC14and Glaxo Wellcome Philippines, Inc. v. Nagkakaisang Empleyado Ng Wellcome-DFA15 should be applied by analogy, in the sense that the lack of written acceptance
of the employees of the facilities enjoyed by them should not mean that the value of the facilities could not be included in the computation of the private respondents "wages."
On November 29, 2006, the Court resolved to issue a Temporary Restraining Order (TRO) enjoining the public respondent from enforcing the NLRC and CA decisions until further orders from the
Court.
After a thorough review of the records, however, the Court finds no merit in the petition.
This petition generally involves factual issues, such as, whether or not there is evidence on record to support the findings of the LA, the NLRC and the CA that private respondents were project or
regular employees and that their salary differentials had been paid. This calls for a re-examination of the evidence, which the Court cannot entertain. Settled is the rule that factual findings of labor
officials, who are deemed to have acquired expertise in matters within their respective jurisdiction, are generally accorded not only respect but even finality, and bind the Court when supported by
substantial evidence. It is not the Courts function to assess and evaluate the evidence
all over again, particularly where the findings of both the Labor tribunals and the CA concur. 16
As a general rule, on payment of wages, a party who alleges payment as a defense has the burden of proving it.17 Specifically with respect to labor cases, the burden of proving payment of monetary
claims rests on the employer, the rationale being that the pertinent personnel files, payrolls, records, remittances and other similar documents which will show that overtime, differentials, service
incentive leave and other claims of workers have been paid are not in the possession of the worker but in the custody and absolute control of the employer.18
In this case, petitioners, aside from bare allegations that private respondents received wages higher than the prescribed minimum, failed to present any evidence, such as payroll or payslips, to
support their defense of payment. Thus, petitioners utterly failed to discharge the onus probandi.
Private respondents, on the other hand, are entitled to be paid the minimum wage, whether they are regular or non-regular employees.
Section 3, Rule VII of the Rules to Implement the Labor Code19 specifically enumerates those who are not covered by the payment of minimum wage. Project employees are not among them.
On whether the value of the facilities should be included in the computation of the "wages" received by private respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an
employer may provide subsidized meals and snacks to his employees provided that the subsidy shall not be less that 30% of the fair and reasonable value of such facilities. In such cases, the
employer may deduct from the wages of the employees not more than 70% of the value of the meals and snacks enjoyed by the latter, provided that such deduction is with the written authorization of
the employees concerned.
Moreover, before the value of facilities can be deducted from the employees wages, the following requisites must all be attendant: first, proof must be shown that such facilities are customarily
furnished by the trade; second, the provision of deductible facilities must be voluntarily accepted in writing by the employee; and finally, facilities must be charged at reasonable value.20 Mere
availment is not sufficient to allow deductions from employees wages.21
These requirements, however, have not been met in this case. SLL failed to present any company policy or guideline showing that provisions for meals and lodging were part of the employees
salaries. It also failed to provide proof of the employees written authorization, much less show how they arrived at their valuations. At any rate, it is not even clear whether private respondents
actually enjoyed said facilities.
The Court, at this point, makes a distinction between "facilities" and "supplements." It is of the view that the food and lodging, or the electricity and water allegedly consumed by private respondents
in this case were not facilities but supplements. In the case of Atok-Big Wedge Assn. v. Atok-Big Wedge Co.,22 the two terms were distinguished from one another in this wise:
"Supplements," therefore, constitute extra remuneration or special privileges or benefits given to or received by the laborers over and above their ordinary earnings or wages. "Facilities," on the
other hand, are items of expense necessary for the laborer's and his family's existence and subsistence so that by express provision of law (Sec. 2[g]), they form part of the wage and when furnished
by the employer are deductible therefrom, since if they are not so furnished, the laborer would spend and pay for them just the same.
In short, the benefit or privilege given to the employee which constitutes an extra remuneration above and over his basic or ordinary earning or wage is supplement; and when said benefit or
privilege is part of the laborers' basic wages, it is a facility. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or sick leave) given, but in the purpose for which it is
given.23 In the case at bench, the items provided were given freely by SLL for the purpose of maintaining the efficiency and health of its workers while they were working at their respective
projects.1avvphi1
For said reason, the cases of Agabon and Glaxo are inapplicable in this case. At any rate, these were cases of dismissal with just and authorized causes. The present case involves the matter of the
failure of the petitioners to comply with the payment of the prescribed minimum wage.
The Court sustains the deletion of the award of differentials with respect to respondent Roldan Lopez. As correctly pointed out by the CA, he did not work for the project in Antipolo.
WHEREFORE, the petition is DENIED. The temporary restraining order issued by the Court on November 29, 2006 is deemed, as it is hereby ordered, DISSOLVED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

SECOND DIVISION
G.R. No. 172161

March 2, 2011

SLL INTERNATIONAL CABLES SPECIALIST and SONNY L. LAGON, Petitioners,


vs.
NATIONAL LABOR RELATIONS COMMISSION, 4th DIVISION, ROLDAN LOPEZ, EDGARDO ZUIGA and DANILO CAETE, Respondents.
DECISION
MENDOZA, J.:
Assailed in this petition for review on certiorari are the January 11, 2006 Decision 1 and the March 31, 2006 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 00598 which affirmed
with modification the March 31, 2004 Decision3 and December 15, 2004 Resolution4 of the National Labor Relations Commission (NLRC).The NLRC Decision found the petitioners, SLL
International Cables Specialist (SLL) and its manager, Sonny L. Lagon (petitioners), not liable for the illegal dismissal of Roldan Lopez, Danilo Caete and Edgardo Zuiga (private respondents) but
held them jointly and severally liable for payment of certain monetary claims to said respondents.
A chronicle of the factual antecedents has been succinctly summarized by the CA as follows:
Sometime in 1996, and January 1997, private respondents Roldan Lopez (Lopez for brevity) and Danilo Caete (Caete for brevity), and Edgardo Zuiga (Zuiga for brevity) respectively, were
hired by petitioner Lagon as apprentice or trainee cable/lineman. The three were paid the full minimum wage and other benefits but since they were only trainees, they did not report for work
regularly but came in as substitutes to the regular workers or in undertakings that needed extra workers to expedite completion of work. After their training, Zuiga, Caete and Lopez were engaged
as project employees by the petitioners in their Islacom project in Bohol. Private respondents started on March 15, 1997 until December 1997. Upon the completion of their project, their employment
was also terminated. Private respondents received the amount of P145.00, the minimum prescribed daily wage for Region VII. In July 1997, the amount of P145 was increased to P150.00 by the

Regional Wage Board (RWB) and in October of the same year, the latter was increased to P155.00. Sometime in March 1998, Zuiga and Caete were engaged again by Lagon as project employees
for its PLDT Antipolo, Rizal project, which ended sometime in (sic) the late September 1998. As a consequence, Zuiga and Caetes employment was terminated. For this project, Zuiga and
Caete received only the wage of P145.00 daily. The minimum prescribed wage for Rizal at that time was P160.00.
Sometime in late November 1998, private respondents re-applied in the Racitelcom project of Lagon in Bulacan. Zuiga and Caete were re-employed. Lopez was also hired for the said specific
project. For this, private respondents received the wage of P145.00. Again, after the completion of their project in March 1999, private respondents went home to Cebu City.
On May 21, 1999, private respondents for the 4th time worked with Lagons project in Camarin, Caloocan City with Furukawa Corporation as the general contractor. Their contract would expire on
February 28, 2000, the period of completion of the project. From May 21, 1997-December 1999, private respondents received the wage of P145.00. At this time, the minimum prescribed rate for
Manila was P198.00. In January to February 28, the three received the wage of P165.00. The existing rate at that time was P213.00.
For reasons of delay on the delivery of imported materials from Furukawa Corporation, the Camarin project was not completed on the scheduled date of completion. Face[d] with economic
problem[s], Lagon was constrained to cut down the overtime work of its worker[s][,] including private respondents. Thus, when requested by private respondents on February 28, 2000 to work
overtime, Lagon refused and told private respondents that if they insist, they would have to go home at their own expense and that they would not be given anymore time nor allowed to stay in the
quarters. This prompted private respondents to leave their work and went home to Cebu. On March 3, 2000, private respondents filed a complaint for illegal dismissal, non-payment of wages,
holiday pay, 13th month pay for 1997 and 1998 and service incentive leave pay as well as damages and attorneys fees.
In their answers, petitioners admit employment of private respondents but claimed that the latter were only project employees[,] for their services were merely engaged for a specific project or
undertaking and the same were covered by contracts duly signed by private respondents. Petitioners further alleged that the food allowance of P63.00 per day as well as private respondents allowance
for lodging house, transportation, electricity, water and snacks allowance should be added to their basic pay. With these, petitioners claimed that private respondents received higher wage rate than
that prescribed in Rizal and Manila.
Lastly, petitioners alleged that since the workplaces of private respondents were all in Manila, the complaint should be filed there. Thus, petitioners prayed for the dismissal of the complaint for lack
of jurisdiction and utter lack of merit. (Citations omitted.)
On January 18, 2001, Labor Arbiter Reynoso Belarmino (LA) rendered his decision5 declaring that his office had jurisdiction to hear and decide the complaint filed by private respondents. Referring
to Rule IV, Sec. 1 (a) of the NLRC Rules of Procedure prevailing at that time,6 the LA ruled that it had jurisdiction because the "workplace," as defined in the said rule, included the place where the
employee was supposed to report back after a temporary detail, assignment or travel, which in this case was Cebu.
As to the status of their employment, the LA opined that private respondents were regular employees because they were repeatedly hired by petitioners and they performed activities which were
usual, necessary and desirable in the business or trade of the employer.
With regard to the underpayment of wages, the LA found that private respondents were underpaid. It ruled that the free board and lodging, electricity, water, and food enjoyed by them could not be
included in the computation of their wages because these were given without their written consent.
The LA, however, found that petitioners were not liable for illegal dismissal. The LA viewed private respondents act of going home as an act of indifference when petitioners decided to prohibit
overtime work.7
In its March 31, 2004 Decision, the NLRC affirmed the findings of the LA. In addition, the NLRC noted that not a single report of project completion was filed with the nearest Public Employment
Office
as
required
by the Department of Labor and Employment (DOLE) Department Order No. 19, Series of 1993.8 The NLRC later denied9 the motion for reconsideration10 subsequently filed by petitioners.
When the matter was elevated to the CA on a petition for certiorari, it affirmed the findings that the private respondents were regular employees. It considered the fact that they performed functions
which were the regular and usual business of petitioners. According to the CA, they were clearly members of a work pool from which petitioners drew their project employees.
The CA also stated that the failure of petitioners to comply with the simple but compulsory requirement to submit a report of termination to the nearest Public Employment Office every time private
respondents employment was terminated was proof that the latter were not project employees but regular employees.
The CA likewise found that the private respondents were underpaid. It ruled that the board and lodging, electricity, water, and food enjoyed by the private respondents could not be included in the
computation of their wages because these were given without their written consent. The CA added that the private respondents were entitled to 13th month pay.
The CA also agreed with the NLRC that there was no illegal dismissal. The CA opined that it was the petitioners prerogative to grant or deny any request for overtime work and that the private
respondents act of leaving the workplace after their request was denied was an act of abandonment.
In modifying the decision of the labor tribunal, however, the CA noted that respondent Roldan Lopez did not work in the Antipolo project and, thus, was not entitled to wage differentials. Also, in
computing the differentials for the period January and February 2000, the CA disagreed in the award of differentials based on the minimum daily wage of P223.00, as the prevailing minimum daily
wage then was only P213.00. Petitioners sought reconsideration but the CA denied it in its March 31, 2006 Resolution.11
In this petition for review on certiorari,12 petitioners seek the reversal and setting aside of the CA decision anchored on this lone:
GROUND/ASSIGNMENT OF ERROR
THE PUBLIC RESPONDENT NLRC COMMITTED A SERIOUS ERROR IN LAW IN AWARDING WAGE DIFFERENTIALS TO THE PRIVATE COMPLAINANTS ON
THE BASES OF MERE TECHNICALITIES, THAT IS, FOR LACK OF WRITTEN CONFORMITY x x x AND LACK OF NOTICE TO THE DEPARTMENT OF LABOR
AND EMPLOYMENT (DOLE)[,] AND THUS, THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING WITH MODIFICATION THE NLRC DECISION IN THE
LIGHT OF THE RULING IN THE CASE OF JENNY M. AGABON and VIRGILIO AGABON vs, NLRC, ET AL., GR NO. 158963, NOVEMBER 17, 2004, 442 SCRA 573,
[AND SUBSEQUENTLY IN THE CASE OF GLAXO WELLCOME PHILIPPINES, INC. VS. NAGAKAKAISANG EMPLEYADO NG WELLCOME-DFA (NEW DFA), ET
AL., GR NO. 149349, 11 MARCH 2005], WHICH FINDS APPLICATION IN THE INSTANT CASE BY ANALOGY.13
Petitioners reiterated their position that the value of the facilities that the private respondents enjoyed should be included in the computation of the "wages" received by them. They argued that the
rulings in Agabon v. NLRC14and Glaxo Wellcome Philippines, Inc. v. Nagkakaisang Empleyado Ng Wellcome-DFA15 should be applied by analogy, in the sense that the lack of written acceptance
of the employees of the facilities enjoyed by them should not mean that the value of the facilities could not be included in the computation of the private respondents "wages."
On November 29, 2006, the Court resolved to issue a Temporary Restraining Order (TRO) enjoining the public respondent from enforcing the NLRC and CA decisions until further orders from the
Court.
After a thorough review of the records, however, the Court finds no merit in the petition.
This petition generally involves factual issues, such as, whether or not there is evidence on record to support the findings of the LA, the NLRC and the CA that private respondents were project or
regular employees and that their salary differentials had been paid. This calls for a re-examination of the evidence, which the Court cannot entertain. Settled is the rule that factual findings of labor
officials, who are deemed to have acquired expertise in matters within their respective jurisdiction, are generally accorded not only respect but even finality, and bind the Court when supported by
substantial evidence. It is not the Courts function to assess and evaluate the evidence
all over again, particularly where the findings of both the Labor tribunals and the CA concur. 16
As a general rule, on payment of wages, a party who alleges payment as a defense has the burden of proving it.17 Specifically with respect to labor cases, the burden of proving payment of monetary
claims rests on the employer, the rationale being that the pertinent personnel files, payrolls, records, remittances and other similar documents which will show that overtime, differentials, service
incentive leave and other claims of workers have been paid are not in the possession of the worker but in the custody and absolute control of the employer.18
In this case, petitioners, aside from bare allegations that private respondents received wages higher than the prescribed minimum, failed to present any evidence, such as payroll or payslips, to
support their defense of payment. Thus, petitioners utterly failed to discharge the onus probandi.
Private respondents, on the other hand, are entitled to be paid the minimum wage, whether they are regular or non-regular employees.
Section 3, Rule VII of the Rules to Implement the Labor Code19 specifically enumerates those who are not covered by the payment of minimum wage. Project employees are not among them.

On whether the value of the facilities should be included in the computation of the "wages" received by private respondents, Section 1 of DOLE Memorandum Circular No. 2 provides that an
employer may provide subsidized meals and snacks to his employees provided that the subsidy shall not be less that 30% of the fair and reasonable value of such facilities. In such cases, the
employer may deduct from the wages of the employees not more than 70% of the value of the meals and snacks enjoyed by the latter, provided that such deduction is with the written authorization of
the employees concerned.
Moreover, before the value of facilities can be deducted from the employees wages, the following requisites must all be attendant: first, proof must be shown that such facilities are customarily
furnished by the trade; second, the provision of deductible facilities must be voluntarily accepted in writing by the employee; and finally, facilities must be charged at reasonable value.20 Mere
availment is not sufficient to allow deductions from employees wages.21
These requirements, however, have not been met in this case. SLL failed to present any company policy or guideline showing that provisions for meals and lodging were part of the employees
salaries. It also failed to provide proof of the employees written authorization, much less show how they arrived at their valuations. At any rate, it is not even clear whether private respondents
actually enjoyed said facilities.
The Court, at this point, makes a distinction between "facilities" and "supplements." It is of the view that the food and lodging, or the electricity and water allegedly consumed by private respondents
in this case were not facilities but supplements. In the case of Atok-Big Wedge Assn. v. Atok-Big Wedge Co.,22 the two terms were distinguished from one another in this wise:
"Supplements," therefore, constitute extra remuneration or special privileges or benefits given to or received by the laborers over and above their ordinary earnings or wages. "Facilities," on the
other hand, are items of expense necessary for the laborer's and his family's existence and subsistence so that by express provision of law (Sec. 2[g]), they form part of the wage and when furnished
by the employer are deductible therefrom, since if they are not so furnished, the laborer would spend and pay for them just the same.
In short, the benefit or privilege given to the employee which constitutes an extra remuneration above and over his basic or ordinary earning or wage is supplement; and when said benefit or
privilege is part of the laborers' basic wages, it is a facility. The distinction lies not so much in the kind of benefit or item (food, lodging, bonus or sick leave) given, but in the purpose for which it is
given.23 In the case at bench, the items provided were given freely by SLL for the purpose of maintaining the efficiency and health of its workers while they were working at their respective
projects.1avvphi1
For said reason, the cases of Agabon and Glaxo are inapplicable in this case. At any rate, these were cases of dismissal with just and authorized causes. The present case involves the matter of the
failure of the petitioners to comply with the payment of the prescribed minimum wage.
The Court sustains the deletion of the award of differentials with respect to respondent Roldan Lopez. As correctly pointed out by the CA, he did not work for the project in Antipolo.
WHEREFORE, the petition is DENIED. The temporary restraining order issued by the Court on November 29, 2006 is deemed, as it is hereby ordered, DISSOLVED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

THIRD DIVISION
[G.R. No. 113907. February 28, 2000]
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP),, ,LEONOR RIZALDO, JOSIE SUMASAR, NANCY SAMALA, EMERLITA SOLAYAO,
MERCEDITA SAMANIEGO, BLANDINA SIMBULAN, JOCELYN SENDING, LUISITA TABERRERO, TERESITA TIBAR, ESTERLINA VALDEZ, GLORIA VEJERANO,
ILUMINADA VALENCIA, MERLITA DELA VEGA, VIRGIE LAITAN, JULIET VILLARAMA, LUISISTA OCAMPO, NARIO ANDRES, ANSELMA TULFO, GLORIA MATEO, FLANIA
MENDOZA, CONNIE CANGO, EDITHA SALAZAR, MYRNA DELOS SANTOS, TERESITA SERGIO, CHARITO GILLA, FLORENTINA HERNAEZ, BERNARDINO VIRGINIA,
AMPO ANACORITA, SYLVIA POASADAS, ESTRELLA ESPIRITU, CONCORDIA LUZURIAGA, MARINA CERBITO, EMMA REYES, NOEMI PENISALES, CLARITA
POLICARPIO, BELEN BANGUIO, HERMINIA ADVINCULA, LILIA MORTA, REGINA LAPIDARIO, LORNA LARGA, TERESITA VINLUAN, MARITA TENOSO, NILDS SAYAT,
THELMA SARONG, DELMA REGALIS, SUSAN RAFAULO, ELENA RONDINA, MYRNA PIENDA, VIOLETA DUMELINA, FLORENCIA ADALID, FILMA MELAYA, ERLINDA DE
BAUTISTA, MATILDE DE BLAS, DOLORES FACUNDO, REBECCA LEDAMA, MA. FE MACATANGAY, EMELITA MINON, NORMA PAGUIO, ELIZA VASQUEZ, GLORIA
VILLARINO, MA. JESUS FRANCISCO, TERESITA GURPIDO, LIGAYA MANALO, FE PINEDA, MIRIAM OCMAR, LUISA SEGOVIA, TEODY ATIENZA, SOLEDA AZCURE,
CARMEN DELA CRUZ, DMETRIA ESTONELO, MA. FLORIDA LOAZNO, IMELDA MAHIYA, EDILBERTA MENDOZA, SYLVIA POSADAS, SUSANA ORTEGA, JOSEPHINE D.
TALIMORO, TERESITA LORECA, ARSENIA TISOY, LIGAYA MANALO, TERESITA GURPIO, FE PINEDA, and MARIA JESUS FRANCISCO, petitioners, vs. HON.
CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD (B), INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO,
WINCEL LIGOT, MARCIANO HALOG, GODOFREDO PACENO, SR., GERVACIO CASILLANO, LORENZO ITAOC, ATTY. GODOFREDO PACENO, JR., MARGARITO
CABRERA, GAUDENCIO RACHO, SANTIAGO IBANEZ, AND RODRIGO AGUILING, respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court to annul the decision of the National Labor Relations Commission in an unfair labor practice case
instituted by a local union against its employer company and the officers of its national federation.
The petitioner, Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG), hereinafter referred to as the "local union", is an affiliate of the private respondent,
United Lumber and General Workers of the Philippines (ULGWP), referred to as the "federation". The collective bargaining agreement between MSMG and M. Greenfield, Inc.
names the parties as follows:
"This agreement made and entered into by and between:
M. GREENFIELD, INC. (B) a corporation duly organized in accordance with the laws of the Republic of the Philippines with office address at Km.
14, Merville Road, Paraaque, Metro Manila, represented in this act by its General manager, Mr. Carlos T. Javelosa, hereinafter referred to as the
Company;
-andMALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (B) (MSMG)/UNITED LUMBER AND GENERAL WORKERS OF THE
PHILIPPINES (ULGWP), a legitimate labor organization with address at Suite 404, Trinity Building, T.M. Kalaw Street, Manila, represented in this
act by a Negotiating Committee headed by its National President, Mr. Godofredo Paceno, Sr., referred to in this Agreement as the UNION."[1]
The CBA includes, among others, the following pertinent provisions:
Article II-Union Security
Section 1. Coverage and Scope. All employees who are covered by this Agreement and presently members of the UNION shall remain members of the
UNION for the duration of this Agreement as a condition precedent to continued employment with the COMPANY.
xxxxxx
xxxxxx
Section 4. Dismissal. Any such employee mentioned in Section 2 hereof, who fails to maintain his membership in the UNION for non-payment of UNION
dues, for resignation and for violation of UNIONs Constitution and By-Laws and any new employee as defined in Section 2 of this Article shall upon written
notice of such failure to join or to maintain membership in the UNION and upon written recommendation to the COMPANY by the UNION, be dismissed from
the employment by the COMPANY; provided, however, that the UNION shall hold the COMPANY free and blameless from any and all liabilities that may
arise should the dismissed employee question, in any manner, his dismissal; provided, further that the matter of the employees dismissal under this Article
may be submitted as a grievance under Article XIII and, provided, finally, that no such written recommendation shall be made upon the COMPANY nor shall

COMPANY be compelled to act upon any such recommendation within the period of sixty (60) days prior to the expiry date of this Agreement conformably to
law."
Article IX
Section 4. Program Fund - The Company shall provide the amount of P10, 000.00 a month for a continuing labor education program which shall be remitted
to the Federation x x x."[2]
On September 12, 1986, a local union election was held under the auspices of the ULGWP wherein the herein petitioner, Beda Magdalena Villanueva, and the other union officers
were proclaimed as winners. Minutes of the said election were duly filed with the Bureau of Labor Relations on September 29, 1986.
On March 21, 1987, a Petition for Impeachment was filed with the national federation ULGWP by the defeated candidates in the aforementioned election.
On June 16, 1987, the federation conducted an audit of the local union funds. The investigation did not yield any unfavorable result and the local union officers were cleared of the
charges of anomaly in the custody, handling and disposition of the union funds.
The 14 defeated candidates filed a Petition for Impeachment/Expulsion of the local union officers with the DOLE NCR on November 5, 1987, docketed as NCR-OD-M-11-780-87.
However, the same was dismissed on March 2, 1988, by Med-Arbiter Renato Parungo for failure to substantiate the charges and to present evidence in support of the allegations.
On April 17, 1988, the local union held a general membership meeting at the Caruncho Complex in Pasig. Several union members failed to attend the meeting, prompting the
Executive Board to create a committee tasked to investigate the non-attendance of several union members in the said assembly, pursuant to Sections 4 and 5, Article V of the
Constitution and By-Laws of the union, which read:
"Seksyon 4. Ang mga kinukusang hindi pagdalo o hindi paglahok sa lahat ng hakbangin ng unyon ng sinumang kasapi o pinuno ay maaaring maging sanhi
ng pagtitiwalag o pagpapataw ng multa ng hindi hihigit sa P50.00 sa bawat araw na nagkulang.
Seksyon 5. Ang sinumang dadalo na aalis ng hindi pa natatapos ang pulong ay ituturing na pagliban at maparusahan ito ng alinsunod sa Article V,
Seksyong 4 ng Saligang Batas na ito. Sino mang kasapi o pisyales na mahuli and dating sa takdang oras ng di lalampas sa isang oras ay magmumulta ng
P25.00 at babawasin sa sahod sa pamamagitan ng salary deduction at higit sa isang oras ng pagdating ng huli ay ituturing na pagliban.[3]
On June 27, 1988, the local union wrote respondent company a letter requesting it to deduct the union fines from the wages/salaries of those union members who failed to attend
the general membership meeting. A portion of the said letter stated:
"xxx xxx xxx
In connection with Section 4 Article II of our existing Collective Bargaining Agreement, please deduct the amount of P50.00 from each of the union members
named in said annexes on the payroll of July 2-8, 1988 as fine for their failure to attend said general membership meeting."[4]
In a Memorandum dated July 3, 1988, the Secretary General of the national federation, Godofredo Paceo, Jr. disapproved the resolution of the local union imposing the P50.00
fine. The union officers protested such action by the Federation in a Reply dated July 4, 1988.
On July 11, 1988, the Federation wrote respondent company a letter advising the latter not to deduct the fifty-peso fine from the salaries of the union members requesting that:
" x x x any and all future representations by MSMG affecting a number of members be first cleared from the federation before corresponding action by the
Company."[5]
The following day, respondent company sent a reply to petitioner unions request in a letter, stating that it cannot deduct fines from the employees salary without going against
certain laws. The company suggested that the union refer the matter to the proper government office for resolution in order to avoid placing the company in the middle of the issue.
The imposition of P50.00 fine became the subject of bitter disagreement between the Federation and the local union culminating in the latters declaration of general autonomy from
the former through Resolution No. 10 passed by the local executive board and ratified by the general membership on July 16, 1988.
In retaliation, the national federation asked respondent company to stop the remittance of the local unions share in the education funds effective August 1988. This was objected to
by the local union which demanded that the education fund be remitted to it in full.
The company was thus constrained to file a Complaint for Interpleader with a Petition for Declaratory Relief with the Med-Arbitration Branch of the Department of Labor and
Employment, docketed as Case No. OD-M-8-435-88. This was resolved on October 28, 1988, by Med-Arbiter Anastacio Bactin in an Order, disposing thus:
"WHEREFORE, premises considered, it is hereby ordered:
1. That the United Lumber and General Workers of the Philippines (ULGWP) through its local union officers shall administer the collective bargaining
agreement (CBA).
2. That petitioner company shall remit the P10,000.00 monthly labor education program fund to the ULGWP subject to the condition that it shall use the said
amount for its intended purpose.
3. That the Treasurer of the MSMG shall be authorized to collect from the 356 union members the amount of P50.00 as penalty for their failure to attend the
general membership assembly on April 17, 1988.
However, if the MSMG Officers could present the individual written authorizations of the 356 union members, then the company is obliged to deduct from the
salaries of the 356 union members the P50.00 fine."[6]
On appeal, Director Pura-Ferrer Calleja issued a Resolution dated February 7, 1989, which modified in part the earlier disposition, to wit:
"WHEREFORE, premises considered, the appealed portion is hereby modified to the extent that the company should remit the amount of five thousand
pesos (P5,000.00) of the P10,000.00 monthly labor education program fund to ULGWP and the other P5,000.00 to MSMG, both unions to use the same for
its intended purpose."[7]
Meanwhile, on September 2, 1988, several local unions (Top Form, M. Greenfield, Grosby, Triumph International, General Milling, and Vander Hons chapters) filed a Petition for
Audit and Examination of the federation and education funds of ULGWP which was granted by Med-Arbiter Rasidali Abdullah on December 25, 1988 in an Order which directed the
audit and examination of the books of account of ULGWP.
On September 30, 1988, the officials of ULGWP called a Special National Executive Board Meeting at Nasipit, Agusan del Norte where a Resolution was passed placing the
MSMG under trusteeship and appointing respondent Cesar Clarete as administrator.
On October 27, 1988, the said administrator wrote the respondent company informing the latter of its designation of a certain Alfredo Kalingking as local union president and
"disauthorizing" the incumbent union officers from representing the employees. This action by the national federation was protested by the petitioners in a letter to respondent
company dated November 11, 1988.
On November 13, 1988, the petitioner union officers received identical letters from the administrator requiring them to explain within 72 hours why they should not be removed from
their office and expelled from union membership.
On November 26, 1988, petitioners replied:
(a) Questioning the validity of the alleged National Executive Board Resolution placing their union under trusteeship;
(b) Justifying the action of their union in declaring a general autonomy from ULGWP due to the latters inability to give proper educational, organizational and
legal services to its affiliates and the pendency of the audit of the federation funds;
(c) Advising that their union did not commit any act of disloyalty as it has remained an affiliate of ULGWP;

(d) Giving ULGWP a period of five (5) days to cease and desist from further committing acts of coercion, intimidation and harrassment.[8]
However, as early as November 21, 1988, the officers were expelled from the ULGWP. The termination letter read:
"Effective today, November 21, 1988, you are hereby expelled from UNITED LUMBER AND GENERAL WORKERS OF THE PHILIPPINES (ULGWP) for
committing acts of disloyalty and/or acts inimical to the interest and violative to the Constitution and by-laws of your federation.
You failed and/or refused to offer an explanation inspite of the time granted to you.
Since you are no longer a member of good standing, ULGWP is constrained to recommend for your termination from your employment, and provided in
Article II Section 4, known as UNION SECURITY, in the Collective Bargaining agreement."[9]
On the same day, the federation advised respondent company of the expulsion of the 30 union officers and demanded their separation from employment pursuant to the Union
Security Clause in their collective bargaining agreement. This demand was reiterated twice, through letters dated February 21 and March 4, 1989, respectively, to respondent
company.
Thereafter, the Federation filed a Notice of Strike with the National Conciliation and Mediation Board to compel the company to effect the immediate termination of the expelled
union officers.
On March 7, 1989, under the pressure of a threatened strike, respondent company terminated the 30 union officers from employment, serving them identical copies of the
termination letter reproduced below:
We received a demand letter dated 21 November 1988 from the United Lumber and General Workers of the Philippines (ULGWP) demanding for your
dismissal from employment pursuant to the provisions of Article II, Section 4 of the existing Collective Bargaining Agreement (CBA). In the said demand
letter, ULGWP informed us that as of November 21, 1988, you were expelled from the said federation "for committing acts of disloyalty and/or acts inimical
to the interest of ULGWP and violative to its Constitution and By-laws particularly Article V, Section 6, 9, and 12, Article XIII, Section 8."
In subsequent letters dated 21 February and 4 March 1989, the ULGWP reiterated its demand for your dismissal, pointing out that notwithstanding your
expulsion from the federation, you have continued in your employment with the company in violation of Sec. 1 and 4 of Article II of our CBA, and of existing
provisions of law.
In view thereof, we are left with no alternative but to comply with the provisions of the Union Security Clause of our CBA. Accordingly, we hereby serve
notice upon you that we are dismissing you from your employment with M. Greenfield, Inc., pursuant to Sections 1 and 4, Article II of the CBA effective
immediately."[10]
On that same day, the expelled union officers assigned in the first shift were physically or bodily brought out of the company premises by the companys security guards. Likewise,
those assigned to the second shift were not allowed to report for work. This provoked some of the members of the local union to demonstrate their protest for the dismissal of the
said union officers. Some union members left their work posts and walked out of the company premises.
On the other hand, the Federation, having achieved its objective, withdrew the Notice of Strike filed with the NCMB.
On March 8, 1989, the petitioners filed a Notice of Strike with the NCMB, DOLE, Manila, docketed as Case No. NCMB-NCR-NS-03-216-89, alleging the following grounds for the
strike:
(a) Discrimination
(b) Interference in union activities
(c) Mass dismissal of union officers and shop stewards
(d) Threats, coercion and intimidation
(e) Union busting
The following day, March 9, 1989, a strike vote referendum was conducted and out of 2, 103 union members who cast their votes, 2,086 members voted to declare a strike.
On March 10, 1989, the thirty (30) dismissed union officers filed an urgent petition, docketed as Case No. NCMB-NCR-NS-03-216-89, with the Offfice of the Secretary of the
Department of Labor and Employment praying for the suspension of the effects of their termination from employment. However, the petition was dismissed by then Secretary
Franklin Drilon on April 11, 1989, the pertinent portion of which stated as follows:
"At this point in time, it is clear that the dispute at M. Greenfield is purely an intra-union matter. No mass lay-off is evident as the terminations have been
limited to those allegedly leading the secessionist group leaving MSMG-ULGWP to form a union under the KMU. xxx
xxx xxx xxx
WHEREFORE, finding no sufficient jurisdiction to warrant the exercise of our extraordinary authority under Article 277 (b) of the Labor Code, as amended,
the instant Petition is hereby DISMISSED for lack of merit.
SO ORDERED."[11]
On March 13 and 14, 1989, a total of 78 union shop stewards were placed under preventive suspension by respondent company. This prompted the union members to again stage
a walk-out and resulted in the official declaration of strike at around 3:30 in the afternoon of March 14, 1989. The strike was attended with violence, force and intimidation on both
sides resulting to physical injuries to several employees, both striking and non-striking, and damage to company properties.
The employees who participated in the strike and allegedly figured in the violent incident were placed under preventive suspension by respondent company. The company also sent
return-to-work notices to the home addresses of the striking employees thrice successively, on March 27, April 8 and April 31, 1989, respectively. However, respondent company
admitted that only 261 employees were eventually accepted back to work. Those who did not respond to the return-to-work notice were sent termination letters dated May 17,
1989, reproduced below:
M. Greenfield Inc., (B)
Km. 14, Merville Rd., Paraaque, M.M.
May 17, 1989
xxx
On March 14, 1989, without justifiable cause and without due notice, you left your work assignment at the prejudice of the Companys operations. On March
27, April 11, and April 21, 1989, we sent you notices to report to the Company. Inspite of your receipt of said notices, we have not heard from you up to this
date.
Accordingly, for your failure to report, it is construed that you have effectively abandoned your employment and the Company is, therefore, constrained to
dismiss you for said cause.
Very truly yours,
M. GREENFIELD, INC., (B)
By:

WENZEL STEPHEN LIGOT


Asst. HRD Manager"[12]
On August 7, 1989, the petitioners filed a verified complaint with the Arbitration Branch, National Capital Region, DOLE, Manila, docketed as Case No. NCR-00-09-04199-89,
charging private respondents of unfair labor practice which consists of union busting, illegal dismissal, illegal suspension, interference in union activities, discrimination, threats,
intimidation, coercion, violence, and oppresion.
After the filing of the complaint, the lease contracts on the respondent companys office and factory at Merville Subdivision, Paraaque expired and were not renewed. Upon demand
of the owners of the premises, the company was compelled to vacate its office and factory.
Thereafter, the company transferred its administration and account/client servicing department at AFP-RSBS Industrial Park in Taguig, Metro Manila. For failure to find a suitable
place in Metro Manila for relocation of its factory and manufacturing operations, the company was constrained to move the said departments to Tacloban, Leyte. Hence, on April 16,
1990, respondent company accordingly notified its employees of a temporary shutdown. in operations. Employees who were interested in relocating to Tacloban were advised to
enlist on or before April 23, 1990.
The complaint for unfair labor practice was assigned to Labor Arbiter Manuel Asuncion but was thereafter reassigned to Labor Arbiter Cresencio Ramos when respondents moved
to inhibit him from acting on the case.
On December 15, 1992, finding the termination to be valid in compliance with the union security clause of the collective bargaining agreement, Labor Arbiter Cresencio Ramos
dismissed the complaint.
Petitioners then appealed to the NLRC. During its pendency, Commissioner Romeo Putong retired from the service, leaving only two commissioners, Commissioner Vicente Veloso
III and Hon. Chairman Bartolome Carale in the First Division. When Commissioner Veloso inhibited himself from the case, Commissioner Joaquin Tanodra of the Third Division was
temporarily designated to sit in the First Division for the proper disposition of the case.
The First Division affirmed the Labor Arbiters disposition. With the denial of their motion for reconsideration on January 28, 1994, petitioners elevated the case to this Court,
attributing grave abuse of discretion to public respondent NLRC in:
I. UPHOLDING THE DISMISSAL OF THE UNION OFFICERS BY RESPONDENT COMPANY AS VALID;
II. HOLDING THAT THE STRIKE STAGED BYTHE PETITIONERS AS ILLEGAL;
III. HOLDING THAT THE PETITIONER EMPLOYEES WERE DEEMED TO HAVE ABANDONED THEIR WORK AND HENCE, VALIDLY DISMISSED BY
RESPONDENT COMPANY; AND
IV. NOT FINDING RESPONDENT COMPANY AND RESPONDENT FEDERATION OFFICERS GUILTY OF ACTS OF UNFAIR LABOR PRACTICE.
Notwithstanding the several issues raised by the petitioners and respondents in the voluminous pleadings presented before the NLRC and this Court, they revolve around and
proceed from the issue of whether or not respondent company was justified in dismissing petitioner employees merely upon the labor federations demand for the enforcement of
the union security clause embodied in their collective bargaining agreement.
Before delving into the main issue, the procedural flaw pointed out by the petitioners should first be resolved.
Petitioners contend that the decision rendered by the First Division of the NLRC is not valid because Commissioner Tanodra, who is from the Third Division, did not have any lawful
authority to sit, much less write the ponencia, on a case pending before the First Division. It is claimed that a commissioner from one division of the NLRC cannot be assigned or
temporarily designated to another division because each division is assigned a particular territorial jurisdiction. Thus, the decision rendered did not have any legal effect at all for
being irregularly issued.
Petitioners argument is misplaced. Article 213 of the Labor Code in enumerating the powers of the Chairman of the National Labor Relations Commission provides that:
"The concurrence of two (2) Commissioners of a division shall be necessary for the pronouncement of a judgment or resolution. Whenever the required
membership in a division is not complete and the concurrence of two (2) commissioners to arrive at a judgment or resolution cannot be obtained, the
Chairman shall designate such number of additional Commissioners from the other divisions as may be necessary."
It must be remembered that during the pendency of the case in the First Division of the NLRC, one of the three commissioners, Commissioner Romeo Putong, retired, leaving
Chairman Bartolome Carale and Commissioner Vicente Veloso III. Subsequently, Commissioner Veloso inhibited himself from the case because the counsel for the petitioners was
his former classmate in law school. The First Division was thus left with only one commissioner. Since the law requires the concurrence of two commisioners to arrive at a judgment
or resolution, the Commission was constrained to temporarily designate a commissioner from another division to complete the First Division. There is nothing irregular at all in such
a temporary designation for the law empowers the Chairman to make temporary assignments whenever the required concurrence is not met. The law does not say that a
commissioner from the first division cannot be temporarily assigned to the second or third division to fill the gap or vice versa. The territorial divisions do not confer exclusive
jurisdiction to each division and are merely designed for administrative efficiency.
Going into the merits of the case, the court finds that the Complaint for unfair labor practice filed by the petitioners against respondent company which charges union busting, illegal
dismissal, illegal suspension, interference in union activities, discrimination, threats, intimidation, coercion, violence, and oppression actually proceeds from one main issue which is
the termination of several employees by respondent company upon the demand of the labor federation pursuant to the union security clause embodied in their collective bargaining
agreement.
Petitioners contend that their dismissal from work was effected in an arbitrary, hasty, capricious and illegal manner because it was undertaken by the respondent company without
any prior administrative investigation; that, had respondent company conducted prior independent investigation it would have found that their expulsion from the union was unlawful
similarly for lack of prior administrative investigation; that the federation cannot recommend the dismissal of the union officers because it was not a principal party to the collective
bargaining agreement between the company and the union; that public respondents acted with grave abuse of discretion when they declared petitioners dismissals as valid and the
union strike as illegal and in not declaring that respondents were guilty of unfair labor practice.
Private respondents, on the other hand, maintain that the thirty dismissed employees who were former officers of the federation have no cause of action against the company, the
termination of their employment having been made upon the demand of the federation pursuant to the union security clause of the CBA; the expelled officers of the local union
were accorded due process of law prior to their expulsion from their federation; that the strike conducted by the petitioners was illegal for noncompliance with the requirements; that
the employees who participated in the illegal strike and in the commission of violence thereof were validly terminated from work; that petitioners were deemed to have abandoned
their employment when they did not respond to the three return to work notices sent to them; that petitioner labor union has no legal personality to file and prosecute the case for
and on behalf of the individual employees as the right to do so is personal to the latter; and that, the officers of respondent company cannot be liable because as mere corporate
officers, they acted within the scope of their authority.
Public respondent, through the Labor Arbiter, ruled that the dismissed union officers were validly and legally terminated because the dismissal was effected in compliance with the
union security clause of the CBA which is the law between the parties. And this was affimed by the Commission on appeal. Moreover, the Labor Arbiter declared that
notwithstanding the lack of a prior administrative investigation by respondent company, under the union security clause provision in the CBA, the company cannot look into the
legality or illegality of the recommendation to dismiss by the union nd the obligation to dismiss is ministerial on the part of the company.[13]
This ruling of the NLRC is erroneous. Although this Court has ruled that union security clauses embodied in the collective bargaining agreement may be validly enforced and that
dismissals pursuant thereto may likewise be valid, this does not erode the fundamental requirement of due process. The reason behind the enforcement of union security clauses
which is the sanctity and inviolability of contracts[14] cannot override ones right to due process.
In the case of Cario vs. National Labor Relations Commission,[15] this Court pronounced that while the company, under a maintenance of membership provision of the collective
bargaining agreement, is bound to dismiss any employee expelled by the union for disloyalty upon its written request, this undertaking should not be done hastily and summarily.
The company acts in bad faith in dismissing a worker without giving him the benefit of a hearing.
"The power to dismiss is a normal prerogative of the employer. However, this is not without limitation. The employer is bound to exercise caution in
terminating the services of his employees especially so when it is made upon the request of a labor union pursuant to the Collective Bargaining Agreement,

xxx. Dismissals must not be arbitrary and capricious. Due process must be observed in dismissing an employee because it affects not only his position but
also his means of livelihood. Employers should respect and protect the rights of their employees, which include the right to labor."
In the case under scrutiny, petitioner union officers were expelled by the federation for allegedly commiting acts of disloyalty and/or inimical to the interest of ULGWP and in
violation of its Constitution and By-laws. Upon demand of the federation, the company terminated the petitioners without conducting a separate and independent investigation.
Respondent company did not inquire into the cause of the expulsion and whether or not the federation had sufficient grounds to effect the same. Relying merely upon the
federations allegations, respondent company terminated petitioners from employment when a separate inquiry could have revealed if the federation had acted arbitrarily and
capriciously in expelling the union officers. Respondent companys allegation that petitioners were accorded due process is belied by the termination letters received by the
petitioners which state that the dismissal shall be immediately effective.
As held in the aforecited case of Cario, "the right of an employee to be informed of the charges against him and to reasonable opportunity to present his side in a controversy with
either the company or his own union is not wiped away by a union security clause or a union shop clause in a collective bargaining agreement. An employee is entitled to be
protected not only from a company which disregards his rights but also from his own union the leadership of which could yield to the temptation of swift and arbitrary expulsion from
membership and mere dismissal from his job."
While respondent company may validly dismiss the employees expelled by the union for disloyalty under the union security clause of the collective bargaining agreement upon the
recommendation by the union, this dismissal should not be done hastily and summarily thereby eroding the employees right to due process, self-organization and security of
tenure. The enforcement of union security clauses is authorized by law provided such enforcement is not characterized by arbitrariness, and always with due process.[16] Even on
the assumption that the federation had valid grounds to expell the union officers, due process requires that these union officers be accorded a separate hearing by respondent
company.
In its decision, public respondent also declared that if complainants (herein petitioners) have any recourse in law, their right of action is against the federation and not against the
company or its officers, relying on the findings of the Labor Secretary that the issue of expulsion of petitioner union officers by the federation is a purely intra-union matter.
Again, such a contention is untenable. While it is true that the issue of expulsion of the local union officers is originally between the local union and the federation, hence, intraunion in character, the issue was later on converted into a termination dispute when the company dismissed the petitioners from work without the benefit of a separate notice and
hearing. As a matter of fact, the records reveal that the the termination was effective on the same day that the the termination notice was served on the petitioners.
In the case of Liberty Cotton Mills Workers Union vs. Liberty Cotton Mills, Inc.[17], the Court held the company liable for the payment of backwages for having acted in bad faith in
effecting the dismissal of the employees.
"xxx Bad faith on the part of the respondent company may be gleaned from the fact that the petitioner workers were dismissed hastily and summarily. At
best, it was guilty of a tortious act, for which it must assume solidary liability, since it apparently chose to summarily dismiss the workers at the unions
instance secure in the unions contractual undertaking that the union would hold it free from any liability arising from such dismissal."
Thus, notwithstanding the fact that the dismissal was at the instance of the federation and that it undertook to hold the company free from any liability resulting from such a
dismissal, the company may still be held liable if it was remiss in its duty to accord the would-be dismissed employees their right to be heard on the matter.
Anent petitioners contention that the federation was not a principal party to the collective bargaining agreement between the company and the union, suffice it to say that the matter
was already ruled upon in the Interpleader case filed by respondent company. Med-Arbiter Anastacio Bactin thus ruled:
After a careful examination of the facts and evidences presented by the parties, this Officer hereby renders its decision as follows:
1.) It appears on record that in the Collective Bargaining Agreement (CBA) which took effect on July 1, 1986, the contracting parties are M. Greenfield, Inc.
(B) and Malayang Samahan ng Mga Manggagawa sa M. Greenfield, Inc. (B) (MSMG)/United Lumber and General Workers of the Philippines (ULGWP).
However, MSMG was not yet a registered labor organization at the time of the signing of the CBA. Hence, the union referred to in the CBA is the
ULGWP."[18]
Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest as follows:
It is undisputed that ULGWP is the certified sole and exclusive collective bargaining agent of all the regular rank-and-file workers of the company, M.
Greenfield, Inc. (pages 31-32 of the records).
It has been established also that the company and ULGWP signed a 3-year collective bargaining agreement effective July 1, 1986 up to June 30, 1989.[19]
Although the issue of whether or not the federation had reasonable grounds to expel the petitioner union officers is properly within the original and exclusive jurisdiction of the
Bureau of Labor Relations, being an intra-union conflict, this Court deems it justifiable that such issue be nonetheless ruled upon, as the Labor Arbiter did, for to remand the same
to the Bureau of Labor Relations would be to intolerably delay the case.
The Labor Arbiter found that petitioner union officers were justifiably expelled from the federation for committing acts of disloyalty when it "undertook to disaffiliate from the
federation by charging ULGWP with failure to provide any legal, educational or organizational support to the local. x x x and declared autonomy, wherein they prohibit the federation
from interfering in any internal and external affairs of the local union."[20]
It is well-settled that findings of facts of the NLRC are entitled to great respect and are generally binding on this Court, but it is equally well-settled that the Court will not uphold
erroneous conclusions of the NLRC as when the Court finds insufficient or insubstantial evidence on record to support those factual findings. The same holds true when it is
perceived that far too much is concluded, inferred or deduced from the bare or incomplete facts appearing of record.[21]
In its decision, the Labor Arbiter declared that the act of disaffiliation and declaration of autonomy by the local union was part of its "plan to take over the respondent federation."
This is purely conjecture and speculation on the part of public respondent, totally unsupported by the evidence.
A local union has the right to disaffiliate from its mother union or declare its autonomy. A local union, being a separate and voluntary association, is free to serve the interests of all
its members including the freedom to disaffiliate or declare its autonomy from the federation to which it belongs when circumstances warrant, in accordance with the constitutional
guarantee of freedom of association.[22]
The purpose of affiliation by a local union with a mother union or a federation
"xxx is to increase by collective action the bargaining power in respect of the terms and conditions of labor. Yet the locals remained the basic units of
association, free to serve their own and the common interest of all, subject to the restraints imposed by the Constitution and By-Laws of the Association, and
free also to renounce the affiliation for mutual welfare upon the terms laid down in the agreement which brought it into existence." [23]
Thus, a local union which has affiliated itself with a federation is free to sever such affiliation anytime and such disaffiliation cannot be considered disloyalty. In the absence of
specific provisions in the federations constitution prohibiting disaffiliation or the declaration of autonomy of a local union, a local may dissociate with its parent union. [24]
The evidence on hand does not show that there is such a provision in ULGWPs constitution. Respondents reliance upon Article V, Section 6, of the federations constitution is not
right because said section, in fact, bolsters the petitioner unions claim of its right to declare autonomy:
Section 6. The autonomy of a local union affiliated with ULGWP shall be respected insofar as it pertains to its internal affairs, except as provided elsewhere
in this Constitution.
There is no disloyalty to speak of, neither is there any violation of the federations constitution because there is nothing in the said constitution which specifically prohibits
disaffiliation or declaration of autonomy. Hence, there cannot be any valid dismissal because Article II, Section 4 of the union security clause in the CBA limits the dismissal to only
three (3) grounds, to wit: failure to maintain membership in the union (1) for non-payment of union dues, (2) for resignation; and (3) for violation of the unions Constitution and ByLaws.
To support the finding of disloyalty, the Labor Arbiter gave weight to the fact that on February 26, 1989, the petitioners declared as vacant all the responsible positions of ULGWP,
filled these vacancies through an election and filed a petition for the registration of UWP as a national federation. It should be pointed out, however, that these occurred after the
federation had already expelled the union officers. The expulsion was effective November 21, 1988. Therefore, the act of establishing a different federation, entirely separate from
the federation which expelled them, is but a normal retaliatory reaction to their expulsion.

With regard to the issue of the legality or illegality of the strike, the Labor Arbiter held that the strike was illegal for the following reasons: (1) it was based on an intra-union dispute
which cannot properly be the subject of a strike, the right to strike being limited to cases of bargaining deadlocks and unfair labor practice (2) it was made in violation of the "no
strike, no lock-out" clause in the CBA, and (3) it was attended with violence, force and intimidation upon the persons of the company officials, other employees reporting for work
and third persons having legitimate business with the company, resulting to serious physical injuries to several employees and damage to company property.
On the submission that the strike was illegal for being grounded on a non-strikeable issue, that is, the intra-union conflict between the federation and the local union, it bears
reiterating that when respondent company dismissed the union officers, the issue was transformed into a termination dispute and brought respondent company into the picture.
Petitioners believed in good faith that in dismissing them upon request by the federation, respondent company was guilty of unfair labor pratice in that it violated the petitioners right
to self-organization. The strike was staged to protest respondent companys act of dismissing the union officers. Even if the allegations of unfair labor practice are subsequently
found out to be untrue, the presumption of legality of the strike prevails.[25]
Another reason why the Labor Arbiter declared the strike illegal is due to the existence of a no strike no lockout provision in the CBA. Again, such a ruling is erroneous. A no strike,
no lock out provision can only be invoked when the strike is economic in nature, i.e. to force wage or other concessions from the employer which he is not required by law to grant.
[26] Such a provision cannot be used to assail the legality of a strike which is grounded on unfair labor practice, as was the honest belief of herein petitioners. Again, whether or not
there was indeed unfair labor practice does not affect the strike.
On the allegation of violence committed in the course of the strike, it must be remembered that the Labor Arbiter and the Commission found that "the parties are agreed that there
were violent incidents x x x resulting to injuries to both sides, the union and management."[27] The evidence on record show that the violence cannot be attributed to the striking
employees alone for the company itself employed hired men to pacify the strikers. With violence committed on both sides, the management and the employees, such violence
cannot be a ground for declaring the strike as illegal.
With respect to the dismissal of individual petitioners, the Labor Arbiter declared that their refusal to heed respondents recall to work notice is a clear indication that they were no
longer interested in continuing their employment and is deemed abandonment. It is admitted that three return to work notices were sent by respondent company to the striking
employees on March 27, April 11, and April 21, 1989 and that 261 employees who responded to the notice were admittted back to work.
However, jurisprudence holds that for abandonment of work to exist, it is essential (1) that the employee must have failed to report for work or must have been absent without valid
or justifiable reason; and (2) that there must have been a clear intention to sever the employer-employee relationship manifested by some overt acts. [28] Deliberate and unjustified
refusal on the part of the employee to go back to his work post amd resume his employment must be established. Absence must be accompanied by overt acts unerringly pointing
to the fact that the employee simply does not want to work anymore.[29] And the burden of proof to show that there was unjustified refusal to go back to work rests on the
employer.
In the present case, respondents failed to prove that there was a clear intention on the part of the striking employees to sever their employer-employee relationship. Although
admittedly the company sent three return to work notices to them, it has not been substantially proven that these notices were actually sent and received by the employees. As a
matter of fact, some employees deny that they ever received such notices. Others alleged that they were refused entry to the company premises by the security guards and were
advised to secure a clearance from ULGWP and to sign a waiver. Some employees who responded to the notice were allegedly told to wait for further notice from respondent
company as there was lack of work.
Furthermore, this Court has ruled that an employee who took steps to protest his lay-off cannot be said to have abandoned his work.[30] The filing of a complaint for illegal
dismissal is inconsistent with the allegation of abandonment. In the case under consideration, the petitioners did, in fact, file a complaint when they were refused reinstatement by
respondent company.
Anent public respondents finding that there was no unfair labor practice on the part of respondent company and federation officers, the Court sustains the same. As earlier
discussed, union security clauses in collective bargaining agreements, if freely and voluntarily entered into, are valid and binding. Corrolarily, dismissals pursuant to union security
clauses are valid and legal subject only to the requirement of due process, that is, notice and hearing prior to dismissal. Thus, the dismissal of an employee by the company
pursuant to a labor unions demand in accordance with a union security agreement does not constitute unfair labor practice.[31]
However, the dismissal was invalidated in this case because of respondent companys failure to accord petitioners with due process, that is, notice and hearing prior to their
termination. Also, said dismissal was invalidated because the reason relied upon by respondent Federation was not valid. Nonetheless, the dismissal still does not constitute unfair
labor practice.
Lastly, the Court is of the opinion, and so holds, that respondent company officials cannot be held personally liable for damages on account of the employees dismissal because
the employer corporation has a personality separate and distinct from its officers who merely acted as its agents.
It has come to the attention of this Court that the 30-day prior notice requirement for the dismissal of employees has been repeatedly violated and the sanction imposed for such
violation enunciated in Wenphil Corporation vs. NLRC[32] has become an ineffective deterrent. Thus, the Court recently promulgated a decision to reinforce and make more
effective the requirement of notice and hearing, a procedure that must be observed before termination of employment can be legally effected.
In Ruben Serrano vs. NLRC and Isetann Department Store (G.R. No. 117040, January 27, 2000), the Court ruled that an employee who is dismissed, whether or not for just or
authorized cause but without prior notice of his termination, is entitled to full backwages from the time he was terminated until the decision in his case becomes final, when the
dismissal was for cause; and in case the dismissal was without just or valid cause, the backwages shall be computed from the time of his dismissal until his actual reinstatement. In
the case at bar, where the requirement of notice and hearing was not complied with, the aforecited doctrine laid down in the Serrano case applies.
WHEREFORE, the Petition is GRANTED; the decision of the National Labor Relations Commission in case No. NCR-00-09-04199-89 is REVERSED and SET ASIDE; and the
respondent company is hereby ordered to immediately reinstate the petitioners to their respective positions. Should reinstatement be not feasible, respondent company shall pay
separation pay of one month salary for every year of service. Since petitioners were terminated without the requisite written notice at least 30 days prior to their termination,
following the recent ruling in the case of Ruben Serrano vs. National Labor Relations Commission and Isetann Department Store, the respondent company is hereby ordered to
pay full backwages to petitioner-employees while the Federation is also ordered to pay full backwages to petitioner-union officers who were dismissed upon its instigation. Since
the dismissal of petitioners was without cause, backwages shall be computed from the time the herein petitioner employees and union officers were dismissed until their actual
reinstatement. Should reinstatement be not feasible, their backwages shall be computed from the time petitioners were terminated until the finality of this decision. Costs against
the respondent company.
SO ORDERED

SECOND DIVISION
G.R. No. L-25246 September 12, 1974
BENJAMIN VICTORIANO, plaintiff-appellee,
vs.
ELIZALDE ROPE WORKERS' UNION and ELIZALDE ROPE FACTORY, INC., defendants, ELIZALDE ROPE WORKERS' UNION, defendant-appellant.
Salonga, Ordonez, Yap, Sicat & Associates for plaintiff-appellee.
Cipriano Cid & Associates for defendant-appellant.

ZALDIVAR, J.:p
Appeal to this Court on purely questions of law from the decision of the Court of First Instance of Manila in its Civil Case No. 58894.
The undisputed facts that spawned the instant case follow:

Benjamin Victoriano (hereinafter referred to as Appellee), a member of the religious sect known as the "Iglesia ni Cristo", had been in the employ of the Elizalde Rope Factory, Inc. (hereinafter
referred to as Company) since 1958. As such employee, he was a member of the Elizalde Rope Workers' Union (hereinafter referred to as Union) which had with the Company a collective
bargaining agreement containing a closed shop provision which reads as follows:
Membership in the Union shall be required as a condition of employment for all permanent employees workers covered by this Agreement.
The collective bargaining agreement expired on March 3, 1964 but was renewed the following day, March 4, 1964.
Under Section 4(a), paragraph 4, of Republic Act No. 875, prior to its amendment by Republic Act No. 3350, the employer was not precluded "from making an agreement with a labor organization
to require as a condition of employment membership therein, if such labor organization is the representative of the employees." On June 18, 1961, however, Republic Act No. 3350 was enacted,
introducing an amendment to paragraph (4) subsection (a) of section 4 of Republic Act No. 875, as follows: ... "but such agreement shall not cover members of any religious sects which prohibit
affiliation of their members in any such labor organization".
Being a member of a religious sect that prohibits the affiliation of its members with any labor organization, Appellee presented his resignation to appellant Union in 1962, and when no action was
taken thereon, he reiterated his resignation on September 3, 1974. Thereupon, the Union wrote a formal letter to the Company asking the latter to separate Appellee from the service in view of the
fact that he was resigning from the Union as a member. The management of the Company in turn notified Appellee and his counsel that unless the Appellee could achieve a satisfactory arrangement
with the Union, the Company would be constrained to dismiss him from the service. This prompted Appellee to file an action for injunction, docketed as Civil Case No. 58894 in the Court of First
Instance of Manila to enjoin the Company and the Union from dismissing Appellee. 1 In its answer, the Union invoked the "union security clause" of the collective bargaining agreement; assailed the
constitutionality of Republic Act No. 3350; and contended that the Court had no jurisdiction over the case, pursuant to Republic Act No. 875, Sections 24 and 9 (d) and (e). 2 Upon the facts agreed
upon by the parties during the pre-trial conference, the Court a quo rendered its decision on August 26, 1965, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is rendered enjoining the defendant Elizalde Rope Factory, Inc. from dismissing the plaintiff from his present employment and
sentencing the defendant Elizalde Rope Workers' Union to pay the plaintiff P500 for attorney's fees and the costs of this action.3
From this decision, the Union appealed directly to this Court on purely questions of law, assigning the following errors:
I. That the lower court erred when it did not rule that Republic Act No. 3350 is unconstitutional.
II. That the lower court erred when it sentenced appellant herein to pay plaintiff the sum of P500 as attorney's fees and the cost thereof.
In support of the alleged unconstitutionality of Republic Act No. 3350, the Union contented, firstly, that the Act infringes on the fundamental right to form lawful associations; that "the very
phraseology of said Republic Act 3350, that membership in a labor organization is banned to all those belonging to such religious sect prohibiting affiliation with any labor organization" 4 ,
"prohibits all the members of a given religious sect from joining any labor union if such sect prohibits affiliations of their members thereto" 5 ; and, consequently, deprives said members of their
constitutional right to form or join lawful associations or organizations guaranteed by the Bill of Rights, and thus becomes obnoxious to Article III, Section 1 (6) of the 1935 Constitution. 6
Secondly, the Union contended that Republic Act No. 3350 is unconstitutional for impairing the obligation of contracts in that, while the Union is obliged to comply with its collective bargaining
agreement containing a "closed shop provision," the Act relieves the employer from its reciprocal obligation of cooperating in the maintenance of union membership as a condition of employment;
and that said Act, furthermore, impairs the Union's rights as it deprives the union of dues from members who, under the Act, are relieved from the obligation to continue as such members. 7
Thirdly, the Union contended that Republic Act No. 3350 discriminatorily favors those religious sects which ban their members from joining labor unions, in violation of Article Ill, Section 1 (7) of
the 1935 Constitution; and while said Act unduly protects certain religious sects, it leaves no rights or protection to labor organizations. 8
Fourthly, Republic Act No. 3350, asserted the Union, violates the constitutional provision that "no religious test shall be required for the exercise of a civil right," in that the laborer's exercise of his
civil right to join associations for purposes not contrary to law has to be determined under the Act by his affiliation with a religious sect; that conversely, if a worker has to sever his religious
connection with a sect that prohibits membership in a labor organization in order to be able to join a labor organization, said Act would violate religious freedom. 9
Fifthly, the Union contended that Republic Act No. 3350, violates the "equal protection of laws" clause of the Constitution, it being a discriminately legislation, inasmuch as by exempting from the
operation of closed shop agreement the members of the "Iglesia ni Cristo", it has granted said members undue advantages over their fellow workers, for while the Act exempts them from union
obligation and liability, it nevertheless entitles them at the same time to the enjoyment of all concessions, benefits and other emoluments that the union might secure from the employer. 10
Sixthly, the Union contended that Republic Act No. 3350 violates the constitutional provision regarding the promotion of social justice. 11
Appellant Union, furthermore, asserted that a "closed shop provision" in a collective bargaining agreement cannot be considered violative of religious freedom, as to call for the amendment
introduced by Republic Act No. 3350;12 and that unless Republic Act No. 3350 is declared unconstitutional, trade unionism in this country would be wiped out as employers would prefer to hire or
employ members of the Iglesia ni Cristo in order to do away with labor organizations. 13
I. Before We proceed to the discussion of the first assigned error, it is necessary to premise that there are some thoroughly established principles which must be followed in all cases where questions
of constitutionality as obtains in the instant case are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute, alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt, that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld,
and the challenger must negate all possible bases; that the courts are not concerned with the wisdom, justice, policy, or expediency of a statute; and that a liberal interpretation of the constitution in
favor of the constitutionality of legislation should be adopted. 19
1. Appellant Union's contention that Republic Act No. 3350 prohibits and bans the members of such religious sects that forbid affiliation of their members with labor unions from joining labor
unions appears nowhere in the wording of Republic Act No. 3350; neither can the same be deduced by necessary implication therefrom. It is not surprising, therefore, that appellant, having thus
misread the Act, committed the error of contending that said Act is obnoxious to the constitutional provision on freedom of association.
Both the Constitution and Republic Act No. 875 recognize freedom of association. Section 1 (6) of Article III of the Constitution of 1935, as well as Section 7 of Article IV of the Constitution of
1973, provide that the right to form associations or societies for purposes not contrary to law shall not be abridged. Section 3 of Republic Act No. 875 provides that employees shall have the right to
self-organization and to form, join of assist labor organizations of their own choosing for the purpose of collective bargaining and to engage in concerted activities for the purpose of collective
bargaining and other mutual aid or protection. What the Constitution and the Industrial Peace Act recognize and guarantee is the "right" to form or join associations. Notwithstanding the different
theories propounded by the different schools of jurisprudence regarding the nature and contents of a "right", it can be safely said that whatever theory one subscribes to, a right comprehends at least
two broad notions, namely: first, liberty or freedom, i.e., the absence of legal restraint, whereby an employee may act for himself without being prevented by law; and second, power, whereby an
employee may, as he pleases, join or refrain from Joining an association. It is, therefore, the employee who should decide for himself whether he should join or not an association; and should he
choose to join, he himself makes up his mind as to which association he would join; and even after he has joined, he still retains the liberty and the power to leave and cancel his membership with
said organization at any time. 20 It is clear, therefore, that the right to join a union includes the right to abstain from joining any union. 21 Inasmuch as what both the Constitution and the Industrial
Peace Act have recognized, and guaranteed to the employee, is the "right" to join associations of his choice, it would be absurd to say that the law also imposes, in the same breath, upon the
employee the duty to join associations. The law does not enjoin an employee to sign up with any association.
The right to refrain from joining labor organizations recognized by Section 3 of the Industrial Peace Act is, however, limited. The legal protection granted to such right to refrain from joining is
withdrawn by operation of law, where a labor union and an employer have agreed on a closed shop, by virtue of which the employer may employ only member of the collective bargaining union, and
the employees must continue to be members of the union for the duration of the contract in order to keep their jobs. Thus Section 4 (a) (4) of the Industrial Peace Act, before its amendment by
Republic Act No. 3350, provides that although it would be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of employment or any term or condition of employment
to encourage or discourage membership in any labor organization" the employer is, however, not precluded "from making an agreement with a labor organization to require as a condition of
employment membership therein, if such labor organization is the representative of the employees". By virtue, therefore, of a closed shop agreement, before the enactment of Republic Act No. 3350,
if any person, regardless of his religious beliefs, wishes to be employed or to keep his employment, he must become a member of the collective bargaining union. Hence, the right of said employee
not to join the labor union is curtailed and withdrawn.
To that all-embracing coverage of the closed shop arrangement, Republic Act No. 3350 introduced an exception, when it added to Section 4 (a) (4) of the Industrial Peace Act the following proviso:
"but such agreement shall not cover members of any religious sects which prohibit affiliation of their members in any such labor organization". Republic Act No. 3350 merely excludes ipso
jure from the application and coverage of the closed shop agreement the employees belonging to any religious sects which prohibit affiliation of their members with any labor organization. What the
exception provides, therefore, is that members of said religious sects cannot be compelled or coerced to join labor unions even when said unions have closed shop agreements with the employers;
that in spite of any closed shop agreement, members of said religious sects cannot be refused employment or dismissed from their jobs on the sole ground that they are not members of the collective
bargaining union. It is clear, therefore, that the assailed Act, far from infringing the constitutional provision on freedom of association, upholds and reinforces it. It does not prohibit the members of
said religious sects from affiliating with labor unions. It still leaves to said members the liberty and the power to affiliate, or not to affiliate, with labor unions. If, notwithstanding their religious
beliefs, the members of said religious sects prefer to sign up with the labor union, they can do so. If in deference and fealty to their religious faith, they refuse to sign up, they can do so; the law does

not coerce them to join; neither does the law prohibit them from joining; and neither may the employer or labor union compel them to join. Republic Act No. 3350, therefore, does not violate the
constitutional provision on freedom of association.
2. Appellant Union also contends that the Act is unconstitutional for impairing the obligation of its contract, specifically, the "union security clause" embodied in its Collective Bargaining Agreement
with the Company, by virtue of which "membership in the union was required as a condition for employment for all permanent employees workers". This agreement was already in existence at the
time Republic Act No. 3350 was enacted on June 18, 1961, and it cannot, therefore, be deemed to have been incorporated into the agreement. But by reason of this amendment, Appellee, as well as
others similarly situated, could no longer be dismissed from his job even if he should cease to be a member, or disaffiliate from the Union, and the Company could continue employing him
notwithstanding his disaffiliation from the Union. The Act, therefore, introduced a change into the express terms of the union security clause; the Company was partly absolved by law from the
contractual obligation it had with the Union of employing only Union members in permanent positions, It cannot be denied, therefore, that there was indeed an impairment of said union security
clause.
According to Black, any statute which introduces a change into the express terms of the contract, or its legal construction, or its validity, or its discharge, or the remedy for its enforcement, impairs
the contract. The extent of the change is not material. It is not a question of degree or manner or cause, but of encroaching in any respect on its obligation or dispensing with any part of its force.
There is an impairment of the contract if either party is absolved by law from its performance. 22 Impairment has also been predicated on laws which, without destroying contracts, derogate from
substantial contractual rights. 23
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 be read with literal exactness like a mathematical formula, for it prohibits unreasonable impairment only. 24 In spite of the constitutional
prohibition, the State continues to possess authority to safeguard the vital interests of its people. Legislation appropriate to safeguarding said interests may modify or abrogate contracts already in
effect. 25 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. 26 Otherwise, important and valuable reforms may be precluded by the simple device of entering into contracts for the purpose of doing that which otherwise may be
prohibited. The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile a government which retains
adequate authority to secure the peace and good order of society. The contract clause of the Constitution must, therefore, be not only in harmony with, but also in subordination to, in appropriate
instances, the reserved power of the state to safeguard the vital interests of the people. It follows that not all legislations, which have the effect of impairing a contract, are obnoxious to the
constitutional prohibition as to impairment, and a statute passed in the legitimate exercise of police power, although it incidentally destroys existing contract rights, must be upheld by the courts. This
has special application to contracts regulating relations between capital and labor which are not merely contractual, and said labor contracts, for being impressed with public interest, must yield to
the common good. 27
In several occasions this Court declared that the prohibition against impairing the obligations of contracts has no application to statutes relating to public subjects within the domain of the general
legislative powers of the state involving public welfare. 28 Thus, this Court also held that the Blue Sunday Law was not an infringement of the obligation of a contract that required the employer to
furnish work on Sundays to his employees, the law having been enacted to secure the well-being and happiness of the laboring class, and being, furthermore, a legitimate exercise of the police
power.29
In order to determine whether legislation unconstitutionally impairs contract 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 to secure that end are reasonable. Both the end sought and 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. 30
What then was the purpose sought to be achieved by Republic Act No. 3350? Its purpose was to insure freedom of belief and religion, and to promote the general welfare by preventing
discrimination against those members of religious sects which prohibit their members from joining labor unions, confirming thereby their natural, statutory and constitutional right to work, the fruits
of which work are usually the only means whereby they can maintain their own life and the life of their dependents. It cannot be gainsaid that said purpose is legitimate.
The questioned Act also provides protection to members of said religious sects against two aggregates of group strength from which the individual needs protection. The individual employee, at
various times in his working life, is confronted by two aggregates of power collective labor, directed by a union, and collective capital, directed by management. The union, an institution
developed to organize labor into a collective force and thus protect the individual employee from the power of collective capital, is, paradoxically, both the champion of employee rights, and a new
source of their frustration. Moreover, when the Union interacts with management, it produces yet a third aggregate of group strength from which the individual also needs protection the collective
bargaining relationship. 31
The aforementioned purpose of the amendatory law is clearly seen in the Explanatory Note to House Bill No. 5859, which later became Republic Act No. 3350, as follows:
It would be unthinkable indeed to refuse employing a person who, on account of his religious beliefs and convictions, cannot accept membership in a labor organization
although he possesses all the qualifications for the job. This is tantamount to punishing such person for believing in a doctrine he has a right under the law to believe in. The
law would not allow discrimination to flourish to the detriment of those whose religion discards membership in any labor organization. Likewise, the law would not
commend the deprivation of their right to work and pursue a modest means of livelihood, without in any manner violating their religious faith and/or belief. 32
It cannot be denied, furthermore, that the means adopted by the Act to achieve that purpose exempting the members of said religious sects from coverage of union security agreements is
reasonable.
It may not be amiss to point out here that the free exercise of religious profession or belief is superior to contract rights. In case of conflict, the latter must, therefore, yield to the former. The Supreme
Court of the United States has also declared on several occasions that the rights in the First Amendment, which include freedom of religion, enjoy a preferred position in the constitutional
system. 33 Religious freedom, although not unlimited, is a fundamental personal right and liberty, 34 and has a preferred position in the hierarchy of values. Contractual rights, therefore, must yield
to freedom of religion. It is only where unavoidably necessary to prevent an immediate and grave danger to the security and welfare of the community that infringement of religious freedom may be
justified, and only to the smallest extent necessary to avoid the danger.
3. In further support of its contention that Republic Act No. 3350 is unconstitutional, appellant Union averred that said Act discriminates in favor of members of said religious sects in violation of
Section 1 (7) of Article Ill of the 1935 Constitution, and which is now Section 8 of Article IV of the 1973 Constitution, which provides:
No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and
worship, without discrimination and preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights.
The constitutional provision into only prohibits legislation for the support of any religious tenets or the modes of worship of any sect, thus forestalling compulsion by law of the acceptance of any
creed or the practice of any form of worship, 35 but also assures the free exercise of one's chosen form of religion within limits of utmost amplitude. It has been said that the religion clauses of the
Constitution are all designed to protect the broadest possible liberty of conscience, to allow each man to believe as his conscience directs, to profess his beliefs, and to live as he believes he ought to
live, consistent with the liberty of others and with the common good. 36 Any legislation whose effect or purpose is to impede the observance of one or all religions, or to discriminate invidiously
between the religions, is invalid, even though the burden may be characterized as being only indirect. 37 But if the stage regulates conduct by enacting, within its power, a general law which has for
its purpose and effect to advance the state's secular goals, the statute is valid despite its indirect burden on religious observance, unless the state can accomplish its purpose without imposing such
burden. 38
In Aglipay v. Ruiz 39 , this Court had occasion to state that the government should not be precluded from pursuing valid objectives secular in character even if the incidental result would be favorable
to a religion or sect. It has likewise been held that the statute, in order to withstand the strictures of constitutional prohibition, must have a secular legislative purpose and a primary effect that neither
advances nor inhibits religion. 40 Assessed by these criteria, Republic Act No. 3350 cannot be said to violate the constitutional inhibition of the "no-establishment" (of religion) clause of the
Constitution.
The purpose of Republic Act No. 3350 is secular, worldly, and temporal, not spiritual or religious or holy and eternal. It was intended to serve the secular purpose of advancing the constitutional
right to the free exercise of religion, by averting that certain persons be refused work, or be dismissed from work, or be dispossessed of their right to work and of being impeded to pursue a modest
means of livelihood, by reason of union security agreements. To help its citizens to find gainful employment whereby they can make a living to support themselves and their families is a valid
objective of the state. In fact, the state is enjoined, in the 1935 Constitution, to afford protection to labor, and regulate the relations between labor and capital and industry. 41 More so now in the
1973 Constitution where it is mandated that "the State shall afford protection to labor, promote full employment and equality in employment, ensure equal work opportunities regardless of sex, race
or creed and regulate the relation between workers and employers. 42
The primary effects of the exemption from closed shop agreements in favor of members of religious sects that prohibit their members from affiliating with a labor organization, is the protection of
said employees against the aggregate force of the collective bargaining agreement, and relieving certain citizens of a burden on their religious beliefs; and by eliminating to a certain extent economic
insecurity due to unemployment, which is a serious menace to the health, morals, and welfare of the people of the State, the Act also promotes the well-being of society. It is our view that the
exemption from the effects of closed shop agreement does not directly advance, or diminish, the interests of any particular religion. Although the exemption may benefit those who are members of

religious sects that prohibit their members from joining labor unions, the benefit upon the religious sects is merely incidental and indirect. The "establishment clause" (of religion) does not ban
regulation on conduct whose reason or effect merely happens to coincide or harmonize with the tenets of some or all religions. 43 The free exercise clause of the Constitution has been interpreted to
require that religious exercise be preferentially aided. 44
We believe that in enacting Republic Act No. 3350, Congress acted consistently with the spirit of the constitutional provision. It acted merely to relieve the exercise of religion, by certain persons, of
a burden that is imposed by union security agreements. It was Congress itself that imposed that burden when it enacted the Industrial Peace Act (Republic Act 875), and, certainly, Congress, if it so
deems advisable, could take away the same burden. It is certain that not every conscience can be accommodated by all the laws of the land; but when general laws conflict with scrupples of
conscience, exemptions ought to be granted unless some "compelling state interest" intervenes.45 In the instant case, We see no such compelling state interest to withhold exemption.
Appellant bewails that while Republic Act No. 3350 protects members of certain religious sects, it leaves no right to, and is silent as to the protection of, labor organizations. The purpose of Republic
Act No. 3350 was not to grant rights to labor unions. The rights of labor unions are amply provided for in Republic Act No. 875 and the new Labor Code. As to the lamented silence of the Act
regarding the rights and protection of labor unions, suffice it to say, first, that the validity of a statute is determined by its provisions, not by its silence 46 ; and, second, the fact that the law may work
hardship does not render it unconstitutional. 47
It would not be amiss to state, regarding this matter, that to compel persons to join and remain members of a union to keep their jobs in violation of their religious scrupples, would hurt, rather than
help, labor unions, Congress has seen it fit to exempt religious objectors lest their resistance spread to other workers, for religious objections have contagious potentialities more than political and
philosophic objections.
Furthermore, let it be noted that coerced unity and loyalty even to the country, and a fortiori to a labor union assuming that such unity and loyalty can be attained through coercion is not a goal
that is constitutionally obtainable at the expense of religious liberty. 48 A desirable end cannot be promoted by prohibited means.
4. Appellants' fourth contention, that Republic Act No. 3350 violates the constitutional prohibition against requiring a religious test for the exercise of a civil right or a political right, is not well
taken. The Act does not require as a qualification, or condition, for joining any lawful association membership in any particular religion or in any religious sect; neither does the Act require affiliation
with a religious sect that prohibits its members from joining a labor union as a condition or qualification for withdrawing from a labor union. Joining or withdrawing from a labor union requires a
positive act. Republic Act No. 3350 only exempts members with such religious affiliation from the coverage of closed shop agreements. So, under this Act, a religious objector is not required to do a
positive act to exercise the right to join or to resign from the union. He is exempted ipso jure without need of any positive act on his part. A conscientious religious objector need not perform a
positive act or exercise the right of resigning from the labor union he is exempted from the coverage of any closed shop agreement that a labor union may have entered into. How then can there be
a religious test required for the exercise of a right when no right need be exercised?
We have said that it was within the police power of the State to enact Republic Act No. 3350, and that its purpose was legal and in consonance with the Constitution. It is never an illegal evasion of a
constitutional provision or prohibition to accomplish a desired result, which is lawful in itself, by discovering or following a legal way to do it.49
5. Appellant avers as its fifth ground that Republic Act No. 3350 is a discriminatory legislation, inasmuch as it grants to the members of certain religious sects undue advantages over other workers,
thus violating Section 1 of Article III of the 1935 Constitution which forbids the denial to any person of the equal protection of the laws. 50
The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon all citizens of the state. It is not, therefore, a requirement, in order to avoid the
constitutional prohibition against inequality, that every man, woman and child should be affected alike by a statute. Equality of operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the circumstances surrounding them. It guarantees equality, not identity of rights. The Constitution does not require that things which are
different in fact be treated in law as though they were the same. The equal protection clause does not forbid discrimination as to things that are different. 51 It does not prohibit legislation which is
limited either in the object to which it is directed or by the territory within which it is to operate.
The equal protection of the laws clause of the Constitution allows classification. Classification in law, as in the other departments of knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars. A law is not invalid because of simple inequality. 52 The very idea of classification is that of inequality, so that it goes without
saying that the mere fact of inequality in no manner determines the matter of constitutionality. 53 All that is required of a valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make for real differences; that it must be germane to the purpose of the law; that it must not be limited to existing conditions only; and
that it must apply equally to each member of the class. 54 This Court has held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and
is not palpably arbitrary. 55
In the exercise of its power to make classifications for the purpose of enacting laws over matters within its jurisdiction, the state is recognized as enjoying a wide range of discretion. 56 It is not
necessary that the classification be based on scientific or marked differences of things or in their relation. 57 Neither is it necessary that the classification be made with mathematical nicety. 58 Hence
legislative classification may in many cases properly rest on narrow distinctions, 59 for the equal protection guaranty does not preclude the legislature from recognizing degrees of evil or harm, and
legislation is addressed to evils as they may appear.
We believe that Republic Act No. 3350 satisfies the aforementioned requirements. The Act classifies employees and workers, as to the effect and coverage of union shop security agreements, into
those who by reason of their religious beliefs and convictions cannot sign up with a labor union, and those whose religion does not prohibit membership in labor unions. Tile classification rests on
real or substantial, not merely imaginary or whimsical, distinctions. There is such real distinction in the beliefs, feelings and sentiments of employees. Employees do not believe in the same religious
faith and different religions differ in their dogmas and cannons. Religious beliefs, manifestations and practices, though they are found in all places, and in all times, take so many varied forms as to
be almost beyond imagination. There are many views that comprise the broad spectrum of religious beliefs among the people. There are diverse manners in which beliefs, equally paramount in the
lives of their possessors, may be articulated. Today the country is far more heterogenous in religion than before, differences in religion do exist, and these differences are important and should not be
ignored.
Even from the phychological point of view, the classification is based on real and important differences. Religious beliefs are not mere beliefs, mere ideas existing only in the mind, for they carry
with them practical consequences and are the motives of certain rules. of human conduct and the justification of certain acts. 60 Religious sentiment makes a man view things and events in their
relation to his God. It gives to human life its distinctive character, its tone, its happiness or unhappiness its enjoyment or irksomeness. Usually, a strong and passionate desire is involved in a religious
belief. To certain persons, no single factor of their experience is more important to them than their religion, or their not having any religion. Because of differences in religious belief and sentiments,
a very poor person may consider himself better than the rich, and the man who even lacks the necessities of life may be more cheerful than the one who has all possible luxuries. Due to their
religious beliefs people, like the martyrs, became resigned to the inevitable and accepted cheerfully even the most painful and excruciating pains. Because of differences in religious beliefs, the
world has witnessed turmoil, civil strife, persecution, hatred, bloodshed and war, generated to a large extent by members of sects who were intolerant of other religious beliefs. The classification,
introduced by Republic Act No. 3350, therefore, rests on substantial distinctions.
The classification introduced by said Act is also germane to its purpose. The purpose of the law is precisely to avoid those who cannot, because of their religious belief, join labor unions, from being
deprived of their right to work and from being dismissed from their work because of union shop security agreements.
Republic Act No. 3350, furthermore, is not limited in its application to conditions existing at the time of its enactment. The law does not provide that it is to be effective for a certain period of time
only. It is intended to apply for all times as long as the conditions to which the law is applicable exist. As long as there are closed shop agreements between an employer and a labor union, and there
are employees who are prohibited by their religion from affiliating with labor unions, their exemption from the coverage of said agreements continues.
Finally, the Act applies equally to all members of said religious sects; this is evident from its provision. The fact that the law grants a privilege to members of said religious sects cannot by itself
render the Act unconstitutional, for as We have adverted to, the Act only restores to them their freedom of association which closed shop agreements have taken away, and puts them in the same
plane as the other workers who are not prohibited by their religion from joining labor unions. The circumstance, that the other employees, because they are differently situated, are not granted the
same privilege, does not render the law unconstitutional, for every classification allowed by the Constitution by its nature involves inequality.
The mere fact that the legislative classification may result in actual inequality is not violative of the right to equal protection, for every classification of persons or things for regulation by law
produces inequality in some degree, but the law is not thereby rendered invalid. A classification otherwise reasonable does not offend the constitution simply because in practice it results in some
inequality. 61 Anent this matter, it has been said that whenever it is apparent from the scope of the law that its object is for the benefit of the public and the means by which the benefit is to be
obtained are of public character, the law will be upheld even though incidental advantage may occur to individuals beyond those enjoyed by the general public. 62
6. Appellant's further contention that Republic Act No. 3350 violates the constitutional provision on social justice is also baseless. Social justice is intended to promote the welfare of all the
people. 63 Republic Act No. 3350 promotes that welfare insofar as it looks after the welfare of those who, because of their religious belief, cannot join labor unions; the Act prevents their being
deprived of work and of the means of livelihood. In determining whether any particular measure is for public advantage, it is not necessary that the entire state be directly benefited it is sufficient
that a portion of the state be benefited thereby.
Social justice also means the adoption by the Government of measures calculated to insure economic stability of all component elements of society, through the maintenance of a proper economic
and social equilibrium in the inter-relations of the members of the community. 64 Republic Act No. 3350 insures economic stability to the members of a religious sect, like the Iglesia ni Cristo, who
are also component elements of society, for it insures security in their employment, notwithstanding their failure to join a labor union having a closed shop agreement with the employer. The Act also

advances the proper economic and social equilibrium between labor unions and employees who cannot join labor unions, for it exempts the latter from the compelling necessity of joining labor
unions that have closed shop agreements and equalizes, in so far as opportunity to work is concerned, those whose religion prohibits membership in labor unions with those whose religion does not
prohibit said membership. Social justice does not imply social equality, because social inequality will always exist as long as social relations depend on personal or subjective proclivities. Social
justice does not require legal equality because legal equality, being a relative term, is necessarily premised on differentiations based on personal or natural conditions. 65 Social justice guarantees
equality of opportunity 66 , and this is precisely what Republic Act No. 3350 proposes to accomplish it gives laborers, irrespective of their religious scrupples, equal opportunity for work.
7. As its last ground, appellant contends that the amendment introduced by Republic Act No. 3350 is not called for in other words, the Act is not proper, necessary or desirable. Anent this matter,
it has been held that a statute which is not necessary is not, for that reason, unconstitutional; that in determining the constitutional validity of legislation, the courts are unconcerned with issues as to
the necessity for the enactment of the legislation in question. 67 Courts do inquire into the wisdom of laws. 68 Moreover, legislatures, being chosen by the people, are presumed to understand and
correctly appreciate the needs of the people, and it may change the laws accordingly. 69 The fear is entertained by appellant that unless the Act is declared unconstitutional, employers will prefer
employing members of religious sects that prohibit their members from joining labor unions, and thus be a fatal blow to unionism. We do not agree. The threat to unionism will depend on the
number of employees who are members of the religious sects that control the demands of the labor market. But there is really no occasion now to go further and anticipate problems We cannot judge
with the material now before Us. At any rate, the validity of a statute is to be determined from its general purpose and its efficacy to accomplish the end desired, not from its effects on a particular
case. 70 The essential basis for the exercise of power, and not a mere incidental result arising from its exertion, is the criterion by which the validity of a statute is to be measured. 71
II. We now pass on the second assignment of error, in support of which the Union argued that the decision of the trial court ordering the Union to pay P500 for attorney's fees directly contravenes
Section 24 of Republic Act No. 875, for the instant action involves an industrial dispute wherein the Union was a party, and said Union merely acted in the exercise of its rights under the union shop
provision of its existing collective bargaining contract with the Company; that said order also contravenes Article 2208 of the Civil Code; that, furthermore, Appellee was never actually dismissed by
the defendant Company and did not therefore suffer any damage at all . 72
In refuting appellant Union's arguments, Appellee claimed that in the instant case there was really no industrial dispute involved in the attempt to compel Appellee to maintain its membership in the
union under pain of dismissal, and that the Union, by its act, inflicted intentional harm on Appellee; that since Appellee was compelled to institute an action to protect his right to work, appellant
could legally be ordered to pay attorney's fees under Articles 1704 and 2208 of the Civil Code. 73
The second paragraph of Section 24 of Republic Act No. 875 which is relied upon by appellant provides that:
No suit, action or other proceedings shall be maintainable in any court against a labor organization or any officer or member thereof for any act done by or on behalf of such
organization in furtherance of an industrial dispute to which it is a party, on the ground only that such act induces some other person to break a contract of employment or
that it is in restraint of trade or interferes with the trade, business or employment of some other person or with the right of some other person to dispose of his capital or
labor. (Emphasis supplied)
That there was a labor dispute in the instant case cannot be disputed for appellant sought the discharge of respondent by virtue of the closed shop agreement and under Section 2 (j) of Republic Act
No. 875 a question involving tenure of employment is included in the term "labor dispute". 74 The discharge or the act of seeking it is the labor dispute itself. It being the labor dispute itself, that
very same act of the Union in asking the employer to dismiss Appellee cannot be "an act done ... in furtherance of an industrial dispute". The mere fact that appellant is a labor union does not
necessarily mean that all its acts are in furtherance of an industrial dispute. 75 Appellant Union, therefore, cannot invoke in its favor Section 24 of Republic Act No. 875. This case is not intertwined
with any unfair labor practice case existing at the time when Appellee filed his complaint before the lower court.
Neither does Article 2208 of the Civil Code, invoked by the Union, serve as its shield. The article provides that attorney's fees and expenses of litigation may be awarded "when the defendant's act or
omission has compelled the plaintiff ... to incur expenses to protect his interest"; and "in any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered". In the instant case, it cannot be gainsaid that appellant Union's act in demanding Appellee's dismissal caused Appellee to incur expenses to prevent his being dismissed from his
job. Costs according to Section 1, Rule 142, of the Rules of Court, shall be allowed as a matter of course to the prevailing party.
WHEREFORE, the instant appeal is dismissed, and the decision, dated August 26, 1965, of the Court of First Instance of Manila, in its Civil Case No. 58894, appealed from is affirmed, with costs
against appellant Union. It is so ordered.
Makalintal, C.J, Castro, Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma and Aquino, JJ., concur.

SECOND DIVISION
G.R. No. 194612

January 27, 2014

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee,


vs.
FLORO MANIGO y MACALUA, Accused-Appellant.
DECISION
DEL CASTILLO, J.:
"[R]ape is generally unwitnessed and oftentimes, the victim is left to testify for herself Thus, in resolving rape cases, the victim's credibility becomes the primordial consideration. If a victim's
testimony is straightforward, convincing and consistent with human nature and the normal course of things, unflawed by any material or significant inconsistency, it passes the test of credibility and
the accused may be convicted solely on the basis thereof"1
This is an appeal from the Decision2 dated July 21, 2010 of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 00652-MIN, affirming with modification the October 21, 2007 Decision 3 of the
Regional Trial Court (RTC), Branch 2, Tagum City, in Criminal Case No. 13954. The RTC found appellant Floro Manigo y Macalua (appellant) guilty beyond reasonable doubt of the crime of rape
under Article 266-A in relation to Article 266-B of the Revised Penal Code, as amended by Republic Act (RA) No. 8353, otherwise known as "The Anti-Rape Law of 1997." The trial court sentenced
him to suffer the penalty of reclusion perpetua and to pay the victim civil indemnity.
The Charge
On October 15, 2004, an Amended Information4 for rape was filed with the RTC against appellant which contained the following accusations:
The undersigned accuses FLORO MANIGO y MACALUA alias JUN of the crime of Rape under Article 266-A, par. 1 in relation to the 2nd par. of Article 266-B of the Revised Penal Code as
amended by Republic Act No. 8353 in relation to Republic Act [N]o. 8369, committed as follows:
That on or about April 16, 2004, in the City of Tagum, Province of Davao del Norte, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, armed with a knife,
through force or intimidation, willfully, unlawfully and feloniously had carnal knowledge of "AAA,"5 a 13-year old minor, against her will.
CONTRARY TO LAW.
During his arraignment on November 17, 2004, appellant with the assistance of counsel entered a plea of not guilty to the charge. After the termination of the pre-trial conference, trial ensued.
Version of the Prosecution
At noontime on April 16, 2004, "AAA," then 13 years of age being born on February 1, 1991, 6 and her classmate "BBB" were outside the compound of Magugpo Pilot Elementary School waiting
for a ride home after their summer remedial classes. Momentarily, a tricycle arrived which the two boarded. They told the driver, herein appellant, to bring them first to Purok Macasero where
"BBB" resides. After "BBB" alighted, the tricycle took a different route prompting "AAA" to ask why. Appellant replied that he would just have the gas tank filled. But instead of going to the gas
station, appellant proceeded to a banana plantation and when again asked by "AAA," answered that he was going to take his lunch. When they stopped, appellant alighted and urinated nearby. He
then positioned himself beside "AAA" who was still inside the tricycle and told the latter to undress. "AAA" pleaded for appellant not to harm her as she still has younger siblings but the same was
unheeded. While pointing a knife on "AAA," appellant took off her panties and his own clothes. "AAA" noticed a tattoo on appellants right upper hand. After warning "AAA" not to make any
movement, appellant forced his penis inside her vagina and made a pumping motion. Once satiated, appellant told "AAA" to dress up. They then left the place and when they reached Makulay
Restaurant, appellant gave "AAA" P40.00 pesos and allowed her to go home.
The following day, "AAA" disclosed her ordeal to her mother. Together, they went to the Davao Regional Hospital where she was subjected to physical examination that revealed a laceration on her
hymen consistent with her claim of sexual abuse.7 Dr. Suzette A. Perez (Dr. Perez) also found that "AAA" had abrasion which means that there was scratch or swelling or redness on the posterior
portion of her vagina. Thereafter, "AAA" and her mother reported the matter to the Tagum City Police Station.

Version of the Defense


In his defense, appellant raised denial and alibi. According to him, he could not have raped "AAA" since on the day of the alleged incident, he was at their home in Uraya Subdivision, Mankilam,
Tagum City, Davao del Norte. He is also happily married to Lyn, a teacher, and is not a tricycle driver but engaged in a lucrative business of money lending. In fact, the first time he saw "AAA" was
when he was made to stand in a police line-up with several detainees for identification.
Ruling of the Regional Trial Court
The RTC accorded full faith and credence to the testimony of "AAA" on how the incident happened and her positive identification of the appellant. It rejected appellants defense of denial. Thus, the
dispositive portion of its Decision, viz:
WHEREFORE, the Court finds the accused guilty beyond reasonable doubt of the crime of Rape under Article 266-A, Par. 1 in relation to the 2nd par. of Article 266-B of the Revised Penal Code, as
amended by Republic Act No. 8353, in [r]elation to Republic Act No. 8369 and hereby sentences him to suffer the penalty of reclusion perpetua.
He is likewise ordered to pay the victim the sum of P100,000.00 as civil indemnity.
SO ORDERED.8
Ruling of the Court of Appeals
On appeal, the CA affirmed with modification the Decision of the RTC. While it sustained the findings relative to the credibility of "AAA" and her out-of-court identification of appellant, the said
court, however, modified the award of damages. The decretal portion of the CA Decision reads:
WHEREFORE, the October 21, 2007 Decision of the Regional Trial Court, Branch 2 of Tagum City, Davao del Norte in Criminal Case No. 13954 is hereby AFFIRMED WITH MODIFICATION.
Accused-appellant Floro Manigo y Macalua is found GUILTY beyond reasonable doubt of Rape under Article 266-A of the Revised Penal Code and is sentenced to suffer the penalty of reclusion
perpetua. He is further ORDERED to pay AAAP75,000.00 as civil indemnity ex-delicto, P75,000.00 as Moral Damages, and P25,000.00 as exemplary damages.
SO ORDERED.9
Undeterred, appellant is now before this Court for final review of his conviction. In our esolution10 of January 19, 2011, we required the parties to file their respective supplemental briefs if they so
desire within 30 days from notice. Per their respective manifestations,11 both parties opted to adopt the briefs they filed before the CA.
Issue
The pivotal issue in this case hinges on the credibility of "AAA," thus our effort to scrutinize her testimony.
Our Ruling
The appeal is bereft of merit.
"AAAs" testimony deserves full faith and credence.
Appellant points to several flaws in "AAAs" testimony, to wit: (1) she did not make a particular description of the tricycle used at the time of the commission of the crime; (2) her description of
appellants physical features during the trial is different from what she stated in her affidavit; and, (3) "AAAs" out-of-court identification of appellant is doubtful.
Appellants contentions basically relate to the trial courts appreciation of the evidence adduced by the prosecution and its factual findings based thereon.
"The legal aphorism is that factual findings of the trial court, its calibration of the testimonies of the witnesses, and its assessment of their probative weight are given great respect if not conclusive
effect, unless it ignored, misconstrued, misunderstood, or misinterpreted cogent facts and circumstances of substance which, if considered, would alter the outcome of the case." 12 A careful scrutiny
of the records reveals that the case at bench is not an exception.
Like the lower courts, we find the narration of "AAA" to be candid, frank and straightforward.1wphi1 There is nothing therein that appears to be unnatural or illogical. Moreover, "AAAs" claim of
rape is supported by the medical findings of Dr. Perez, another prosecution witness. "Where a victims testimony is corroborated by the physical findings of penetration, there is sufficient basis for
concluding that sexual intercourse did take place. A rape victims account is sufficient to support a conviction for rape if it is straightforward, candid and corroborated by the medical findings of the
examining physician, as in the present case."13
Also, "[c]ourts usually give greater weight to the testimony of a girl who is a victim of sexual assault, especially a minor, as in this case, because no woman would be willing to undergo a public trial
and put up with the shame, humiliation and dishonor of exposing her own degradation were it not to condemn an injustice and have the offender apprehended and punished."14
Insofar as the alleged inconsistency between "AAAs" statements in her affidavit and testimony in open court is concerned, it has often been noted by this Court that if there is an inconsistency
between the affidavit and the testimony of a witness, the latter should be given more weight since affidavits being taken ex-parte are usually incomplete and inaccurate. 15 Besides, the inconsistency
respecting the physical appearance of appellant has no bearing on the principal question of whether appellant had carnal knowledge of the victim. Neither the failure of "AAA" to describe the
tricycle will dent her credibility. Suffice it to say that these matters are not so material in the prosecution of the crime.
In yet another attempt to undermine the credibility of "AAA," appellant asserts that his out-of-court identification as the culprit is doubtful. He avers that "AAA" knew beforehand that she was being
called to the police station precisely to identify her rapist.
In Vidar v. People,16 the Court laid down the following:
In ascertaining whether an out-of-court identification is positive or derivative, the Court has adopted the totality of circumstances test wherein the following factors are taken into consideration: (1)
the witnesss opportunity to view the criminal at the time of the crime; (2) the witnesss degree of attention at that time; (3) the accuracy of any prior description given by the witness; (4) the level of
certainty demonstrated by the witness at the identification; (5) the length of time between the crime and the identification; and (6) the suggestiveness of the identification procedure.17
Guided by the above, we find "AAAs" out-of-court identification of appellant not tainted with any irregularity. As aptly argued by the appellee in its brief:
All six (6) factors were substantially satisfied in the present case[:] (1) the victim had more than sufficient time to observe the rapist; (2) the victims attention was focused on appellant to whom she
even pleaded not to hurt her since she still had younger siblings; (3) except for appellants complexion and hair, the victim gave prior descriptions of appellant which became the source of the
cartographic sketch; (4) she immediately pointed to appellant as her rapist from among several men inside the prison cell; (5) the crime was committed on April 16, 2004 and appellant was identified
by the victim a few days thereafter, or on April 20, 2004; (6) suggestiveness was non-existent. Even before she was requested to visit the police station, she was already able to describe to the police
officers the physical features of her assailant which was made the basis for the cartographic sketch. Noticeably, nobody helped her in identifying the appellant. Verily, the totality of the circumstances
in this case shows that her identification of appellant was spontaneous and independent.18
It must also be stressed that "AAA" positively identified appellant in court as her assailant. In People v. Rivera,19 it was ruled that "even assuming arguendo that the out-of-court identification was
defective, the defect was cured by the subsequent positive identification in court for the inadmissibility of a police line-up identification x x x should not necessarily foreclose the admissibility of an
independent in-court identification."
In view of the foregoing, the Court concludes that "AAAs" testimony was correctly given full faith and credence by the lower courts.
Defense of Denial and Alibi Correctly Rejected.
The defenses of denial and alibi proffered by appellant were correctly rejected by the courts below in view of "AAAs" positive testimony and unflawed identification of appellant as the culprit. Alibi
and denial are inherently weak defenses and "must be brushed aside when the prosecution has sufficiently and positively ascertained the identity of the accused."20 And as often stressed, positive
testimony prevails over negative testimony.21 Also, for his defense of alibi to prosper, appellant must prove not only that he was somewhere else when the crime was committed but he must also
satisfactorily establish that it was physically impossible for him to be at the crime scene at the time of its commission. Appellant miserably failed in this regard.
All told, the Court sustains appellants conviction for the crime of rape.
The Penalty

Under Article 266-B of the Revised Penal Code, the penalty of reclusion perpetua to death shall be imposed whenever the crime of rape is committed through the use of a deadly weapon or by two or
more persons. It was sufficiently alleged in the Information and established during trial that appellant used a knife, a deadly weapon, in the commission of rape. Since no other circumstance, whether
aggravating or mitigating, attended the commission of the crime, the lesser of the two indivisible penalties which is reclusion perpetua shall be imposed pursuant to
Article 6322 of the same Code. Consequently, the Court sustains the penalty of reclusion perpetua imposed by the CA. "It must be emphasized, however, that [appellant] shall not be eligible for
parole pursuant to Section 3 of Republic Act No. 9346 which states that persons convicted of offenses punished with reclusion perpetua, or whose sentence will be reduced by reclusion perpetua by
reason of this Act, shall not be eligible for parole under Act No. 4180, otherwise known as the Indeterminate Sentence Law, as amended."23
The Civil Indemnities
As to the award of damages, the Court sees a need for some modification in line with recent jurisprudence. Thus, "considering that the penalty imposable is reclusion perpetua, the award
of P75,000.00 by the CA as civil indemnity must be reduced to P50,000.00."24 "The award of civil indemnity to the rape victim is mandatory upon the finding that rape took place."25 Also the
award of P75,000.00 as moral damages should be reduced toP50,000.00.26 Moral damages are automatically granted to the rape victim without presentation of further proof other than the
commission of the crime.27 With respect to exemplary damages, we increase the same fromP25,000.00 to P30,000.00 in line with prevailing jurisprudence.28 Exemplary damages should be
awarded by reason of the established presence of the qualifying circumstance of use of deadly weapon.29
In addition, interest at the rate of 6% per annum shall be imposed on all damages awarded from the date of finality of this judgment until fully paid likewise pursuant to prevailing jurisprudence.30
WHEREFORE, the Decision dated July 21, 2010 of the Court of Appeals in CA-G.R. CR-H.C. No. 00652-MIN is AFFIRMED with MODIFICATIONS. Appellant Floro Manigo y Macalua is found
GUILTY beyond reasonable doubt of RAPE and is sentenced to suffer the penalty of reclusion perpetua without eligibility for parole and ordered to pay the victim "AAA" P50,000.00 as civil
indemnity, P50,000.00 as moral damages andP30,000.00 as exemplary damages. The award of damages shall earn legal interest at the rate of 6o/o per annum from date of finality of this judgment
until fully paid.
SO ORDERED.
MARIANO
Associate Justice

C.

DEL

CASTILLO

WE CONCUR:

THIRD DIVISION
G.R. No. 196276

June 4, 2014

TAKATA (PHILIPPINES) CORPORATION, Petitioner,


vs.
BUREAU OF LABOR RELATIONS and SAMAHANG LAKAS MANGGAGAWA NG TAKATA (SALAMAT),Respondents.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari filed by petitioner TAKATA Philippines Corporation assailing the Decision 1 dated December 22, 2010 and the Resolution2 dated March 28, 2011 of
the Court of Appeals in CA-G.R. SP No. 112406.
On July 7, 2009, petitioner filed with the Department of Labor and Employment (DOLE) Regional Office a Petition3for Cancellation of the Certificate of Union Registration of Respondent
Samahang Lakas Manggagawa ng Takata (SALAMA1) on the ground that the latter is guilty of misrepresentation, false statement and fraud with respect to the number of those who participated in
the organizational meeting, the adoption and ratification of its Constitution and By-Laws, and in the election of its officers. It contended that in the May 1, 2009 organizational meeting of respondent,
only 68 attendees signed the attendance sheet, and which number comprised only 17% of the total number of the 396 regular rank- and-file employees which respondent sought to represent, and
hence, respondent failed to comply with the 20% minimum membership requirement. Petitioner insisted that the document "Pangalan ng mga Kasapi ng Unyon" bore no signatures of the alleged 119
union members; and that employees were not given sufficient information on the documents they signed; that the document "Sama-Samang Pahayag ng Pagsapi" was not submitted at the time of the
filing of respondent's application for union registration; that the 119 union members were actually only 117; and, that the total number of petitioner's employees as of May 1, 2009 was 470, and not
396 as respondent claimed.4
Respondent denied the charge and claimed that the 119 union members were more than the 20% requirement for union registration. The document "Sama-Samang Pahayag ng Pagsapi sa Unyon"
which it presented in its petition for certification election5 supported their claim of 119 members. Respondent also contended that petitioner was estopped from assailing its legal personality as it
agreed to a certification election and actively participated in the pre-election conference of the certification election proceedings.6 Respondent argued that the union members were informed of the
contents of the documents they signed and that the 68 attendees to the organizational meeting constituted more than 50% of the total union membership, hence, a quo rumexisted for the conduct of
the said meeting.7
On August 27, 2009, DOLE Regional Director, Atty. Ricardo S. Martinez, Sr., issued a Decision 8 granting the petition for cancellation of respondent's certificate of registration, the dispositive
portion of which reads:
WHEREFORE, from the foregoing considerations, the petition is hereby GRANTED. Accordingly, the respondent Union Certificate of Registration No. RO400A-2009-05-01-UR-LAG, dated May
19, 2009 is hereby REVOCKED (sic) and /or CANCELLED pursuant to paragraph (a) & (b), Section 3, Rule XIV of Department Order No. 40-03 and the Samahang Lakas ng Manggagawa ng
TAKATA (SALAMAT) is hereby delisted from the roll of legitimate labor organization of this office.9
In revoking respondent's certificate of registration, the Regional Director found that the 68 employees who attended the organizational meeting was obviously less than 20% of the total number of
396 regular rank-and-file employees which respondent sought to represent, hence, short of the union registration requirement; that the attendance sheet which contained the signatures and names of
the union members totalling to 68 contradicted the list of names stated in the document denominated as "Pangalan ng mga Kasaping Unyon." The document "Sama-Samang Pahayag ng Pagsapi" was
not attached to the application for registration as it was only submitted in the petition for certification election filed by respondent at a later date. The Regional Director also found that the
proceedings in the cancellation of registration and certification elections are two different and entirely separate and independent proceedings which were not dependent on each other.
Dissatisfied, respondent, through Bukluran ng Manggagawang Pilipino (BMP) Paralegal Officer, Domingo P. Mole, filed a Notice and Memorandum of Appeal10 with the Bureau of Labor Relations
(BLR). However, on September 28,2009, respondent, through its counsels, Attys.
Napoleon C. Banzuela, Jr. and Jehn Louie W. Velandrez, filed an Appeal Memorandum with Formal Entry of Appearance 11 to the Office of the DOLE Secretary, which the latter eventually referred
to the BLR. Petitioner filed an Opposition to the Appeals12 praying for their dismissal on the ground of forum shopping as respondent filed two separate appeals in two separate venues; and for
failing to avail of the correct remedy within the period; and that the certificate of registration was tainted with fraud, misrepresentation and falsification.
In its Answer,13 respondent claimed that there was no forum shopping as BMP's Paralegal Officer was no longer authorized to file an appeal on behalf of respondent as the latter's link with BMP
was already terminated and only the Union President was authorized to file the appeal; and that it complied with Department Order No. 40-03.
On December 9, 2009, after considering respondent's Appeal Memorandum with Formal Entry of Appearance and petitioner's Answer, the BLR rendered its Decision14 reversing the Order of the
Regional Director, the decretal portion of which reads:
WHEREFORE, the appeal is hereby GRANTED. The Decision of Regional Director Ricardo S. Martinez, Sr., dated 27 August 2009, is hereby REVERSEDand SET ASIDE.
Accordingly, Samahang Lakas Manggagawa ng TAKATA (SALAMAT) shall remain in the roster of labor organizations.15
In reversing, the BLR found that petitioner failed to prove that respondent deliberately and maliciously misrepresented the number of rank-and-file employees. It pointed out petitioner's basis for the
alleged noncompliance with the minimum membership requirement for registration was the attendance of 68 members to the May 1, 2009 organizational meeting supposedly comprising only 17% of
the total 396 regular rank-and-file employees. However, the BLR found that the list of employees who participated in the organizational meeting was a separate and distinct requirement from the list

of the names of members comprising at least 20% of the employees in the bargaining unit; and that there was no requirement for signatures opposite the names of the union members; and there was
no evidence showing that the employees assailed their inclusion in the list of union members.
Petitioner filed a motion for reconsideration, which was denied by the BLR in a Resolution16 dated January 8, 2010.
Undaunted, petitioner went to the CA via a petition for certiorari under Rule 65.
After the submission of the parties' respective pleadings, the case was submitted for decision.
On December 22, 2010, the CA rendered its assailed decision which denied the petition and affirmed the decision of the BLR. Petitioner's motion for reconsideration was denied in a Resolution
dated March 29, 2011.
Hence this petition for review filed by petitioner raising the following issues, to wit:
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR IN AFFIRMING THE DECISION OF PUBLIC RESPONDENT BLR AND NOT FINDING ANY
VIOLATION BY SAMAHANG LAKAS MANGGAGAWA SA TAKATA (SALAMAT) OF THE RULE ON FORUM SHOPPING IN THE FILING OF TWO VERIFIED APPEALS FOR AND ITS
BEHALF. BOTH OF THE APPEALS SHOULD HAVE BEEN DISMISSED OUTRIGHT BY PUBLIC RESPONDENT BLR, ON GROUND OF FORUM SHOPPING.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE APPLICATION FOR REGISTRATION OF SAMAHANG LAKAS
MANGGAGAWA SA TAKATA (SALAMAT) WAS COMPLIANT WITH THE LAW. CONSIDERING THE CIRCUMSTANCES OBTAINING IN THE REGISTRATION OF
SALAMAT, IT IS CLEAR THAT THE SAME IS TAINTED WITH FRAUD, MISREPRESENTATION AND FALSIFICATION. SALAMAT DID NOT POSSESS THE
REQUIREDNUMBER OF MEMBERS AT THE TIME OF FILING OF ITS APPLICATION FOR REGISTRATION, HENCE, IT SHOULD BE HELD GUILTY OF
MISREPRESENTATION, AND FALSE STATEMENTS AND FRAUD IN CONNECTION THEREWITH.17
Anent the first issue, petitioner contends that respondent had filed two separate appeals with two different representations at two different venues, in violation of the rule on multiplicity of suits and
forum shopping, and instead of dismissing both appeals, the appeal erroneously filed before the Labor Secretary was the one held validly filed, entertained and even granted; that it is not within the
discretion of BLR to choose which between the two appeals should be entertained, as it is the fact of the filing of the two appeals that is being prohibited and not who among the representatives
therein possessed the authority.
We are not persuaded.
We find no error committed by the CA in finding that respondent committed no forum shopping. As the CA correctly concluded, to wit:
It is undisputed that BMP Paralegal Officer Domingo P. Mole was no longer authorized to file an appeal on behalf of union SALAMAT and that BMP was duly informed that its services was already
terminated. SALAMAT even submitted before the BLR its "Resolusyon Blg. 01-2009" terminating the services of BMP and revoking the representation of Mr. Domingo Mole in any of the pending
cases being handled by him on behalf of the union. So, considering that BMP Paralegal Officer Domingo P. Mole was no longer authorized to file an appeal when it filed the Notice and
Memorandum of Appeal to DOLE Regional Office No. IV-A, the same can no longer be treated as an appeal filed by union SALAMAT. Hence, there is no forum shopping to speak of in this case as
only the Appeal Memorandum with Formal Entry of Appearance filed by Atty. Napoleon C. Banzuela, Jr. and Atty. Jehn Louie W. Velandrez is sanctioned by SALAMAT.18
Since Mole's appeal filed with the BLR was not specifically authorized by respondent, such appeal is considered to have not been filed at all. It has been held that "if a complaint is filed for and in
behalf of the plaintiff who is not authorized to do so, the complaint is not deemed filed.
An unauthorized complaint does not produce any legal effect."19
Respondent through its authorized representative filed its Appeal Memorandum with Formal Entry of Appearance before the Labor Secretary, and not with the BLR. As the appeal emanated from the
petition for cancellation of certificate of registration filed with the Regional Office, the decision canceling the registration is appealable to the BLR, and not with the Labor Secretary. However, since
the Labor Secretary motu propio referred the appeal with the BLR, the latter can now act on it. Considering that Mole's appeal with the BLR was not deemed filed, respondents appeal, through
Banzuela and Associates, which the Labor Secretary referred to the BLR was the only existing appeal with the BLR for resolution. There is, therefore, no merit to petitioner's claim that BLR chose
the appeal of Banzuela and Associates over Mole's appeal.
The case of Abbott Laboratories Philippines, Inc. v. Abbott Laboratories Employees Union20 cited by petitioner is not at all applicable in this case as the issue therein is the authority of the Labor
Secretary to review the decision of the Bureau of Labor Relations rendered in the exercise of its appellate jurisdiction over decision of the Regional Director in cases involving cancellations of
certificate of registration of labor unions. We found no grave abuse of discretion committed by the Secretary of Labor in not acting on therein petitioner's appeal. The decision of the Bureau of Labor
Relations on cases brought before it on appeal from the Regional Director are final and executory. Hence, the remedy of the aggrieved party is to seasonably avail of the special civil action of
certiorari under Rule 65 and the Rules of Court. In this case, after the Labor Secretary motu propio referred respondent's appeal filed with it to the BLR which rendered its decision reversing the
Regional Director, petitioner went directly to the CA via a petition for certiorari under Rule 65.
As to the second issue, petitioner seeks the cancellation of respondent's registration on grounds offraud and misrepresentation bearing on the minimum requirement of the law as to its membership,
considering the big disparity in numbers, between the organizational meeting and the list of members, and so misleading the BLR that it obtained the minimum required number of employees for
purposes of organization and registration.
We find no merit in the arguments.
Art. 234 of the Labor Code provides:
ART. 234. Requirements of Registration. - A federation, national union or industry or trade union center or an independent union shall acquire legal personality and shall be entitled to the rights and
privileges granted by law to legitimate labor organizations upon issuance of the certificate of registration based on the following requirements:
(a) Fifty pesos (P50.00)registration fee;
(b) The names of its officers, their addresses, the principal address of the labor organization, the minutes of the organizational meetings and the list of the workers who participated in
such meetings;
(c) In case the applicant is an independent union, the names of all its members comprising at least twenty percent (20%) of all the employees in the bargaining unit where it seeks to
operate;
(d) If the applicant union has been in existence for one or more years, copies of its annual financial reports; and
(e) Four copies of the constitution and by-laws of the applicant union, minutes of its adoption or ratification, and the list of the members who participated in it."
And after the issuance of the certificate of registration, the labor organization's registration could be assailed directly through cancellation of registration proceedings in accordance with Articles 238
and 239 of the Labor Code. And the cancellation of union certificate of registration and the grounds thereof are as follows:
ART. 238. Cancellation of Registration. - The certificate of registration of any legitimate labor organization, whether national or local, may be cancelled by the Bureau, after due hearing, only on the
grounds specified in Article 239 hereof.
ART. 239. Grounds for Cancellation of Union Registration. - The following may constitute grounds for cancellation of union registration:
(a) Misrepresentation, false statement or fraud in connection with the adoption or ratification of the constitution and by-laws or amendments thereto, the minutes of ratification, and the
list of members who took part in the ratification;
(b) Misrepresentation, false statements or fraud in connection with the election of officers, minutes of the election of officers, and the list of voters;
(c) Voluntary dissolution by the members.
Petitioner's charge that respondent committed misrepresentation and fraud in securing its certificate of registration is a serious charge and must be carefully evaluated. Allegations thereof should be
compounded with supporting circumstances and evidence.21 We find no evidence on record to support petitioner's accusation.

Petitioner's allegation of misrepresentation and fraud is based on its claim that during the organizational meeting on May 1, 2009, only 68 employees attended, while respondent claimed that it has
119 members as shown in the document denominated as "Pangalan ng mga Kasapi ng Unyon;" hence, respondent misrepresented on the 20% requirement of the law as to its membership.
We do not agree.
It does not appear in Article 234 (b) of the Labor Code that the attendees in the organizational meeting must comprise 20% of the employees in the bargaining unit. In fact, even the Implementing
Rules and Regulations of the Labor Code does not so provide. It is only under Article 234 (c) that requires the names of all its members comprising at least twenty percent (20%) of all the employees
in the bargaining unit where it seeks to operate. Clearly, the 20% minimum requirement pertains to the employees membership in the union and not to the list of workers who participated in the
organizational meeting. Indeed, Article 234 (b) and (c) provide for separate requirements, which must be submitted for the union's registration, and which respondent did submit. Here, the total
number of employees in the bargaining unit was 396, and 20% of which was about 79. Respondent submitted a document entitled "Pangalan ng Mga Kasapi ng Unyon" showing the names of 119
employees as union members, thus respondent sufficiently complied even beyond the 20% minimum membership requirement. Respondent also submitted the attendance sheet of the organizational
meeting which contained the names and signatures of the 68 union members who attended the meeting. Considering that there are 119 union members which are more than 20% of all the employees
of the bargaining unit, and since the law does not provide for the required number of members to attend the organizational meeting, the 68 attendees which comprised at least the majority of the 119
union members would already constitute a quorum for the meeting to proceed and to validly ratify the Constitution and By-laws of the union. There is, therefore, no basis for petitioner to contend
that grounds exist for the cancellation of respondent's union registration. For fraud and misrepresentation to be grounds for cancellation of union registration under Article 239 of the Labor Code, the
nature of the fraud and misrepresentation must be grave and compelling enough to vitiate the consent of a majority of union members.22
Petitioner's claim that the alleged union members signed documents without adequate information is not persuasive. The one who alleges a fact has the burden of proving it and a mere allegation is
not evidence.23 In fact, we note that not one of those listed in the document denominated as "Pangalan ng Mga Kasaping Unyon" had come forward to deny their membership with respondent.
Notably, it had not been rebutted that the same union members had signed the document entitled "Sama-Samang Pahayag ng Pagsapi," thus, strengtheningtheir desire to be members of the
respondent union.
Petitioner claims that in the list of members, there was an employee whose name appeared twice and another employee who was merely a project employee. Such could not be considered a
misrepresentation in the absence of showing that respondent deliberately did so for the purpose of increasing their union membership. In fact, even if those two names were not included in the list of
union members, there would still be 117 members which was still more than 20% of the 396 rank-and-file employees.
As to petitioner's argument that the total number of its employees as of May 1, 2009 was 470, and not396 as respondent claimed, still the 117 union members comprised more than the 20%
membership requirement for respondent's registration.
In Mariwasa Siam Ceramics v. Secretary of the Department of Labor and Employment,24 we said:
For the purpose of de-certifying a union such as respondent, it must be shown that there was misrepresentation, false statement or fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto, the minutes of ratification; or, in connection with the election of officers, the minutes of the election of officers, the list of voters, or failure to submit
these documents together with the list of the newly elected-appointed officers and their postal addresses to the BLR.
The bare fact that two signatures appeared twice on the list of those who participated in the organizational meeting would not, to our mind, provide a valid reason to cancel respondents certificate of
registration. The cancellation of a unions registration doubtless has an impairing dimension on the right of labor to self-organization. For fraud and misrepresentation to be grounds for cancellation
of union registration under the Labor Code, the nature of the fraud and misrepresentation must be grave and compelling enough to vitiate the consent of a majority of union members.1wphi1
In this case, we agree with the BLR and the CA that respondent could not have possibly committed misrepresentation, fraud, or false statements. The alleged failure of respondent to indicate with
mathematical precision the total number of employees in the bargaining unit is of no moment, especially as it was able to comply with the 20% minimum membership requirement. Even if the total
number of rank-and-file employees of petitioner is 528, while respondent declared that it should only be 455, it still cannot be denied that the latter would have more than complied with the
registration requirement.25
WHEREFORE, premises considered, the petition for review is DENIED. The Decision dated December 22, 2010 and the Resolution dated March 28, 2011 of the Court of Appeals, in CA-G.R. SP
No. 112406, are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
THIRD DIVISION
G.R. No. 194785

July 11, 2012

VIRGILIO
vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., Respondent.

S.

DAVID, Petitioner,

DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the Rules of Court assailing the July 8, 2010 Decision 1of the Court of Appeals (CA), in CA-G.R. CR No. 91839, which affirmed the July
17, 2008 Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil Case No. 94-69402, an action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a company engaged in the business of supplying electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in Ozamis City.
To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its intention to purchase a 10 MVA power transformer from David. For this reason, its General
Manager, Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters office in Quezon City. David agreed to supply the power transformer provided that MOELCI would secure a board
resolution because the item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of procurement, returned to Manila and presented to David the requested board resolution which authorized the
purchase of one 10 MVA power transformer. In turn, David presented his proposal for the acquisition of said transformer. This proposal was the same proposal that he would usually give to his
clients.
After the reading of the proposal and the discussion of terms, David instructed his then secretary and bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the
proposal. Both signed the document under the word "conforme." The board resolution was thereafter attached to the proposal.
As stated in the proposal, the subject transformer, together with the basic accessories, was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery. Freight handling, insurance, customs duties, and incidental expenses were for the account of the buyer.
The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be financed through a loan from the National Electrification Administration (NEA). As there was no
immediate action on the loan application, Engr. Rada returned to Manila in early December 1992 and requested David to deliver the transformer to them even without the required downpayment.
David granted the request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December 17, 1992, the goods were shipped to Ozamiz City via
William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the shipment, Emanuel Medina (Medina), Davids Marketing Manager, went to Ozamiz City to check on the shipment. Medina was able
to confer with Engr. Rada who told him that the loan was not yet released and asked if it was possible to withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina was constrained to send a demand letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing that the
goods were still in the warehouse of William Lines again reiterating that the loan had not been approved by NEA. This prompted Medina to head back to Ozamiz City where he found out that the

goods had already been released to MOELCI evidenced by the shipping companys copy of the Bill of Lading which was stamped "Released," and with the notation that the arrastre charges in the
amount of P5,095.60 had been paid. This was supported by a receipt of payment with the corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz, Inc.
Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus the balance of previous purchases of other electrical hardware. Aside from the formal demand
letters, David added that several statements of accounts were regularly sent through the mails by the company and these were never disputed by MOELCI.
On February 17, 1994, David filed a complaint for specific performance with damages with the RTC. In response, MOECLI moved for its dismissal on the ground that there was lack of cause of
action as there was no contract of sale, to begin with, or in the alternative, the said contract was unenforceable under the Statute of Frauds. MOELCI argued that the quotation letter could not be
considered a binding contract because there was nothing in the said document from which consent, on its part, to the terms and conditions proposed by David could be inferred. David knew that
MOELCIs assent could only be obtained upon the issuance of a purchase order in favor of the bidder chosen by the Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court, MOELCI filed its Motion for Preliminary Hearing of Affirmative Defenses and Deferment of the Pre-Trial Conference which was
denied by the RTC to abbreviate proceedings and for the parties to proceed to trial and avoid piecemeal resolution of issues. The order denying its motion was raised with the CA, and then with this
Court. Both courts sustained the RTC ruling.
Trial ensued. By reason of MOELCIs continued failure to appear despite notice, David was allowed to present his testimonial and documentary evidence ex parte, pursuant to Rule 18, Section 5 of
the Rules. A Very Urgent Motion to Allow Defendant to Present Evidence was filed by MOELCI, but was denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It found that although a contract of sale was perfected, it was not consummated because David failed to prove that there was indeed a
delivery of the subject item and that MOELCI received it.3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed decision, the CA reasoned out that although David was correct in saying that MOELCI was deemed to have admitted the
genuineness and due execution of the "quotation letter" (Exhibit A), wherein the signatures of the Chairman and the General Manager of MOELCI appeared, he failed to offer any textual support to
his stand that it was a contract of sale instead of a mere price quotation agreed to by MOELCI representatives. On this score, the RTC erred in stating that a contract of sale was perfected between the
parties despite the irregularities that tainted their transaction. Further, the fact that MOELCIs representatives agreed to the terms embodied in the agreement would not preclude the finding that said
contract was at best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied.4
Hence, this petition.
Before this Court, David presents the following issues for consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE CONTRACT.
The Court finds merit in the petition.
I.
On the issue as to whether or not there was a perfected contract of sale, this Court is required to delve into the evidence of the case. In a petition for review on certiorari under Rule 45 of the Rules of
Court, the issues to be threshed out are generally questions of law only, and not of fact.
This was reiterated in the case of Buenaventura v. Pascual,5 where it was written:
Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless the
findings of fact complained of are devoid of support by the evidence on record, or the assailed judgment is based on the misapprehension of facts. The trial court, having heard the witnesses and
observed their demeanor and manner of testifying, is in a better position to decide the question of their credibility. Hence, the findings of the trial court must be accorded the highest respect, even
finality, by this Court.
That being said, the Court is not unmindful, however, of the recognized exceptions well-entrenched in jurisprudence. It has always been stressed that when supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific evidence on which the conclusions are based;
(9) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record. 6 [Emphasis supplied]
In this case, the CA and the RTC reached different conclusions on the question of whether or not there was a perfected contract of sale. The RTC ruled that a contract of sale was perfected although
the same was not consummated because David failed to show proof of delivery.7
The CA was of the opposite view. The CA wrote:
Be that as it may, it must be emphasized that the appellant failed to offer any textual support to his insistence that Exhibit "A" is a contract of sale instead of a mere price quotation conformed to by
MOELCI representatives. To that extent, the trial court erred in laying down the premise that "indeed a contract of sale is perfected between the parties despite the irregularities attending the
transaction." x x x
That representatives of MOELCI conformed to the terms embodied in the agreement does not preclude the finding that such contract is, at best, a mere contract to sell with stipulated costs quoted
should it ultimately ripen into one of sale. The conditions upon which that development may occur may even be obvious from statements in the agreement itself, that go beyond just "captions." Thus,
the appellant opens with, "WE are pleased to submit our quotation xxx." The purported contract also ends with. "Thank you for giving us the opportunity to quote on your requirements and we hope
to receive your order soon" apparently referring to a purchase order which MOELCI contends to be a formal requirement for the entire transaction.8
In other words, the CA was of the position that Exhibit A was at best a contract to sell.
A perusal of the records persuades the Court to hold otherwise.
The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain
in money or its equivalent.9 It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell.

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his
promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.10
In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However,
if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. The vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded.11
An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show that said document, with all the stipulations therein and with the attendant circumstances
surrounding it, was actually a Contract of Sale. The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the
parties.12 First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit A), though appearing to be a mere price quotation/proposal, was not what it
seemed. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their names
under the word "CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 10 MVA Power Transformer. As correctly argued by David, if their
purpose was merely to acknowledge the receipt of the proposal, they would not have signed their name under the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact that there was consent or meeting of minds in the transfer of ownership. To begin with, a board resolution was issued authorizing
the purchase of the subject power transformer. Next, armed with the said resolution, top officials of MOELCI visited Davids office in Quezon City three times to discuss the terms of the purchase.
Then, when the loan that MOELCI was relying upon to finance the purchase was not forthcoming, MOELCI, through Engr. Rada, convinced David to do away with the 50% downpayment and
deliver the unit so that it could already address its acute power shortage predicament, to which David acceded when it made the delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA Power Transformer with corresponding KV Line Accessories. And third, the document stated
categorically the price certain in money which was P5,200,000.00 for one (1) unit of 10 MVA Power Transformer and P2,169,500.00 for the KV Line Accessories.
In sum, since there was a meeting of the minds, there was consent on the part of David to transfer ownership of the power transformer to MOELCI in exchange for the price, thereby complying with
the first element. Thus, the said document cannot just be considered a contract to sell but rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading which David was relying upon was not conclusive. It argued that although the bill of lading was
stamped "Released," there was nothing in it that indicated that said power transformer was indeed released to it or delivered to its possession. For this reason, it is its position that it is not liable to
pay the purchase price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of the items. On the contrary, there was delivery and release.
To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:
2. Delivery Ninety (90) working days upon receipt of your purchase order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the account of MOELCI II. 13 (Emphasis supplied)
On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by
it.
On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable.1wphi1 It provides:
Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent appears.
(Emphasis supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the
buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it was pointed out that a specification in a contract relative to the payment of freight can be taken to indicate the intention of the
parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the point of
shipment. In other words, the title to the goods transfers to the buyer upon shipment or delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should have presented evidence to the contrary. The burden of proof was shifted to
MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard, however, MOELCI failed.
There being delivery and release, said fact constitutes partial performance which takes the case out of the protection of the Statute of Frauds. It is elementary that the partial execution of a contract of
sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly
established to be present.15
That being said, the Court now comes to Davids prayer that MOELCI be made to pay the total sum of P5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the complaint.
Although the Court agrees that MOELCI should pay interest, the stipulated rate is, however, unconscionable and should be equitably reduced. While there is no question that parties to a loan
agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is
also worth stressing that interest rates whenever unconscionable may still be reduced to a reasonable and fair level. There is nothing in the said circular which grants lenders carte blanche authority to
raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. 16 Accordingly, the excessive interest of 24% per annum stipulated in the sales invoice
should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this reason alone will not warrant an award of attorneys fees. It is settled that the award of attorney's fees is the exception rather
than the rule. Counsel's fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney's fees, as part of damages,
are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the legal services
he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney's fees as
part of damages are awarded only in the instances specified in Article 2208 of the Civil Code 17 which demands factual, legal, and equitable justification. Its basis cannot be left to speculation or
conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiffs action or defendant's stand is so untenable as to amount to gross and evident bad
faith.18 is MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated interest is denied for being unsubstantiated.
WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of the Court of Appeals Is REVERSED and SET ASIDE. Respondent Misamis Occidental II Electric Cooperative, Inc. is
ordered to pay petitioner Virgilio S. David the total sum of P5,472,722.27 with interest at the rate of 12o/o per annum reckoned from the filing of the complaint until fully paid.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice

SECOND DIVISION
G.R. No. 189404

December 11, 2013

WILGEN LOON, JERRY ARCILLA, ALBERTPEREYE, ARNOLD PEREYE, EDGARDO OBOSE, ARNEL MALARAS, PATROCINO TOETIN, EVELYN LEONARDO, ELMER
GLOCENDA, RUFO CUNAMAY, ROLANDOSAJOL, ROLANDO ABUCAYON, JENNIFER NATIVIDAD, MARITESS TORION, ARMANDO LONZAGA, RIZAL GELLIDO,
EVIRDE HAQUE,1 MYRNA VINAS, RODELITO AYALA, WINELITO OJEL, RENATO RODREGO, NENA ABINA, EMALYN OLIVEROS, LOUIE ILAGAN, JOEL ENTIG,
ARNEL
ARANETA,
BENJAMIN
COSE,
WELITO
LOON
and
WILLIAM
ALIPAO, Petitioners,
vs.
POWER MASTER, INC., TRI-C GENERAL SERVICES, and SPOUSES HOMER and CARINA ALUMISIN,Respondents.
DECISION
BRION, J.:
We resolve the petition for review on certiorari,2 filed by petitioners Wilgen Loon, Jerry Arcilla, Albert Pereye, Arnold Pereye, Edgardo Obose, Arnel Malaras, Patrocino Toetin, Evelyn Leonardo,
Elmer Glocenda, Rufo Cunamay, Rolando Sajol, Rolando Abucayon, Jennifer Natividad, Maritess Torion, Armando Lonzaga, Rizal Gellido, Evirde Haque, Myrna Vinas, Rodelito Ayala, Winelito
Ojel, Renato Rodrego, Nena Abina, Emalyn Oliveros, Louie Ilagan, Joel Entig, Arnel Araneta, Benjamin Cose, Welito Loon, William Alipao (collectively, the petitioners), to challenge the June 5,
2009 decision3 and the August 28, 2009 resolution4 of the Court of Appeals(CA) in CA-G.R. SP No. 95182.
The Factual Antecedents
Respondents Power Master, Inc. and Tri-C General Services employed and assigned the petitioners as janitors and leadsmen in various Philippine Long Distance Telephone Company (PLDT) offices
in Metro Manila area. Subsequently, the petitioners filed a complaint for money claims against Power Master, Inc., Tri-C General Services and their officers, the spouses Homer and Carina Alumisin
(collectively, the respondents). The petitioners alleged in their complaint that they were not paid minimum wages, overtime, holiday, premium, service incentive leave, and thirteenth month pays.
They further averred that the respondents made them sign blank payroll sheets. On June 11, 2001, the petitioners amended their complaint and included illegal dismissal as their cause of action. They
claimed that the respondents relieved them from service in retaliation for the filing of their original complaint.
Notably, the respondents did not participate in the proceedings before the Labor Arbiter except on April 19, 2001 and May 21, 2001 when Mr. Romulo Pacia, Jr. appeared on the respondents
behalf.5 The respondents counsel also appeared in a preliminary mandatory conference on July 5, 2001.6 However, the respondents neither filed any position paper nor proffered pieces of
evidence in their defense despite their knowledge of the pendency of the case.
The Labor Arbiters Ruling
In a decision7 dated March 15, 2002, Labor Arbiter (LA) Elias H. Salinas partially ruled in favor of the petitioners. The LA awarded the petitioners salary differential, service incentive leave, and
thirteenth month pays. In awarding these claims, the LA stated that the burden of proving the payment of these money claims rests with the employer. The LA also awarded attorneys fees in favor
of the petitioners, pursuant to Article 111 of the Labor Code.8
However, the LA denied the petitioners claims for backwages, overtime, holiday, and premium pays. The LA observed that the petitioners failed to show that they rendered overtime work and
worked on holidays and rest days without compensation. The LA further concluded that the petitioners cannot be declared to have been dismissed from employment because they did not show any
notice of termination of employment. They were also not barred from entering the respondents premises.
The Proceedings before the NLRC
Both parties appealed the LAs ruling with the National Labor Relations Commission. The petitioners disputed the LAs denial of their claim for backwages, overtime, holiday and premium pays.
Meanwhile, the respondents questioned the LAs ruling on the ground that the LA did not acquire jurisdiction over their persons.
The respondents insisted that they were not personally served with summons and other processes. They also claimed that they paid the petitioners minimum wages, service incentive leave and
thirteenth month pays. As proofs, they attached photocopied and computerized copies of payroll sheets to their memorandum on appeal.9 They further maintained that the petitioners were
validly dismissed. They argued that the petitioners repeated defiance to their transfer to different workplaces and their violations of the company rules and regulations constituted serious misconduct
and willful disobedience.10
On January 3, 2003, the respondents filed an unverified supplemental appeal. They attached photocopied and computerized copies of list of employees with automated teller machine
(ATM) cards to the supplemental appeal. This list also showed the amounts allegedly deposited in the employees ATM cards.11 They also attached documentary evidence showing that the
petitioners were dismissed for cause and had been accorded due process.
On January 22, 2003, the petitioners filed an Urgent Manifestation and Motion12 where they asked for the deletion of the supplemental appeal from the records because it allegedly suffered from
infirmities. First, the supplemental appeal was not verified. Second, it was belatedly filed six months from the filing of the respondents notice of appeal with memorandum on appeal. The
petitioners pointed out that they only agreed to the respondents filing of a responsive pleading until December 18, 2002. 13 Third the attached documentary evidence on the supplemental appeal
bore the petitioners forged signatures.
They reiterated these allegations in an Urgent Motion to Resolve Manifestation and Motion (To Expunge from the Records Respondents Supplemental Appeal, Reply and/or
Rejoinder) dated January 31, 2003.14Subsequently, the petitioners filed an Urgent Manifestation with Reiterating Motion to Strike-Off the Record Supplemental Appeal/Reply, Quitclaims
and Spurious Documents Attached to Respondents Appealdated August 7, 2003.15 The petitioners argued in this last motion that the payrolls should not be given probative value because they
were the respondents fabrications. They reiterated that the genuine payrolls bore their signatures, unlike the respondents photocopies of the payrolls. They also maintained that their signatures in the
respondents documents (which showed their receipt of thirteenth month pay) had been forged.
The NLRC Ruling
In a resolution dated November 27, 2003, the NLRC partially ruled in favor of the respondents.16 The NLRC affirmed the LAs awards of holiday pay and attorneys fees. It also maintained that
the LA acquired jurisdiction over the persons of the respondents through their voluntary appearance.
However, it allowed the respondents to submit pieces of evidence for the first time on appeal on the ground that they had been deprived of due process. It found that the respondents did not
actually receive the LAs processes. It also admitted the respondents unverified supplemental appeal on the ground that technicalities may be disregarded to serve the greater interest of substantial
due process. Furthermore, the Rules of Court do not require the verification of a supplemental pleading.
The NLRC also vacated the LAs awards of salary differential, thirteenth month and service incentive leave pays. In so ruling, it gave weight to the pieces of evidence attached to the
memorandum on appeal and the supplemental appeal. It maintained that the absence of the petitioners signatures in the payrolls was not an indispensable factor for their authenticity. It pointed out
that the payment of money claims was further evidenced by the list of employees with ATM cards. It also found that the petitioners signatures were not forged. It took judicial notice that many
people use at least two or more different signatures.
The NLRC further ruled that the petitioners were lawfully dismissed on grounds of serious misconduct and willful disobedience. It found that the petitioners failed to comply with various
memoranda directing them to transfer to other workplaces and to attend training seminars for the intended reorganization and reshuffling.
The NLRC denied the petitioners motion for reconsideration in a resolution dated April 28, 2006.17 Aggrieved, the petitioners filed a petition for certiorari under Rule 65 of the Rules of Court
before the CA.18
The CA Ruling
The CA affirmed the NLRCs ruling. The CA held that the petitioners were afforded substantive and procedural due process. Accordingly, the petitioners deliberately did not explain their side.
Instead, they continuously resisted their transfer to other PLDT offices and violated company rules and regulations. It also upheld the NLRCs findings on the petitioners monetary claims.
The CA denied the petitioners motion for reconsideration in a resolution dated August 28, 2009, prompting the petitioners to file the present petition.19
The Petition

In the petition before this Court, the petitioners argue that the CA committed a reversible error when it did not find that the NLRC committed grave abuse of discretion. They reiterate their arguments
before the lower tribunals and the CA in support of this conclusion. They also point out that the respondents posted a bond from a surety that was not accredited by this Court and by the NLRC. In
effect, the respondents failed to perfect their appeal before the NLRC. They further insist that the NLRC should not have admitted the respondents unverified supplemental appeal.20
The Respondents Position
In their Comments, the respondents stress that the petitioners only raised the issue of the validity of the appeal bond for the first time on appeal. They also reiterate their arguments before the NLRC
and the CA. They additionally submit that the petitioners arguments have been fully passed upon and found unmeritorious by the NLRC and the CA.21
The Issues
This case presents to us the following issues:
1) Whether the CA erred when it did not find that the NLRC committed grave abuse of discretion in giving due course to the respondents appeal;
a) Whether the respondents perfected their appeal before the NLRC; and
b) Whether the NLRC properly allowed the respondents supplemental appeal
2) Whether the respondents were estopped from submitting pieces of evidence for the first time on appeal;
3) Whether the petitioners were illegally dismissed and are thus entitled to backwages;
4) Whether the petitioners are entitled to salary differential, overtime, holiday, premium, service incentive leave, and thirteenth month pays; and
5) Whether the petitioners are entitled to attorneys fees.
The Courts Ruling
The respondents perfected their
appeal with the NLRC because the
revocation of the bonding company's
authority has a prospective
application
Paragraph 2, Article 223 of the Labor Code provides that "[i]n case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety
bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the monetary award in the judgment appealed from."
Contrary to the respondents claim, the issue of the appeal bonds validity may be raised for the first time on appeal since its proper filing is a jurisdictional requirement. 22 The requirement that the
appeal bond should be issued by an accredited bonding company is mandatory and jurisdictional. The rationale of requiring an appeal bond is to discourage the employers from using an appeal to
delay or evade the employees' just and lawful claims. It is intended to assure the workers that they will receive the money judgment in their favor upon the dismissal of the employers appeal.23
In the present case, the respondents filed a surety bond issued by Security Pacific Assurance Corporation (Security Pacific) on June 28, 2002. At that time, Security Pacific was still an accredited
bonding company. However, the NLRC revoked its accreditation on February 16, 2003.24 Nonetheless, this subsequent revocation should not prejudice the respondents who relied on its then
subsisting accreditation in good faith. In Del Rosario v. Philippine Journalists, Inc.,25 we ruled that a bonding companys revocation of authority is prospective in application.
However, the respondents should post a new bond issued by an accredited bonding company in compliance with paragraph 4, Section 6, Rule 6 of the NLRC Rules of Procedure. This provision
states that "[a] cash or surety bond shall be valid and effective from the date of deposit or posting, until the case is finally decided, resolved or terminated or the award satisfied."
The CA correctly ruled that the
NLRC properly gave due course to
the respondents supplemental
appeal
The CA also correctly ruled that the NLRC properly gave due course to the respondents supplemental appeal. Neither the laws nor the rules require the verification of the supplemental
appeal.26 Furthermore, verification is a formal, not a jurisdictional, requirement. It is mainly intended for the assurance that the matters alleged in the pleading are true and correct and not of mere
speculation.27 Also, a supplemental appeal is merely an addendum to the verified memorandum on appeal that was earlier filed in the present case; hence, the requirement for verification has
substantially been complied with.
The respondents also timely filed their supplemental appeal on January 3, 2003. The records of the case show that the petitioners themselves agreed that the pleading shall be filed until December
18, 2002. The NLRC further extended the filing of the supplemental pleading until January 3, 2003 upon the respondents motion for extension.
A party may only adduce evidence
for the first time on appeal if he
adequately explains his delay in the
submission of evidence and he
sufficiently proves the allegations
sought to be proven
In labor cases, strict adherence to the technical rules of procedure is not required. Time and again, we have allowed evidence to be submitted for the first time on appeal with the NLRC in the interest
of substantial justice.28Thus, we have consistently supported the rule that labor officials should use all reasonable means to ascertain the facts in each case speedily and objectively, without regard to
technicalities of law or procedure, in the interest of due process.29
However, this liberal policy should still be subject to rules of reason and fairplay. The liberality of procedural rules is qualified by two requirements: (1) a party should adequately explain any
delay in the submission of evidence; and (2) a party should sufficiently prove the allegations sought to be proven .30 The reason for these requirements is that the liberal application of the rules
before quasi-judicial agencies cannot be used to perpetuate injustice and hamper the just resolution of the case. Neither is the rule on liberal construction a license to disregard the rules of
procedure.31
Guided by these principles, the CA grossly erred in ruling that the NLRC did not commit grave abuse of discretion in arbitrarily admitting and giving weight to the respondents pieces of evidence
for the first time on appeal.
A. The respondents failed to
adequately explain their delay
in the submission of evidence
We cannot accept the respondents cavalier attitude in blatantly disregarding the NLRC Rules of Procedure. The CA gravely erred when it overlooked that the NLRC blindly admitted and arbitrarily
gave probative value to the respondents evidence despite their failure to adequately explain their delay in the submission of evidence. Notably, the respondents delay was anchored on their assertion
that they were oblivious of the proceedings before the LA. However, the respondents did not dispute the LAs finding that Mr. Romulo Pacia, Jr. appeared on their behalf on April 19, 2001 and May
21, 2001.32 The respondents also failed to contest the petitioners assertion that the respondents counsel appeared in a preliminary mandatory conference on July 5, 2001.33
Indeed, the NLRC capriciously and whimsically admitted and gave weight to the respondents evidence despite its finding that they voluntarily appeared in the compulsory arbitration proceedings.
The NLRC blatantly disregarded the fact that the respondents voluntarily opted not to participate, to adduce evidence in their defense and to file a position paper despite their knowledge of the
pendency of the proceedings before the LA. The respondents were also grossly negligent in not informing the LA of the specific building unit where the respondents were conducting their business
and their counsels address despite their knowledge of their non-receipt of the processes.34
B. The respondents failed to
sufficiently prove the

allegations sought to be
proven
Furthermore, the respondents failed to sufficiently prove the allegations sought to be proven. Why the respondents photocopied and computerized copies of documentary evidence were not
presented at the earliest opportunity is a serious question that lends credence to the petitioners claim that the respondents fabricated the evidence for purposes of appeal. While we generally admit in
evidence and give probative value to photocopied documents in administrative proceedings, allegations of forgery and fabrication should prompt the adverse party to present the original
documents for inspection.35 It was incumbent upon the respondents to present the originals, especially in this case where the petitioners had submitted their specimen signatures. Instead, the
respondents effectively deprived the petitioners of the opportunity to examine and controvert the alleged spurious evidence by not adducing the originals. This Court is thus left with no option but to
rule that the respondents failure to present the originals raises the presumption that evidence willfully suppressed would be adverse if produced.36
It was also gross error for the CA to affirm the NLRCs proposition that "[i]t is of common knowledge that there are many people who use at least two or more different signatures." 37 The NLRC
cannot take judicial notice that many people use at least two signatures, especially in this case where the petitioners themselves disown the signatures in the respondents assailed documentary
evidence.38 The NLRCs position is unwarranted and is patently unsupported by the law and jurisprudence.
Viewed in these lights, the scales of justice must tilt in favor of the employees. This conclusion is consistent with the rule that the employers cause can only succeed on the strength of its own
evidence and not on the weakness of the employees evidence.39
The petitioners are entitled to
backwages
Based on the above considerations, we reverse the NLRC and the CAs finding that the petitioners were terminated for just cause and were afforded procedural due process. In termination cases, the
burden of proving just and valid cause for dismissing an employee from his employment rests upon the employer. The employers failure to discharge this burden results in the finding that the
dismissal is unjustified.40 This is exactly what happened in the present case.
The petitioners are entitled to salary
differential, service incentive,
holiday, and thirteenth month pays
We also reverse the NLRC and the CAs finding that the petitioners are not entitled to salary differential, service incentive, holiday, and thirteenth month pays. As in illegal dismissal cases, the
general rule is that the burden rests on the defendant to prove payment rather than on the plaintiff to prove non-payment of these money claims. 41 The rationale for this rule is that the pertinent
personnel files, payrolls, records, remittances and other similar documents which will show that differentials, service incentive leave and other claims of workers have been paid are not in the
possession of the worker but are in the custody and control of the employer.42
The petitioners are not entitled to
overtime and premium pays
However, the CA was correct in its finding that the petitioners failed to provide sufficient factual basis for the award of overtime, and premium pays for holidays and rest days. The burden of proving
entitlement to overtime pay and premium pay for holidays and rest days rests on the employee because these are not incurred in the normal course of business. 43 In the present case, the petitioners
failed to adduce any evidence that would show that they actually rendered service in excess of the regular eight working hours a day, and that they in fact worked on holidays and rest days.
The petitioners are entitled to
attorneys fees
The award of attorneys fees is also warranted under the circumstances of this case. 1wphi1 An employee is entitled to an award of attorneys fees equivalent to ten percent (10%) of the amount of
the wages in actions for unlawful withholding of wages.44
As a final note, we observe that Rodelito Ayala, Winelito Ojel, Renato Rodrego and Welito Loon are also named as petitioners in this case. However, we deny their petition for the reason that they
were not part of the proceedings before the CA. Their failure to timely seek redress before the CA precludes this Court from awarding them monetary claims.
All told, we find that the NLRC committed grave abuse of discretion in admitting and giving probative value to the respondents' evidence on appeal, which errors the CA replicated when it upheld
the NLRC rulings.
WHEREFORE, based on these premises, we REVERSE and SET ASIDE the decision dated June 5, 2009, and the resolution dated August 28, 2009 of the Court of Appeals in CA-G.R. SP No.
95182. This case is REMANDEDto the Labor Arbiter for the sole purpose of computing petitioners' (Wilgen Loon, Jerry Arcilla, Albert Pereye, Arnold Pereye, Edgardo Obose, Arnel Malaras,
Patrocino Toetin, Evelyn Leonardo, Elmer Glocenda, Rufo Cunamay, Rolando Sajol, Rolando Abucayon, Jennifer Natividad, Maritess Torion, Ammndo Lonzaga, Rizal Gellido, Evirdly Haque,
Myrna Vinas, Nena Abina, Emalyn Oliveros, Louie Ilagan, Joel Entig, Amel Araneta, Benjamin Cose and William Alipao) full backwages (computed from the date of their respective dismissals up to
the finality of this decision) and their salary differential, service incentive leave, holiday, thirteenth month pays, and attorney's fees equivalent to ten percent (10%) of the withheld wages. The
respondents are further directed to immediately post a satisfactory bond conditioned on the satisfaction of the awards affirmed in this Decision.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:

Manila
THIRD DIVISION
G.R. No. 190696

August 3, 2010

ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC., Petitioners,


vs.
PEOPLE OF THE PHILIPPINES, Respondent.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by the petitioners, Philtranco Service Enterprises, Inc. (Philtranco) and Rolito Calang, to challenge our Resolution of February 17, 2010. Our assailed
Resolution denied the petition for review on certiorari for failure to show any reversible error sufficient to warrant the exercise of this Courts discretionary appellate jurisdiction.
Antecedent Facts
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No. 7001, owned by Philtranco along Daang Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar when
its rear left side hit the front left portion of a Sarao jeep coming from the opposite direction. As a result of the collision, Cresencio Pinohermoso, the jeeps driver, lost control of the vehicle, and
bumped and killed Jose Mabansag, a bystander who was standing along the highways shoulder. The jeep turned turtle three (3) times before finally stopping at about 25 meters from the point of
impact. Two of the jeeps passengers, Armando Nablo and an unidentified woman, were instantly killed, while the other passengers sustained serious physical injuries.
The prosecution charged Calang with multiple homicide, multiple serious physical injuries and damage to property thru reckless imprudence before the Regional Trial Court (RTC), Branch 31,
Calbayog City. The RTC, in its decision dated May 21, 2001, found Calang guilty beyond reasonable doubt of reckless imprudence resulting to multiple homicide, multiple physical injuries and
damage to property, and sentenced him to suffer an indeterminate penalty of thirty days of arresto menor, as minimum, to four years and two months of prision correccional, as maximum. The RTC
ordered Calang and Philtranco, jointly and severally, to pay P50,000.00 as death indemnity to the heirs of Armando; P50,000.00 as death indemnity to the heirs of Mabansag; andP90,083.93 as actual
damages to the private complainants.

The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its decision dated November 20, 2009, affirmed the RTC decision in toto.
The CA ruled that petitioner Calang failed to exercise due care and precaution in driving the Philtranco bus. According to the CA, various eyewitnesses testified that the bus was traveling fast and
encroached into the opposite lane when it evaded a pushcart that was on the side of the road. In addition, he failed to slacken his speed, despite admitting that he had already seen the jeep coming
from the opposite direction when it was still half a kilometer away. The CA further ruled that Calang demonstrated a reckless attitude when he drove the bus, despite knowing that it was suffering
from loose compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner Calang, for failing to prove that it had exercised the diligence of a good father of the family to prevent
the accident.
The petitioners filed with this Court a petition for review on certiorari. In our Resolution dated February 17, 2010, we denied the petition for failure to sufficiently show any reversible error in the
assailed decision to warrant the exercise of this Courts discretionary appellate jurisdiction.
The Motion for Reconsideration
In the present motion for reconsideration, the petitioners claim that there was no basis to hold Philtranco jointly and severally liable with Calang because the former was not a party in the criminal
case (for multiple homicide with multiple serious physical injuries and damage to property thru reckless imprudence) before the RTC.
The petitioners likewise maintain that the courts below overlooked several relevant facts, supported by documentary exhibits, which, if considered, would have shown that Calang was not negligent,
such as the affidavit and testimony of witness Celestina Cabriga; the testimony of witness Rodrigo Bocaycay; the traffic accident sketch and report; and the jeepneys registration receipt. The
petitioners also insist that the jeeps driver had the last clear chance to avoid the collision.
We partly grant the motion.
Liability of Calang
We see no reason to overturn the lower courts finding on Calangs culpability. The finding of negligence on his part by the trial court, affirmed by the CA, is a question of fact that we cannot pass
upon without going into factual matters touching on the finding of negligence. In petitions for review on certiorari under Rule 45 of the Revised Rules of Court, this Court is limited to reviewing
only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record, or the assailed judgment is based on a misapprehension of facts.
Liability of Philtranco
We, however, hold that the RTC and the CA both erred in holding Philtranco jointly and severally liable with Calang. We emphasize that Calang was charged criminally before the RTC.
Undisputedly, Philtranco was not a direct party in this case. Since the cause of action against Calang was based on delict, both the RTC and the CA erred in holding Philtranco jointly and severally
liable with Calang, based on quasi-delict under Articles 21761 and 21802 of the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer for quasidelicts that an employee has committed. Such provision of law does not apply to civil liability arising from delict.
If at all, Philtrancos liability may only be subsidiary. Article 102 of the Revised Penal Code states the subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of establishments, as
follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or corporations shall be civilly liable for crimes committed in their establishments, in all cases where a
violation of municipal ordinances or some general or special police regulations shall have been committed by them or their employees.1avvphil
Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within their houses from guests lodging therein, or for the payment of the value thereof, provided that such
guests shall have notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to the care of and vigilance over such goods. No liability shall attach in case of robbery with violence against or intimidation of
persons unless committed by the innkeepers employees.
The foregoing subsidiary liability applies to employers, according to Article 103 of the Revised Penal Code, which reads:
The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their
servants, pupils, workmen, apprentices, or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability Articles 102 and 103 are deemed written into the judgments in cases to which they are applicable. Thus, in the dispositive portion
of its decision, the trial court need not expressly pronounce the subsidiary liability of the employer.3 Nonetheless, before the employers subsidiary liability is enforced, adequate evidence must exist
establishing that (1) they are indeed the employers of the convicted employees; (2) they are engaged in some kind of industry; (3) the crime was committed by the employees in the discharge of their
duties; and (4) the execution against the latter has not been satisfied due to insolvency. The determination of these conditions may be done in the same criminal action in which the employees
liability, criminal and civil, has been pronounced, in a hearing set for that precise purpose, with due notice to the employer, as part of the proceedings for the execution of the judgment.4
WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals decision that affirmed in toto the RTC decision, finding Rolito Calang guilty beyond reasonable doubt of reckless
imprudence resulting in multiple homicide, multiple serious physical injuries and damage to property, is AFFIRMED, with the MODIFICATION that Philtrancos liability should only be subsidiary.
No costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:

SECOND DIVISION
G.R. No. 191015

August 6, 2014

PEOPLE OF THE PHILIPPINES Petitioner,


vs.
JOSE C. GO, AIDA C. DELA ROSA, and FELECITAS D. NECOMEDES,** Respondents.
DECISION
DEL CASTILLO, J.:
The power of courts to grant demurrer in criminal cases should be exercised with great caution, because not only the rights of the accused - but those of the offended party and the public interest as
well - are involved. Once granted, the accused is acquitted and the offended party may be left with no recourse. Thus, in the resolution of demurrers, judges must act with utmost circumspection and
must engage in intelligent deliberation and reflection, drawing on their experience, the law and jurisprudence, and delicately evaluating the evidence on hand.
This Petition for Review on Certiorari1 seeks to set aside the September 30, 2009 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 101823, entitled "People of the Philippines, Petitioner,
versus Hon. Concepcion Alarcon-Vergara et al., Respondents," as well as its January 22, 2010 Resolution3 denying reconsideration of the assailed judgment.
Factual Antecedents
The following facts appear from the account of the CA:
On October 14, 1998, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 1427 ordering the closure of the Orient Commercial Banking Corporation (OCBC) and
placing such bank under the receivership of the Philippine Deposit Insurance Corporation (PDIC). PDIC, as the statutory receiver of OCBC, effectively took charge of OCBCs assets and liabilities
in accordance withits mandate under Section 30 of Republic Act 7653.
xxxx

While all the aforementioned events were transpiring, PDIC began collecting on OCBCs past due loans receivable by sending demand letters to its borrowers for the immediate settlement oftheir
outstanding loans. Allegedly among these borrowers of OCBC are Timmys, Inc. and Asia Textile Mills, Inc. which appeared to have obtained a loanof [P]10 Million each. A representative of
Timmys, Inc. denied being granted any loan by OCBC and insisted that the signatures on the loan documents were falsified. A representative of Asia Textile Mills, Inc. denied having applied, much
less being granted, a loan by OCBC.
The PDIC conducted an investigation and allegedly came out with a finding that the loans purportedly in the names of Timmys, Inc. and Asia Textile Mills, Inc. were released in the form of
managerschecks in the name of Philippine Recyclers and Zeta International, Inc. These managers checks were then allegedly deposited to the savings account of the private respondent Jose C. Go
with OCBC and, thereafter, were automatically transferred to his current account in order to fund personal checks issued by him earlier.
On September 24, 1999, PDIC filed a complaint4 for two (2) counts of Estafa thru Falsification of CommercialDocuments in the Office of the City Prosecutor of the City of Manila against the
private respondents in relation to the purported loans of Timmys, Inc.and Asia Textile Mills, Inc. On November 22, 2000, after finding probable cause, the Office of the City Prosecutor of the City
of Manila filed Informations5 against the private respondents which were docketed as Criminal Case Nos. 00-187318 and 00-187319 in the RTC in Manila.
Upon being subjected to arraignment by the RTC in Manila, the private respondents pleaded not guilty to the criminal cases filed against them. A pretrial was conducted. Thereafter, trial of the cases
ensued and the prosecution presented its evidence. After the presentation of all of the prosecutions evidence, the private respondents filed a Motion for Leave to File Demurrer to Evidence and a
Motion for Voluntary Inhibition. The presiding judge granted the private respondents Motion for Voluntary Inhibition and ordered the case to be re-raffled to another branch. The case was
subsequently re-raffled to the branch of the respondent RTC judge.6
In an Order dated December 19, 2006, the respondent RTC judge granted the private respondents Motion for Leave to File Demurrer to Evidence. On January 17, 2007, the private respondents filed
their Demurrer to Evidence7 praying for the dismissal of the criminal cases instituted against them due to the failure of the prosecution to establish their guilt beyond reasonable doubt.
On July 2, 2007, an Order8 was promulgated by the respondent RTC judge finding the private respondents Demurrer to Evidence to be meritorious, dismissing the Criminal Case Nos. 00-187318
and 00-187319 and acquitting all of the accused in these cases. On July20, 2007, the private prosecutor in Criminal Case Nos. 00-187318 and 00-187319 moved for a reconsideration of the July 2,
2007 Order but the same was denied by the respondent RTC judge in an Order9 dated October 19, 2007.10
Surprisingly, and considering thathundreds of millions of Orient Commercial Banking Corporation (OCBC) depositors money appear to have been lost which must have contributed to the banks
being placed under receivership, no motion for reconsideration of the July 2, 2007 Order granting respondents demurrer to evidence was filed by the handling public prosecutor, Manila Prosecutor
Marlo B. Campanilla (Campanilla). Only complainant Philippine Deposit Insurance Corporation (PDIC) filed a Motion for Reconsideration, and the same lacked Campanillas approval and/or
conform; the copy of the Motion for Reconsideration filed with the RTC 11does not bear Campanillas approval/conform; instead,it indicates thathe was merely furnished with a copy of the motion
by registered mail.12 Thus, while the prosecutions copy of PDICsMotion for Reconsideration13 bore Campanillas subsequent approval and conformity, that which was actually filed by PDIC
with the RTC on July 30, 2007 did not contain the public prosecutors written approval and/or conformity.
Ruling of the Court of Appeals
On January 4, 2008, the prosecution, through the Office of the Solicitor General (OSG), filed anoriginal Petition for Certiorari14 with the CA assailing the July 2, 2007 Order of the trial court.
Itclaimed that the Order was issued with grave abuse of discretion amounting to lackor excess of jurisdiction; that it was issued with partiality; that the prosecution was deprived of its day in court;
and that the trial court disregarded the evidence presented, which undoubtedly showed that respondents committed the crime of estafa through falsification ofcommercial documents.
On September 30, 2009, the CA issued the assailed Decision with the following decretal portion: WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby DENIED
and the assailed Orders of the respondent RTC judge are AFFIRMED and deemed final and executory.
SO ORDERED.15
Notably, in dismissing the Petition, the appellate court held that the assailed July 2, 2007 Order of the trial court became final since the prosecution failed to move for the reconsideration thereof, and
thus double jeopardy attached. The CA declared thus
More important than the fact that double jeopardy already attaches is the fact that the July 2, 2007 Order of the trial court has already attained finality. This Order was received by the Office of the
City Prosecutor of Manila on July 3, 2007 and by the Private Prosecutor on July 5, 2007. While the Private Prosecutor filed a Motion for Reconsideration of the said Order, the Public Prosecutor did
not seek for the reconsideration thereof. It is the Public Prosecutor who has the authority to file a Motion for Reconsideration of the said order and the Solicitor General who can file a petition for
certiorari with respect to the criminal aspect of the cases. The failure of the Public Prosecutor to file a Motion for Reconsideration on or before July 18, 2007 and the failure of the Solicitor General
to file a Petition for Certiorarion or before September 1, 2007 made the order of the trial court final.
As pointed out by the respondents, the Supreme Court ruled categorically on this matter in the case of Mobilia Products, Inc. vs. Umezawa (452 SCRA 736), as follows:
"In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party is limited to the civil liabilityarising therefrom. Hence, if a criminal case is
dismissed by the trial court or if there is an acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar as the criminal aspect thereof is
concerned and may be made only by the public prosecutor; or in the case of an appeal, by the State only, through the OSG. The private complainant or offended party may not undertake such motion
for reconsideration or appeal on the criminal aspect ofthe case. However, the offended party or private complainant may file a motion for reconsideration of such dismissal or acquittal or appeal
therefrom but only insofar as the civil aspect thereof is concerned. In so doing, the private complainant or offended party need not secure the conformity of the public prosecutor. If the court denies
his motion for reconsideration, the private complainant or offended party may appeal or file a petition for certiorarior mandamus, if grave abuse amounting to excess or lack of jurisdiction is shown
and the aggrieved party has no right of appeal or given an adequate remedy in the ordinary course of law."16
In addition, the CA ruled that the prosecution failed to demonstrate that the trial court committed grave abuse of discretion in granting the demurrer, or that it was denied its day in court; that on the
contrary, the prosecution was afforded every opportunity to present its evidence, yet it failed to prove that respondents committed the crime charged.
The CA further held that the prosecution failed to present a witness who could testify, based on personal knowledge, that the loan documents were falsified by the respondents; that the prosecution
should not have relied on "letters and unverified ledgers," and it "should have trailed the money from the beginning to the end;" 17 that while the documentary evidenceshowed that the signatures in
the loan documents were falsified, it has not been shown who falsified them. It added that since only two of the alleged 13 managers checks were being questioned, there arose reasonable doubt as
to whether estafa was committed, as to these two checks; instead, there is an "inescapable possibility that an honest mistake was made in the preparation of the two questioned managers checks
since these checks were made out to the names of different payees and not in the names of the alleged applicants of the loans."18 The appellate court added
x x x Finally, the petitioner failed to present evidence on where the money went after they were deposited to the checking account of the private respondent Jose C. Go. There is only a vague
reference that the money was used to fund the personal checks earlier issued by x x x Go. The petitioner should have gone further and identified who were the recipients of these personal checks and
if these personal checks were negotiated and honored. With all the resources of the public prosecutors office, the petitioner should have done a better job of prosecuting the cases filed against the
private respondents. It isa shame that all the efforts of the government will go for naught due to the negligence of the public prosecutors in tying up the chain of evidence in a criminal case.19
As a final point, the CA held that if errors were made inthe appreciation of evidence, these are mere errors of judgment and not errors of jurisdiction which may no longer be reviewed lest
respondents be placed in double jeopardy.
The OSG moved for reconsideration, but in the assailed January 22, 2010 Resolution, the CA stood its ground. Hence, the instant Petition was instituted.
Issues
In the Petition, it is alleged that
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
(a) NO GRAVE ABUSE OF DISCRETION WAS COMMITTED BY RESPONDENT RTC JUDGE IN GRANTING THE DEMURRER TO EVIDENCE;
(b) THE ORDER OF ACQUITTAL HAS ALREADY ATTAINED FINALITY WHEN IT WAS NOT CHALLENGED IN A TIMELY AND APPROPRIATE MANNER; AND
(c) THE LOWER COURT MERELY COMMITTED ERRORS OF JUDGMENT AND NOT OF JURISDICTION.20
Petitioners Arguments
Petitioner argues that the public prosecutor actually filed a Motion for Reconsideration of the assailed July 2,2007 Order of the trial court granting respondents demurrer that is, by "joining"the
private prosecutor PDIC in the latters July 20, 2007 Motion for Reconsideration. Nonetheless,it admitted that while it joined PDIC in the latters July 20, 2007 Motion for Reconsideration, it had

only until July 18, 2007 within which to seek reconsideration since it received the order on July 3, 2007, while the private prosecutor received a copy of the Order only on July 5, 2007; it pleads
thatthe two-day delay in filing the motion should not prejudice the interests of the State and the People.
Petitioner assumes further that, since it was belated in its filing of the required Motion for Reconsideration, it may have been tardy as well in the filing of the Petition for Certiorariwith the CA, or
CA-G.R. SP No. 101823. Still, it begs the Court to excuse its mistake in the nameof public interest and substantial justice, and in order to maintain stability in the banking industry given that the case
involved embezzlement of large sums ofdepositors money in OCBC.
Petitioner goes on to argue that the CAerred in affirming the trial courts finding that demurrer was proper. It claims that it was able to prove the offense charged, and it has shown that respondents
were responsible therefor.
In its Reply,21 petitioner claims thatthe July 2, 2007 Order of the trial court granting respondents demurrer was null and void to begin with, and thus it could not have attained finality. It adds
thatcontrary to respondents submission, the private prosecutors Motion for Reconsideration contained the public prosecutors written conformity, and that while it may be saidthat the public
prosecutors motion was two days late, still the trial court took cognizance thereof and passed upon its merits; by so doing, the trial court thus validatedthe public prosecutors action of adopting the
private prosecutorsMotion for Reconsideration as his own. This being the case, it should therefore besaid that the prosecutions resultant Petition for Certiorariwith the CA on January 4, 2008 was
timely filed within the required 60-day period, counted from November 5, 2007,or the date the public prosecutor received the trial courts October 19, 2007 Order denying the Motion for
Reconsideration.
Petitioner submits further that a Petition for Certiorariwas the only available remedy against the assailed Orders of the trial court, since the granting of a demurrer in criminal cases is tantamount to
an acquittal and is thus immediately final and executory. It adds that the denial of its right to due process is apparent since the trial courts grant of respondents demurrer was purely capricious and
done with evident partiality, despite the prosecution having adduced proof beyond reasonable doubt that they committed estafa through falsification of commercial documents. Petitioner thus prays
that the assailed CA dispositions be reversed and that Criminal Case Nos. 00-187318 and 00-187319 be reinstated for further proceedings.
Respondents Arguments
Praying that the Petition be denied, respondents Jose C. Go (Go), Aida C. Dela Rosa (Dela Rosa), and Felecitas D. Necomedes (Nicomedes) the accused in Criminal Case Nos. 00-187318 and 00187319 argue in their Comment22 that the trial courts grant of their demurrer to evidence amounts to an acquittal; any subsequent prosecution for the same offense would thus violate their
constitutional right against double jeopardy. They add thatsince the public prosecutor failed to timely move for the reconsideration of the trial courts July 2, 2007 Order, it could not have validly
filed an original Petition for Certiorariwith the CA. Nor can it be said that the prosecution and the private prosecutor jointly filed the latters July 20, 2007 Motion for Reconsideration with the trial
court because the public prosecutors copy of PDICsmotion was merely sent through registered mail. Therefore if it were true that the public prosecutor gave his approval or conformity to the
motion, he did so only afterreceiving his copy of the motion through the mail, and not at the time the private prosecutor actually filed its Motion for Reconsideration with the trial court.
Next, respondents submit that petitioner was not deprived of its day in court; the grant of their demurrer to evidence is based on a fair and judicious determination of the facts and evidence bythe trial
court, leading it to conclude that the prosecution failed to meet the quantum of proof required to sustain a finding of guilt on the part of respondents. They argue thatthere is no evidence to show that
OCBC released loan proceeds to the alleged borrowers, Timmys, Inc. and Asia Textile Mills, Inc., and that these loan proceeds were then deposited in the account of respondent Go. Since no loans
were granted to the two borrowers, then there is nothing for Go to misappropriate. With respect to the two managers checks issued to Philippine Recyclers Inc. and Zeta International, respondents
contend that these may not beconsidered to be the loan proceeds pertaining to Timmys, Inc. and Asia Textile Mills, Inc.s loan application because these checks were not in the name of the alleged
borrowers Timmys, Inc.and Asia Textile Mills, Inc. as payees. Besides, these two checks were never negotiated with OCBC, either for encashmentor deposit, since they did not bear the respective
indorsements or signatures and account numbers of the payees; thus, they could not be considered to havebeen negotiated nor deposited with Gos account with OCBC.
Next, respondents argue that the cash deposit slip used to deposit the alleged loan proceeds in Gos OCBC account is questionable, since under banking procedure, a cash deposit slip may not be
used to deposit checks. Moreover, it has not been shown who prepared the said cash deposit slip. Respondents further question the validity and authenticity of the other documentary evidence
presented, such as the Subsidiary Ledger, Cash Proof,23 Schedule of Returned Checks and Other Cash Items (RTCOCI), etc.
Finally, respondents claim that not all the elementsof the crime of estafa under Article 315, par. 1(b) of the Revised Penal Code have been established; specifically, it has not been shown that
Goreceived the alleged loan proceeds, and that a demand was made upon him for the return thereof.
Our Ruling
The Court grants the Petition.
Criminal Case Nos. 00-187318 and 00-187319 for estafa through falsification of commercial documents against the respondents are based on the theory that in 1997, fictitious loans in favor of two
entities Timmys, Inc. and Asia Textile Mills, Inc. were approved, after which two managers checks representing the supposed proceeds of these fictitious loans were issued but made payable to
two different entities Philippine RecyclersInc. and ZetaInternational without any documents issued by the supposed borrowers Timmys, Inc. and Asia Textile Mills, Inc. assigning the
supposedloan proceeds tothe two payees. Thereafter, these two managers checks together with several others totaling P120,819,475.0024 were encashed, and then deposited in the OCBC
Savings Account No. 00810-00108-0 of Go. Then, several automatic transfer deposits were made from Gos savings account to his OCBC Current Account No. 008-00-000015-0 which were then
used to fund Gos previously dishonored personal checks.
The testimonial and documentary evidenceof the prosecution indicate that OCBC, a commercial bank, was ordered closed by the BSP sometime in October 1998. PDIC was designated as OCBC
receiver, and it took over the banks affairs, assets and liabilities, records, and collected the banks receivables.
During efforts to collect OCBCs pastdue loan receivables, PDIC as receiver sent demand letters to the banks debtor-borrowers on record, including Timmys, Inc. and Asia Textile Mills, Inc. which
appeared to have obtained unsecured loans of P10 million each, and which apparently remained unpaid. In response to the demand letters, Timmys, Inc. and Asia Textile Mills, Inc. denied having
obtained loans from OCBC. Timmys, Inc., through its designated representative, claimed that while it is true that it applied for an OCBC loan, it no longer pursued the application after it was
granted a loan by another bank. When the OCBC loan documents were presented to Timmys, Inc.s officers, it was discovered that the signatures therein of the corporate officers were forgeries. In
their defense and to clarify matters, Timmys, Inc.s corporate officers executed affidavits and furnished official documents such as their passports and the corporations Articles of Incorporation
containing their respectivesignatures to show PDIC that their purported signatures in the OCBC loan documents were forgeries. After its investigation into the matter, PDIC came to the conclusion
that the signatures on the Timmys, Inc. loan documents were indeed falsified.25
On the other hand, in a written reply26 to PDICs demand letter, Asia Textile Mills, Inc. vehemently denied thatit applied for a loan with OCBC. On this basis, PDIC concluded that the AsiaTextile
Mills, Inc.loan was likewise bogus. Moreover, PDIC discovered other bogus loans in OCBC.
Through the falsified loan documents, the OCBC Loan Committee composed of Go, who was likewise OCBCPresident, respondent Dela Rosa (OCBC Senior Vice President, or SVP, and Chief
Operating Officer, or COO), Arnulfo Aurellano and Richard Hsu approved a P10 million unsecured loan purportedly in favor of Timmys, Inc. After deducting finance charges, advance interest and
taxes, DelaRosa certified a net loan proceeds amounting to P9,985,075.00 covered by Managers Check No. 000000334727 dated February 5, 1997.28The face of the check bears the notation "Loan
proceeds of CL-484," the alpha numeric code ("CL-484")of which refers to the purported loan of Timmys, Inc.29 However, the payee thereof was not the purported borrower, Timmys, Inc., but a
certain "Zeta International". Likewise, on even date, Managers Check No. 000000334030 forP9,985,075.00 was issued, and on its face is indicated "Loan proceeds of CL-477", which alpha
numeric code ("CL-477") refers to the purported loan of AsiaTextile Mills, Inc.31 Managers Check No. 0000003340 was made payable not to Asia Textile Mills, Inc., but to "Phil. Recyclers Inc."
On the same day that the subject managers checks were issued, or on February 5, 1997, it appears that the two checks together with other managers checks totaling P120,819,475.00 were
encashed; on the face ofthe checks, the word "PAID" was stamped, and at the dorsal portion thereof there were machine validations showing thatManagers Check No. 0000003347 was presented at
6:16 p.m., while Managers Check No. 0000003340 was presented at 6:18 p.m.32
After presentment and encashment, the amount of P120,819,475.00 which among others included theP9,985,075.00 proceeds of the purported Timmys, Inc. loan and the P9,985,075.00 proceeds
of the supposed Asia Textile Mills, Inc. loan was deposited in Gos OCBC Savings Account No. 00810-00108-0 at OCBC Recto Branch, apparently on instructions of respondent Dela
Rosa.33 The deposit is covered by OCBC Cash Deposit Slip34 dated February 5, 1997, with the corresponding machine validation thereon indicating that the deposit was made at 6:19 p.m. 35 The
funds were credited to Gos savings account.36
It appears that previously, or on February 4, 1997, seven OCBC checks issued by Go from his personal OCBC Current Account No. 008-00-000015-0 totaling P145,488,274.48 were dishonored for
insufficiency of funds.37After Managers Check Nos. 0000003340 and 0000003347, along with several other managers checks, were encashed and the proceeds thereof deposited in Gos OCBC
Savings Account No. 00810-00108-0 withautomatic transferfeature to his OCBC Current Account No. 008-00-000015-0, funds were automatically transferred from the said savings account to the
current account, which atthe time contained only a total amountof P26,332,303.69. GosOCBC Current Account No. 008-00-000015-0 was credited with P120,819,475.00, and thereafter the account
registered a balance of P147,151,778.69. The seven previously dishonored personal checks were thenpresented for clearing, and were subsequently cleared that sameday, or on February 5,
1997.38 Apparently, they were partly funded by the P120,819,475.00managers check deposits which include Managers Check Nos. 0000003340 and 0000003347.

During the examination and inquiry into OCBCs operations, oron January 28, 1998, Go issued and sent a letter39to the BSP, through Maria Dolores Yuviengco, Director of the Departmentof
Commercial Banks, specifically requesting that the BSP refrain from sending any communication to Timmys, Inc. and Asia Textile Mills, Inc., among others. He manifested that he was "willing to
assume the viability and full payment"of the accounts under investigation and examination, including the Timmys, Inc. and AsiaTextile Mills, Inc. accounts.
Demurrer to the evidence40 is "an objection by one of the parties in an action, to the effect that the evidence which his adversary produced is insufficient in point of law, whether true or not, to make
out a case or sustain the issue. The party demurring challenges the sufficiencyof the whole evidence to sustain a verdict. The court, in passing upon the sufficiency of the evidence raised in a
demurrer, is merely required to ascertain whether there is competent or sufficient evidence to sustain the indictment or to support a verdict of guilt. x x x Sufficient evidence for purposes of
frustrating a demurrer thereto is such evidence in character, weight or amount as will legally justify the judicial or official action demanded according to the circumstances. To be considered
sufficient therefore, the evidence must prove: (a) the commission of the crime, and (b) the precise degree of participation therein by the accused." 41 Thus, when the accused files a demurrer, the
court must evaluate whether the prosecution evidence is sufficient enough to warrant the conviction of the accused beyond reasonable doubt.42
"The grant or denial of a demurrer to evidence is left to the sound discretion of the trial court, and its ruling on the matter shall not be disturbed in the absence of a grave abuse of such
discretion."43 As to effect, "the grant of a demurrer to evidence amounts to an acquittal and cannot be appealed because it would place the accused in double jeopardy. The order is reviewable only
by certiorariif it was issued with grave abuse of discretion amounting tolack or excess of jurisdiction." 44 When grave abuse of discretion is present, an order granting a demurrer becomes null and
void.
As a general rule, an order granting the accuseds demurrer to evidence amounts to an acquittal. There are certain exceptions, however, as when the grant thereof would not violate the constitutional
proscription on double jeopardy. For instance, this Court ruled that when there is a finding that there was grave abuse of discretion on the part of the trial court in dismissing a criminal case by
granting the accuseds demurrer to evidence,its judgment is considered void, as this Court ruled in People v. Laguio, Jr.:
By this time, it is settled that the appellate court may review dismissal orders of trial courts granting an accuseds demurrer to evidence. This may be done via the special civil action of
certiorariunder Rule 65 based on the ground of grave abuse of discretion, amounting to lack or excess of jurisdiction. Such dismissal order, being considered void judgment, does not result in
jeopardy. Thus, when the order of dismissal is annulled or set aside by an appellate court in an original special civil action via certiorari, the right of the accused against double jeopardy is not
violated.
In the instant case, having affirmed the CA finding grave abuse of discretion on the part of the trial court when it granted the accuseds demurrer to evidence, we deem its consequent order of
acquittal void.45
Grave abuse of discretion is defined as "that capricious or whimsical exercise of judgment which is tantamount to lack of jurisdiction. The abuse of discretion must be 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 at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by
reason of passion and hostility. The party questioning the acquittal of an accused should be able toclearly establish that the trial court blatantly abused its discretion such that it was deprived of its
authority to dispense justice."46
In the exercise of the Courts "superintending control over inferior courts, we are to be guided by all the circumstances of each particular case as the ends of justice may require. So it is that the writ
will be granted where necessary to prevent a substantial wrong or to do substantial justice."47
Guided by the foregoing pronouncements, the Court declaresthat the CA grossly erred in affirming the trial courts July 2, 2007 Order granting the respondents demurrer, which Order was patently
null and void for having been issued with grave abuse of discretion and manifest irregularity, thus causing substantial injury to the banking industry and public interest.1avvphi1 The Court finds that
the prosecution has presented competent evidence to sustain the indictment for the crime of estafa through falsification of commercial documents, and that respondents appear to be the perpetrators
thereof. In evaluating the evidence, the trial court effectively failed and/or refused to weigh the prosecutions evidence against the respondents, which it was duty-bound to do as a trier of facts;
considering that the case involved hundreds of millions of pesos of OCBC depositors money not to mention that the banking industry is impressed with public interest, the trial court should have
conducted itself with circumspection and engaged in intelligent reflection in resolving the issues.
The elements of estafa through abuse ofconfidence under Article 315, par. 1(b) of the Revised Penal Code48 are: "(a) that money,goods or other personal property is received by the offender in trust
oron commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same; (b) that there be misappropriation orconversion of such money or
property by the offender, or denial on his part of such receipt; (c) that such misappropriation or conversion or denial is to the prejudice of another; and (d) there is demand by the offended party to the
offender."49
Obviously, a bank takes its depositors money as a loan, under an obligation to return the same; thus, the term "demand deposit."
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simpleloan. Article 1980 of the Civil Code expressly provides that "x x x savingsx x x deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor
and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. x x x50
Moreover, the banking laws impose high standards on banks in view of the fiduciary nature of banking."This fiduciary relationship means that the banks obligation to observe high standards
ofintegrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher
than that of a good father of a family."51
In Soriano v. People,52 it was held that the President of a bank is a fiduciary with respect to the banks funds, and he holds the same in trust or for administration for the banks benefit. From this, it
may beinferred that when such bank president makes it appear through falsification that an individual or entity applied for a loan when in fact such individual or entity did not, and the bank president
obtains the loan proceeds and converts the same, estafa is committed.
Next, regarding misappropriation, the evidence tends to extablish that Managers Check Nos.0000003340 and 0000003347 were encashed, using the banks funds which clearly belonged to OCBCs
depositors, and then deposited in Gos OCBC Savings Account No. 00810-00108-0 at OCBC Recto Branch although he was not the named payee therein. Next, the money was automatically
transferred to Gos OCBC Current Account No. 008-00-000015-0 and used to fund his seven previously-issued personal checks totaling P145,488,274.48, which checks were dishonored the day
before. Simply put, the evidence strongly indicates that Go converted OCBC funds to his own personal use and benefit. "The words convert and misappropriate connote an act of using or
disposing of anothers property as if it were ones own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for ones own use includes not only conversion to
ones personal advantage, but also every attempt to dispose of the property of another without right. x x x In proving the element of conversion or misappropriation, a legal presumption of
misappropriation arises when the accused fails to deliver the proceeds of the sale or to return the items to be sold and fails to give an account of their whereabouts.Thus, the merepresumption of
misappropriation or conversion is enough to conclude thata probable cause exists for the indictment x x x."53
As to the third element of estafa, there is no question that as a consequence of the misappropriation of OCBCs funds, the bank and its depositors have been prejudiced; the bank has been placed
under receivership, and the depositors money is no longer under their unimpeded disposal.
Finally, on the matter of demand, while it has not been shown that the bank demanded the return of the funds, it has nevertheless been held that "[d]emand is not an element of the felony or a
condition precedent tothe filing of a criminal complaint for estafa. Indeed, the accusedmay be convicted ofthe felony under Article 315, paragraph 1(b) of the Revised Penal Code if the prosecution
proved misappropriation or conversion by the accused of the money or property subject of the Information. In a prosecution for estafa, demand is not necessary where there is evidence of
misappropriation or conversion."54 Thus, strictly speaking, demand is not an element of the offense of estafa through abuse of confidence; even a verbal query satisfies the requirement. 55 Indeed,
in several past rulings of the Court, demand was not even included as anelement of the crime of estafa through abuse of confidence, orunder paragraph 1(b).56
On the other hand, the elements of the crime of falsification of commercial document under Art. 17257 are: "(1) that the offender is a private individual; (2) that the offender committed any of the
acts of falsification; and (3) that the act of falsification is committed ina commercial document."58 As to estafa through falsification of public, official or commercial documents, it has been held that

The falsification of a public, official, or commercial document may be a means of committing Estafa, because before the falsified document is actually utilized to defraud another, the crime of
Falsification has already been consummated, damage or intent to cause damage not being an element of the crime of falsification of public, official or commercial document. In other words, the
crime of falsification has already existed. Actually utilizing that falsified public, official or commercial document todefraud another is estafa. But the damage is caused by the commission of Estafa,
not by the falsification of the document. Therefore, the falsification of the public, official or commercial document is only a necessary means to commit the estafa.59
Simulating OCBC loan documents such as loan applications, credit approval memorandums, and the resultant promissory notes and other credit documents by causing it to appear that persons
have participated in any act or proceeding when they did not in fact so participate, and by counterfeiting or imitating their handwriting or signatures constitute falsification of commercial and public
documents.
As to the respondents respective participation in the commission of the crime, suffice it to state that as the beneficiary of the proceeds, Go is presumed to be the author of the falsification. The fact
that previously, his personal checks totaling P145,488,274.48 were dishonored, and the day after, the amount of P120,819,475.00 was immediately credited to his account, which included funds from

the encashment of Managers Check Nos. 0000003340 and 0000003347 or the loan proceeds of the supposed Timmys, Inc. and Asia Textile Mills, Inc. accounts, bolsters this view. "[W]henever
someone has in his possession falsified documents [which he used to] his advantage and benefit, the presumption that he authored it arises."60
x x x This is especially true if the use or uttering of the forged documents was so closely connected in time with the forgery that the user or possessor may be proven to have the capacity of
committing the forgery, or to have close connection with the forgers, and therefore, had complicity in the forgery.
In the absence of a satisfactory explanation, one who is found in possession of a forged document and who used or uttered it is presumed to be the forger.
Certainly, the channeling of the subjectpayments via false remittances to his savings account, his subsequent withdrawals of said amount as well as his unexplained flight at the height of the banks
inquiry into the matter more than sufficiently establish x x x involvement in the falsification.61
Likewise, Dela Rosas involvement inthe scheme has been satisfactorily shown. As OCBC SVP and COO and member of the OCBC Loan Committee, she approved the purported Timmys, Inc.loan,
and she certified and signed the February 2, 1997 OCBC Disclosure Statement and other documents.62 She likewise gave specific instructions to deposit the proceeds of Managers Check Nos.
0000003340 and 0000003347, among others, in Gos OCBC Savings Account No. 00810-00108-0 at OCBC Recto Branch.63 Finally, she was a signatory to the two checks.64
On the other hand, respondent Nicomedes as OCBC Senior Manager for Corporate Accounts Account Management Group, among others prepared the Credit Approval Memorandum and
recommended the approval of the loans.65
In granting the demurrer, the trial court in its assailed July 2, 2007 Order concluded that based on the evidence adduced, the respondents could not have falsified the loan documents pertaining
toTimmys, Inc. and Asia Textile Mills, Inc. since the individuals who assert that their handwriting and signatures were forged were not presented incourt to testify on such claim; that the prosecution
witnesses Honorio E. Franco, Jr. (Franco) of PDIC, the designated Assisting Deputy Liquidator of OCBC, and Virginia Rowella Famirin (Famirin), Cashier of OCBC Recto Branch were not
present when the loan documents were executed and signed, and thus have no personal knowledge of the circumstances surrounding the alleged falsification; and as high-ranking officers of OCBC,
respondents could not be expected to have prepared the saiddocuments. The evidence, however, suggests otherwise; it shows that respondents had a direct hand in the falsification and creation of
fictitious loans. The loan documents were even signed by them. By disregarding what is evident in the record, the trial court committed substantial wrong that frustrates the ends of justice and
adversely affects the public interest. The trial courts act was so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law.
An act of a court or tribunal may only be considered as committed in grave abuse of discretion when the same was performed in a capricious or whimsical exercise of judgment which is equivalent
to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion and personal hostility. x x x66
On the charge of estafa, the trial court declared that since the payees of Managers Check Nos. 0000003340 and 0000003347 were not Asia Textile Mills, Inc. and Timmys, Inc., respectively, but
other entities Phil. Recyclers Inc. and Zeta International, and there are no documents drawn by the borrowers assigning the loan proceeds to these two entities, then it cannot besaid that there were
loan proceeds released to these borrowers. The trial court added that it is doubtful that the two managers checks were presented and negotiated for deposit in Gos savings account, since theydo not
contain the required indorsements of the borrowers, the signatures of the tellers and individuals/payees who received the checks and the proceeds thereof, and the respective account numbers of the
respondents; and the checks were presented beyond banking hours. The trial court likewise held that the fact that a cash deposit slip and not a check deposit slip was used to allegedly deposit the
checks raised doubts as to the truth of the allegation that the managers checks were deposited and credited to Gos savings account.
The CA echoed the trial courts observations, adding that the evidence consisted of mere "letters and unverifiedledgers" which were thus insufficient; that there was an "inescapable possibility that an
honest mistake was made" in the preparation and issuance of Managers CheckNos. 0000003340 and 0000003347, since these two checks are claimed to be just a few of several checks numbering
thirteen in all the rest of which werenever questioned by the receiver PDIC. The appellate court added that the prosecution should have presented further evidence as to where the money went after
being deposited inGos savings and current accounts, identifying thus the recipients of Gospersonal checks.
What the trial and appellate courts disregarded, however, is that the OCBC funds ended up in the personal bank accountsof respondent Go, and were used to fund his personal checks, even as he was
not entitled thereto. These, if not rebutted, are indicative ofestafa, as may be seen from the afore-cited Sorianocase.
The bank money (amounting to P8million) which came to the possession of petitioner was money held in trust or administration by him for the bank, in his fiduciary capacity as the President of said
bank. It is not accurate to say that petitioner became the owner of the P8 million because it was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to
petitioner himself. But that is not the case here. According to the information for estafa, the loan was supposed to be for another person, a certain "Enrico Carlos"; petitioner, through falsification,
made it appear that said "Enrico Carlos" applied for the loan when infact he ("Enrico Carlos") did not. Through such fraudulent device, petitioner obtained the loan proceeds and converted the same.
Under these circumstances, it cannot be said that petitioner became the legal owner of the P8 million. Thus, petitioner remained the banks fiduciary with respect to that money, which makes it
capable of misappropriation or conversion in his hands.67
Thus, it is irrelevant that the proceeds of the supposed loans were made payable to entities other than the alleged borrowers.1wphi1 Besides, the managers checks themselves indicate that they
were the proceeds of the purported Timmys, Inc.s and Asia Textile Mills, Inc.s loans, through the alpha numeric codes specifically assigned to them that are printed on the face of the checks; the
connection between the checks and the purported loans is thus established. In the same vein, the CAs supposition that there is an "inescapable possibility that an honest mistake was made inthe
preparation of the two questioned managers checks" is absurd; even so, the bottom line is that they were encashed using bank funds, and the proceeds thereof were deposited in Gos bank savings
and current accounts and used to fund his personal checks.
Furthermore, as correctly pointed outby petitioner, it issuperfluous to require that the recipients of Gos personal checks be identified. For purposes of proving the crime, it has been shown that
Goconverted bank funds to his own personal use when they were deposited in his accounts and his personal checks were cleared and the funds were debited from his account. 1wphi1 This suffices.
Likewise, the Court agrees that the prosecutions reliance on the supposed loan documents, subsidiary ledgers, deposit slip, cash proof, RTCOCI and other documents was proper. They are both
public and private documents which may be received in evidence; notably, petitioners documentary evidence was admitted in full by the trial court. 68 With respect to evidence consisting of private
documents, the presumption remains that "therecording of private transactions has been fair and regular, and that the ordinary course of business has been followed."69
Gos January 28, 1998 letter to the BSP stating that he was "willing to assume the viabilityand full payment" of the accounts under examination which included the Timmys, Inc. and Asia Textile
Mills, Inc. accounts, among others is an offer of compromise, and thus an implied admission of guilt under Rule 130, Section 27 of the Revised Rules on Evidence.70
In addition, appellants act of pleading for his sister-in-laws forgiveness may be considered as analogous to an attempt to compromise, which in turn can be received as an implied admission ofguilt
under Section 27, Rule 130 x x x.71
As a result of the Courts declaration of nullity of the assailed Orders of the trial court, any dissection of the truly questionable actions of Prosecutor Campanilla which should merit appropriate
disciplinary action for they reveal a patent ignorance of procedure, if not indolence or a deliberate intention to bungle his own case becomes unnecessary. It is conceded that the lack of
Campanillas approval and/or conformto PDICs Motion for Reconsideration should have rendered the trial courts assailed Ordersfinal and executory were it not for the fact that they were
inherently null and void; Campanillas irresponsible actions almost cost the People its day in court and their right to exact justice and retribution, not to mention that they could have caused
immeasurable damage to the banking industry. Just the same, "[a] void judgment or order has no legal and binding effect, force or efficacy for any purpose. In contemplation of law, it is non-existent.
Such judgment or order may be resisted in any action or proceeding whenever it is involved. It is not even necessary to take any steps to vacate or avoid a void judgment or final order; it may simply
be ignored."72 More appropriately, the following must be cited:
x x x Clearly, the assailed Order of Judge Santiago was issued in grave abuse of discretion amounting to lack of jurisdiction. A void order is no order at all. It cannot confer any right or be the source
of any relief. This Court is not merely a court of law; it is likewise a court of justice.
To rule otherwise would leave the private respondent without any recourse to rectify the public injustice brought about by the trial court's Order, leaving her with only the standing to file
administrative charges for ignorance of the law against the judge and the prosecutor. A party cannot be left without recourse to address a substantive issue in law.73
Finally, it must be borne in mind that "[t]he granting of a demurrer to evidence should x x x be exercised with caution, taking into consideration not only the rights of the accused, but also the right of
the private offended party to be vindicated of the wrongdoing done against him, for if it is granted, the accused is acquitted and the private complainant is generally left with no more remedy. In such
instances, although the decision of the court may be wrong, the accused can invoke his right against double jeopardy. Thus, judges are reminded to be more diligent and circumspect in the
performance of their duties as members of the Bench xx x."74
WHEREFORE, the Petition is GRANTED. The September 30, 2009 Decision and January 22, 2010 Resolution of the Court of Appeals are REVERSED and SET ASIDE. The July 2, 2007 and
October 19, 2007 Orders of the Regional Trial Court of Manila, Branch 49 in Criminal Case Nos. 00-187318 and 00-187319 are declared null and void, and the said cases are ordered REINSTATED
for the continuation of proceedings.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

SECOND DIVISION
G.R. NO. 191404

July 5, 2010

EUMELIA R. MITRA, Petitioner,


vs.
PEOPLE OF THE PHILIPPINES and FELICISIMO S. TARCELO, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the July 31, 2009 Decision 1and the February 11, 2010 Resolution of the Court of Appeals (CA) in CA-G.R.
CR No. 31740. The subject decision and resolution affirmed the August 22, 2007 Decision of the Regional Trial Court, Branch 2, Batangas City (RTC) which, in turn, affirmed the May 21, 2007
Decision of the Municipal Trial Court in Cities, Branch 2, Batangas City (MTCC).
THE FACTS:
Petitioner Eumelia R. Mitra (Mitra) was the Treasurer, and Florencio L. Cabrera, Jr. (now deceased) was the President, of Lucky Nine Credit Corporation (LNCC), a corporation engaged in money
lending activities.
Between 1996 and 1999, private respondent Felicisimo S. Tarcelo (Tarcelo) invested money in LNCC. As the usual practice in money placement transactions, Tarcelo was issued checks equivalent to
the amounts he invested plus the interest on his investments. The following checks, signed by Mitra and Cabrera, were issued by LNCC to Tarcelo.2

Date of Check

Amount

Check No.

P 3,125.00

0000045804

Bank

Date Issued

Security Bank

September 15, 1998

-do-

September 15, 1998

January 15, 1999

125,000.00

0000045805

-do-

September 20, 1998

January 20, 1999

2,500.00

0000045809

-do-

September 20, 1998

January 20, 1999

100,000.00

0000045810

-do-

September 30, 1998

January 30, 1999

5,000.00

0000045814

-do-

September 30, 1998

January 30, 1999

200,000.00

0000045815

-do-

October 3, 1998

February 3, 1999

2,500.00

0000045875

-do-

October 3, 1998

February 3, 1999

100,000.00

0000045876

-do-

November 17, 1998

February17, 1999

5,000.00

0000046061

-do-

November 17, 1998

March 17, 1999

5,000.00

0000046062

-do-

November 17, 1998

March 17, 1999

200,000.00

0000046063

-do-

November 19, 1998

January 19, 1999

2,500.00

0000046065

-do-

November 19, 1998

February19, 1999

2,500.00

0000046066

-do-

November 19, 1998

2,500.00

0000046067

-do-

November 19, 1998

100,000.00

0000046068

-do-

November 20, 1998

January 20, 1999

10,000.00

0000046070

-do-

November 20, 1998

February 20, 1999

10,000.00

0000046071

-do-

November 20, 1998

March 20, 1999

10,000.00

0000046072

-do-

November 20, 1998

March 20, 1999

10,000.00

0000046073

-do-

November 30, 1998

January 30, 1999

2,500.00

0000046075

-do-

November 30, 1998

February 28, 1999

2,500.00

0000046076

-do-

November 30, 1998

March 30, 1999

2,500.00

0000046077

-do-

November 30, 1998

March 30, 1999

100,000.00

0000046078

January 15, 1999

March 19, 1999

March 19, 1999

When Tarcelo presented these checks for payment, they were dishonored for the reason "account closed." Tarcelo made several oral demands on LNCC for the payment of these checks but he was
frustrated. Constrained, in 2002, he caused the filing of seven informations for violation of Batas Pambansa Blg. 22 (BP 22) in the total amount of P925,000.00 with the MTCC in Batangas
City.31avvphi1
After trial on the merits, the MTCC found Mitra and Cabrera guilty of the charges. The fallo of the May 21, 2007 MTCC Decision4 reads:
WHEREFORE, foregoing premises considered, the accused FLORENCIO I. CABRERA, JR., and EUMELIA R. MITRA are hereby found guilty of the offense of violation of Batas Pambansa
Bilang 22 and are hereby ORDERED to respectively pay the following fines for each violation and with subsidiary imprisonment in all cases, in case of insolvency:

1. Criminal Case No. 43637 - P200,000.00


2. Criminal Case No. 43640 - P100,000.00
3. Criminal Case No. 43648 - P100,000.00
4. Criminal Case No. 43700 - P125,000.00
5. Criminal Case No. 43702 - P200,000.00
6. Criminal Case No. 43704 - P100,000.00
7. Criminal Case No. 43706 - P100,000.00
Said accused, nevertheless, are adjudged civilly liable and are ordered to pay, in solidum, private complainant Felicisimo S. Tarcelo the amount of NINE HUNDRED TWENTY FIVE THOUSAND
PESOS (P925,000.000).
SO ORDERED.
Mitra and Cabrera appealed to the Batangas RTC contending that: they signed the seven checks in blank with no name of the payee, no amount stated and no date of maturity; they did not know
when and to whom those checks would be issued; the seven checks were only among those in one or two booklets of checks they were made to sign at that time; and that they signed the checks so as
not to delay the transactions of LNCC because they did not regularly hold office there.5
The RTC affirmed the MTCC decision and later denied their motion for reconsideration. Meanwhile, Cabrera died. Mitra alone filed this petition for review 6 claiming, among others, that there was
no proper service of the notice of dishonor on her. The Court of Appeals dismissed her petition for lack of merit.
Mitra is now before this Court on a petition for review and submits these issues:
1. WHETHER OR NOT THE ELEMENTS OF VIOLATION OF BATAS PAMBANSA BILANG 22 MUST BE PROVED BEYOND REASONABLE DOUBT AS AGAINST
THE CORPORATION WHO OWNS THE CURRENT ACCOUNT WHERE THE SUBJECT CHECKS WERE DRAWN BEFORE LIABILITY ATTACHES TO THE
SIGNATORIES.
2. WHETHER OR NOT THERE IS PROPER SERVICE OF NOTICE OF DISHONOR AND DEMAND TO PAY TO THE PETITIONER AND THE LATE FLORENCIO
CABRERA, JR.
The Court denies the petition.
A check is a negotiable instrument that serves as a substitute for money and as a convenient form of payment in financial transactions and obligations. The use of checks as payment allows
commercial and banking transactions to proceed without the actual handling of money, thus, doing away with the need to physically count bills and coins whenever payment is made. It permits
commercial and banking transactions to be carried out quickly and efficiently. But the convenience afforded by checks is damaged by unfunded checks that adversely affect confidence in our
commercial and banking activities, and ultimately injure public interest.
BP 22 or the Bouncing Checks Law was enacted for the specific purpose of addressing the problem of the continued issuance and circulation of unfunded checks by irresponsible persons. To stem
the harm caused by these bouncing checks to the community, BP 22 considers the mere act of issuing an unfunded check as an offense not only against property but also against public order. 7 The
purpose of BP 22 in declaring the mere issuance of a bouncing check as malum prohibitum is to punish the offender in order to deter him and others from committing the offense, to isolate him from
society, to reform and rehabilitate him, and to maintain social order.8The penalty is stiff. BP 22 imposes the penalty of imprisonment for at least 30 days or a fine of up to double the amount of the
check or both imprisonment and fine.
Specifically, BP 22 provides:
SECTION 1. Checks Without Sufficient Funds. - Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days but
not more than one (1) year or by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, or both such fine and
imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or
to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of Knowledge of Insufficient Funds. - The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with
such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays
the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been
paid by the drawee.
Mitra posits in this petition that before the signatory to a bouncing corporate check can be held liable, all the elements of the crime of violation of BP 22 must first be proven against the corporation.
The corporation must first be declared to have committed the violation before the liability attaches to the signatories of the checks.9
The Court finds Itself unable to agree with Mitra's posture. The third paragraph of Section 1 of BP 22 reads: "Where the check is drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be liable under this Act." This provision recognizes the reality that a corporation can only act through its officers. Hence, its wording is
unequivocal and mandatory - that the person who actually signed the corporate check shall be held liable for a violation of BP 22. This provision does not contain any condition, qualification or
limitation.
In the case of Llamado v. Court of Appeals,10 the Court ruled that the accused was liable on the unfunded corporate check which he signed as treasurer of the corporation. He could not invoke his
lack of involvement in the negotiation for the transaction as a defense because BP 22 punishes the mere issuance of a bouncing check, not the purpose for which the check was issued or in
consideration of the terms and conditions relating to its issuance. In this case, Mitra signed the LNCC checks as treasurer. Following Llamado, she must then be held liable for violating BP 22.
Another essential element of a violation of BP 22 is the drawer's knowledge that he has insufficient funds or credit with the drawee bank to cover his check. Because this involves a state of mind that
is difficult to establish, BP 22 creates the prima facie presumption that once the check is dishonored, the drawer of the check gains knowledge of the insufficiency, unless within five banking days
from receipt of the notice of dishonor, the drawer pays the holder of the check or makes arrangements with the drawee bank for the payment of the check. The service of the notice of dishonor gives
the drawer the opportunity to make good the check within those five days to avert his prosecution for violating BP 22.
Mitra alleges that there was no proper service on her of the notice of dishonor and, so, an essential element of the offense is missing. This contention raises a factual issue that is not proper for
review. It is not the function of the Court to re-examine the finding of facts of the Court of Appeals. Our review is limited to errors of law and cannot touch errors of facts unless the petitioner shows
that the trial court overlooked facts or circumstances that warrant a different disposition of the case11 or that the findings of fact have no basis on record. Hence, with respect to the issue of the
propriety of service on Mitra of the notice of dishonor, the Court gives full faith and credit to the consistent findings of the MTCC, the RTC and the CA.
The defense postulated that there was no demand served upon the accused, said denial deserves scant consideration. Positive allegation of the prosecution that a demand letter was served upon the
accused prevails over the denial made by the accused. Though, having denied that there was no demand letter served on April 10, 2000, however, the prosecution positively alleged and proved that
the questioned demand letter was served upon the accused on April 10, 2000, that was at the time they were attending Court hearing before Branch I of this Court. In fact, the prosecution had
submitted a Certification issued by the other Branch of this Court certifying the fact that the accused were present during the April 10, 2010 hearing. With such straightforward and categorical
testimony of the witness, the Court believes that the prosecution has achieved what was dismally lacking in the three (3) cases of Betty King, Victor Ting and Caras - evidence of the receipt by the
accused of the demand letter sent to her. The Court accepts the prosecution's narrative that the accused refused to sign the same to evidence their receipt thereof. To require the prosecution to produce
the signature of the accused on said demand letter would be imposing an undue hardship on it. As well, actual receipt acknowledgment is not and has never been required of the prosecution either by
law or jurisprudence.12 [emphasis supplied]

With the notice of dishonor duly served and disregarded, there arose the presumption that Mitra and Cabrera knew that there were insufficient funds to cover the checks upon their presentment for
payment. In fact, the account was already closed.
To reiterate the elements of a violation of BP 22 as contained in the above-quoted provision, a violation exists where:
1. a person makes or draws and issues a check to apply on account or for value;
2. the person who makes or draws and issues the check knows at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the full payment of the
check upon its presentment; and
3. the check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or would have been dishonored for the same reason had not the drawer, without any valid
reason, ordered the bank to stop payment. 13
There is no dispute that Mitra signed the checks and that the bank dishonored the checks because the account had been closed. Notice of dishonor was properly given, but Mitra failed to pay the
checks or make arrangements for their payment within five days from notice. With all the above elements duly proven, Mitra cannot escape the civil and criminal liabilities that BP 22 imposes for its
breach.14
WHEREFORE, the July 31, 2009 Decision and the February 11, 2010 Resolution of the Court of Appeals in CA-G.R. CR No. 31740 are hereby AFFIRMED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
WE CONCUR:

SECOND DIVISION
G.R. No. 183987

July 25, 2012

ASIA
vs.
CARMELO H. TUBLE, Respondent.

TRUST

DEVELOPMENT

BANK, Petitioner,

DECISION
SERENO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to review the Court of Appeals (CA) 28 March 2008 Decision and 30 July 2008
Resolution in CA-G.R. CV No. 87410. The CA affirmed the Regional Trial Court (RTC) Decision of 15 May 2006 in Civil Case No. 67973, which granted to respondent the refund
of P845,805.491 representing the amount he had paid in excess of the redemption price.
The antecedent facts are as follows: 2
Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed himself of the car incentive plan and loan privileges offered by the bank. He was
also entitled to the banks Senior Managers Deferred Incentive Plan (DIP).
Respondent acquired a Nissan Vanette through the companys car incentive plan. The arrangement was made to appear as a lease agreement requiring only the payment of monthly rentals.
Accordingly, the lease would be terminated in case of the employees resignation or retirement prior to full payment of the price.
As regards the loan privileges, Tuble obtained three separate loans. The first, a real estate loan evidenced by the 18 January 1993 Promissory Note No. 01423 with maturity date of 1 January 1999,
was secured by a mortgage over his property covered by Transfer Certificate of Title No. T 145794. No interest on this loan was indicated.
The second was a consumption loan, evidenced by the 10 January 1994 Promissory Note No. 01434 with the maturity date of 31 January 1995 and interest at 18% per annum. Aside from the said
indebtedness, Tuble allegedly obtained a salary loan, his third loan.
On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further obligation or retain the unit and pay its remaining book value.
Respondent had the following obligations to the bank after his retirement: (1) the purchase or return of the Nissan Vanette; (2) P100,000 as consumption loan; (3) P421,800 as real estate loan; and
(4) P16,250 as salary loan.5
In turn, petitioner owed Tuble (1) his pro-rata share in the DIP, which was to be issued after the bank had given the resigned employees clearance; and (2) P25,797.35 representing his final salary
and corresponding 13th month pay.
Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could legally take place. He then asked the bank to simply compute his DIP and apply
his receivables to his outstanding loans.6 However, instead of heeding his request, the bank sent him a 1 June 1995 demand letter7obliging him to pay his debts. The bank also required him to return
the Nissan Vanette. Despite this demand, the vehicle was not surrendered.
On 14 August 1995, Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. It was only on 13 October 1995 that the bank finally allowed
the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691.46 plus the unreturned value of the vehicle.
In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a favorable judgment. Then, to collect the liabilities of respondent, it also filed a
Petition for Extra-judicial Foreclosure of real estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to P421,800. His other liabilities to
the bank were excluded. The foreclosure proceedings terminated, with the bank emerging as the purchaser of the secured property.
Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401.91.8 Notably, the redemption price increased to this figure, because the bank had unilaterally imposed additional
interest and other charges.
With the payment of P1,318,401.91, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his payment, the bank issued him a Clearance necessary for the release of his
DIP share. Subsequently, he received a Managers Check in the amount of P166,049.73 representing his share in the DIP funds.
Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to P1,318,401.91 in a matter of one year. Belatedly, the bank explained that this
redemption price included the Nissan Vanettes book value, the salary loan, car insurance, 18% annual interest on the banks redemption price of P421,800, penalty and interest charges on
Promissory Note No. 0142, and litigation expenses.9 By way of note, from these items, the amounts that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest
on the redemption price and (2) the interest charge on Promissory Note No. 0142.
Because Tuble disputed the redemption price, he filed a Complaint for recovery of a sum of money and damages before the RTC. He specifically sought to collect P896,602.0210 representing the
excess charges on the redemption price. Additionally, he prayed for moral and exemplary damages.
The RTC ruled in favor of Tuble. The trial court characterized the redemption price as excessive and arbitrary, because the correct redemption price should not have included the above-mentioned
charges. Moral and exemplary damages were also awarded to him.
According to the trial court,11 the value of the car should not have been included, considering that the bank had already recovered the Nissan Vanette. The obligations arising from the salary loan
and car insurance should have also been excluded, for there was no proof that these debts existed. The interest and penalty charges should have been deleted, too, because Promissory Note No. 0142
did not indicate any interest or penalty charges. Neither should litigation expenses have been added, since there was no proof that the bank incurred those expenses.

As for the 18% annual interest on the bid price of P421,800, the RTC agreed with Tuble that this charge was unlawful. Act 313512 as amended, in relation to Section 28 of Rule 39 of the Rules of
Court,13 only allows the mortgagee to charge an interest of 1% per month if the foreclosed property is redeemed. Ultimately, under the principle of solutio indebiti, the trial court required the refund
of these amounts charged in excess of the correct redemption price.
On appeal, the CA affirmed the findings of the RTC.14 The appellate court only expounded the rule that, at the time of redemption, the one who redeemed is liable to pay only 1% monthly interest
plus taxes. Thus, the CA also concluded that there was practically no basis to impose the additional charges.
Before this Court, petitioner reiterates its claims regarding the inclusion in the redemption price of the 18% annual interest on the bid price of P421,800 and the interest charges on Promissory Note
No. 0142. Petitioner emphasizes that an 18% interest rate allegedly referred to in the mortgage deed is the proper basis of the interest. Pointing to the Real Estate Mortgage Contract, the bank
highlights the blanket security clause or "dragnet clause" that purports to cover all obligations owed by Tuble:15
All obligations of the Borrower and/or Mortgagor, its renewal, extension, amendment or novation irrespective of whether such obligations as renewed, extended, amended or novated are in the
nature of new, separate or additional obligations;
All other obligations of the Borrower and/or Mortgagor in favor of the Mortgagee, executed before or after the execution of this document whether presently owing or hereinafter
incurred and whether or not arising from or connection with the aforesaid loan/Credit accommodation; x x x.
Tubles obligations are defined in Promissory Note Nos. 0142 and 0143. By way of recap, Promissory Note No. 0142 refers to the real estate loan; it does not contain any stipulation on interest. On
the other hand, Promissory Note No. 0143 refers to the consumption loan; it charges an 18% annual interest rate. Petitioner uses this latter rate to impose an interest over the bid price of P421,800.
Further, the bank sees the inclusion in the redemption price of an addition 12% annual interest on Tubles real estate loan.
On top of these claims, the bank raises a new item the cars rental fee to be included in the redemption price. In dealing with this argument raised for the first time on certiorari, this Court
dismisses the contention based on the well-entrenched prohibition on raising new issues, especially factual ones, on appeal.16
Thus, the pertinent issue in the instant appeal is whether or not the bank is entitled to include these items in the redemption price: (1) the interest charges on Promissory Note No. 0142; and (2) the
18% annual interest on the bid price of P421,800.
RULING OF THE COURT
The
Price of P421,800

18%

Annual

Interest

on

the

Bid

The Applicable Law


The bank argues that instead of referring to the Rules of Court to compute the redemption price, the courts a quoshould have applied the General Banking Law,17 considering that petitioner is a
banking institution.
The statute referred to requires that in the event of judicial or extrajudicial foreclosure of any mortgage on real estate that is used as security for an obligation to any bank, banking institution, or
credit institution, the mortgagor can redeem the property by paying the amount fixed by the court in the order of execution, with interest thereon at the rate specified in the mortgage.18
Petitioner is correct. We have already established in Union Bank of the Philippines v. Court of Appeals,19 citingPonce de Leon v. Rehabilitation Finance Corporation20 and Sy v. Court of
Appeals,21 that the General Banking Act being a special and subsequent legislation has the effect of amending Section 6 of Act No. 3135, insofar as the redemption price is concerned, when the
mortgagee is a bank. Thus, the amount to be paid in redeeming the property is determined by the General Banking Act, and not by the Rules of Court in Relation to Act 3135.
The Remedy of Foreclosure
In reviewing the banks additional charges on the redemption price as a result of the foreclosure, this Court will first clarify certain vital points of fact and law that both parties and the courts a quo
seem to have missed.
Firstly, at the time respondent resigned, which was chronologically before the foreclosure proceedings, he had several liabilities to the bank. Secondly, when the bank later on instituted the
foreclosure proceedings, it foreclosed only the mortgage secured by the real estate loan of P421,800.22 It did not seek to include, in the foreclosure, the consumption loan under Promissory Note No.
0143 or the other alleged obligations of respondent. Thirdly, on 28 February 1996, the bank availed itself of the remedy of foreclosure and, in doing so, effectively gained the property.
As a result of these established facts, one evident conclusion surfaces: the Real Estate Mortgage Contract on the secured property is already extinguished.
In foreclosures, the mortgaged property is subjected to the proceedings for the satisfaction of the obligation. 23 As a result, payment is effected by abnormal means whereby the debtor is forced by a
judicial proceeding to comply with the presentation or to pay indemnity.24
Once the proceeds from the sale of the property are applied to the payment of the obligation, the obligation is already extinguished. 25 Thus, in Spouses Romero v. Court of Appeals,26 we held that
the mortgage indebtedness was extinguished with the foreclosure and sale of the mortgaged property, and that what remained was the right of redemption granted by law.
Consequently, since the Real Estate Mortgage Contract is already extinguished, petitioner can no longer rely on it or invoke its provisions, including the dragnet clause stipulated therein. It follows
that the bank cannot refer to the 18% annual interest charged in Promissory Note No. 0143, an obligation allegedly covered by the terms of the Contract.
Neither can the bank use the consummated contract to collect on the rest of the obligations, which were not included when it earlier instituted the foreclosure proceedings. It cannot be allowed to use
the same security to collect on the other loans. To do so would be akin to foreclosing an already foreclosed property.
Rather than relying on an expired contract, the bank should have collected on the excluded loans by instituting the proper actions for recovery of sums of money. Simply put, petitioner should have
run after Tuble separately, instead of hostaging the same property to cover all of his liabilities.
The Right of Redemption
Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the right to redeem the security by paying the redemption price.
The right of redemption of foreclosed properties was a statutory privilege27 he enjoyed. Redemption is by force of law, and the purchaser at public auction is bound to accept it. 28 Thus, it is the law
that provides the terms of the right; the mortgagee cannot dictate them. The terms of this right, based on Section 47 of the General Banking Law, are as follows:
1. The redemptioner shall have the right within one year after the sale of the real estate, to redeem the property.
2. The redemptioner shall pay the amount due under the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the income derived therefrom.
3. In case of redemptioners who are considered by law as juridical persons, they shall have the right to redeem not after the registration of the certificate of foreclosure sale with
the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier.
Consequently, the bank cannot alter that right by imposing additional charges and including other loans. Verily, the freedom to stipulate the terms and conditions of an agreement is limited by law.29
Thus, we held in Rural Bank of San Mateo, Inc. v. Intermediate Appellate Court30 that the power to decide whether or not to foreclose is the prerogative of the mortgagee; however, once it has made
the decision by filing a petition with the sheriff, the acts of the latter shall thereafter be governed by the provisions of the mortgage laws, and not by the instructions of the mortgagee. In direct
contravention of this ruling, though, the bank included numerous charges and loans in the redemption price, which inexplicably ballooned to P1,318,401.91. On this error alone, the claims of
petitioner covering all the additional charges should be denied. Thus, considering the undue inclusions of the additional charges, the bank cannot impose the 18% annual interest on the redemption
price.

The Dragnet Clause


In any event, assuming that the Real Estate Mortgage Contract subsists, we rule that the dragnet clause therein does not justify the imposition of an 18% annual interest on the redemption price.
This Court has recognized that, through a dragnet clause, a real estate mortgage contract may exceptionally secure future loans or advancements. 31 But an obligation is not secured by a mortgage,
unless, that mortgage comes fairly within the terms of the mortgage contract.32
We have also emphasized that the mortgage agreement, being a contract of adhesion, is to be carefully scrutinized and strictly construed against the bank, the party that prepared the agreement.33
Here, after reviewing the entire deed, this Court finds that there is no specific mention of interest to be added in case of either default or redemption. The Real Estate Mortgage Contract itself is silent
on the computation of the redemption price. Although it refers to the Promissory Notes as constitutive of Tubles secured obligations, the said contract does not state that the interest to be charged in
case of redemption should be what is specified in the Promissory Notes.
In Philippine Banking Communications v. Court of Appeals,34 we have construed such silence or omission of additional charges strictly against the bank. In that case, we affirmed the findings of the
courts a quo that penalties and charges are not due for want of stipulation in the mortgage contract.
Worse, when petitioner invites us to look at the Promissory Notes in determining the interest, these loan agreements offer different interest charges: Promissory Note No. 0142, which corresponds
exactly to the real estate loan, contains no stipulation on interest; while Promissory Note No. 0143, which in turn corresponds to the consumption loan, provides a charge of 18% interest per annum.
Thus, an ambiguity results as to which interest shall be applied, for to apply an 18% interest per annum based on Promissory Note No. 0143 will negate the existence of the 0% interest charged by
Promissory Note No. 0142. Notably, it is this latter Promissory Note that refers to the principal agreement to which the security attaches.
In resolving this ambiguity, we refer to a basic principle in the law of contracts: "Any ambiguity is to be taken contra proferentem, that is, construed against the party who caused the ambiguity which
could have avoided it by the exercise of a little more care."35 Therefore, the ambiguity in the mortgage deed whose terms are susceptible of different interpretations must be read against the bank
that drafted it. Consequently, we cannot impute grave error on the part of the courts a quo for not appreciating a charge of 18% interest per annum.
Furthermore, this Court refuses to be blindsided by the dragnet clause in the Real Estate Mortgage Contract to automatically include the consumption loan, and its corresponding interest, in
computing the redemption price.
As we have held in Prudential Bank v. Alviar,36 in the absence of clear and supportive evidence of a contrary intention, a mortgage containing a dragnet clause will not be extended to cover future
advances, unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor.
In this regard, this Court adopted the "reliance on the security test" used in the above-mentioned cases, Prudential Bank 37 and Philippine Bank of Communications.38 In these Decisions, we
elucidated the test as follows:
x x x A mortgage with a "dragnet clause" is an "offer" by the mortgagor to the bank to provide the security of the mortgage for advances of and when they were made. Thus, it was concluded that the
"offer" was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the
note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; (3) the
mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was
no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.39 (Emphasis supplied)
Here, the second loan agreement, or Promissory Note No. 0143, referring to the consumption loan makes no reference to the earlier loan with a real estate mortgage. Neither does the bank make any
allegation that it relied on the security of the real estate mortgage in issuing the consumption loan to Tuble.
It must be remembered that Tuble was petitioners previous vice-president. Hence, as one of the senior officers, the consumption loan was given to him not as an ordinary loan, but as a form of
accommodation or privilege.40The banks grant of the salary loan to Tuble was apparently not motivated by the creation of a security in favor of the bank, but by the fact the he was a top executive
of petitioner.
Thus, the bank cannot claim that it relied on the previous security in granting the consumption loan to Tuble. For this reason, the dragnet clause will not be extended to cover the consumption loan. It
follows, therefore, that its corresponding interest 18% per annum is inapplicable. Consequently, the courts a quo did not gravely abuse their discretion in refusing to apply an annual interest of
18% in computing the redemption price. A finding of grave abuse of discretion necessitates that the judgment must have been exercised arbitrarily and without basis in fact and in law.41
The
Note No. 0142

Interest

Charges

on

Promissory

In addition to the 18% annual interest, the bank also claims a 12% interest per annum on the consumption loan. Notwithstanding that Promissory Note No. 0142 contains no stipulation on interest
payments, the bank still claims that Tuble is liable to pay the legal interest. This interest is currently at 12% per annum, pursuant to Central Bank Circular No. 416 and Article 2209 of the Civil Code,
which provides:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (Emphasis supplied)
While Article 2209 allows the recovery of interest sans stipulation, this charge is provided not as a form of monetary interest, but as one of compensatory interest.42
Monetary interest refers to the compensation set by the parties for the use or forbearance of money.43 On the other hand, compensatory interest refers to the penalty or indemnity for damages
imposed by law or by the courts.44 Compensatory interest, as a form of damages, is due only if the obligor is proven to have defaulted in paying the loan.45
Thus, a default must exist before the bank can collect the compensatory legal interest of 12% per annum. In this regard, Tuble denies being in default since, by way of legal compensation, he
effectively paid his liabilities on time.
This argument is flawed. The bank correctly explains in its Petition that in order for legal compensation to take effect, Article 1279 of the Civil Code requires that the debts be liquidated and
demandable. This provision reads:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Emphasis supplied)
Liquidated debts are those whose exact amount has already been determined.46 In this case, the receivable of Tuble, including his DIP share, was not yet determined; it was the petitioners policy to
compute and issue the computation only after the retired employee had been cleared by the bank. Thus, Tuble incorrectly invoked legal compensation in addressing this issue of default.
Nevertheless, based on the findings of the RTC and the CA, the obligation of Tuble as evidenced by Promissory Note No. 0142, was set to mature on 1 January 1999. But then, he had already settled
his liabilities on 17 March 1997 by paying P1,318,401.91 as redemption price. Then, in 1999, the bank issued his Clearance and share in the DIP in view of the full settlement of his obligations.
Thus, there being no substantial delay on his part, the CA did not grievously err in not declaring him to be in default.

The
Damages

Award

of

Moral

and

Exemplary

The courts a quo awarded Tuble P200,000 as moral damages and P50,000 as exemplary damages.1wphi1 As appreciated by the RTC, which had the opportunity to examine the parties, 47 the bank
treated Tuble unfairly and unreasonably by refusing to lend even a little charity and human consideration when it immediately foreclosed the loans of its previous vice-president instead of heeding
his request to make a straightforward calculation of his receivables and offset them against his liabilities.48
To the mind of the trial court, this was such a simple request within the control of the bank to grant; and if petitioner had only acceded, the troubles of the lawsuit would have been avoided.1wphi1
Moreover, the RTC found that the bank caused Tuble severe humiliation when the Nissan Vannette was seized from his new office at Kuok Properties Philippines. The trial court also highlighted the
fact that respondent as the previous vice-president of petitioner was no ordinary employee he was a man of good professional standing, and one who actively participated in civic organizations.
The RTC then concluded that a man of his standing deserved fair treatment from his employer, especially since they served common goals.
This Court affirms the dispositions of the RTC and the CA. They correctly ruled that the award of moral damages also includes cases of besmirched reputation, moral shock, social humiliation and
similar injury. In this regard, the social and financial standings of the parties are additional elements that should be taken into account in the determination of the amount of moral damages. 49 Based
on their findings that Tuble suffered undue embarrassment, given his social standing, the courts a quo had factual Basis 50 to justify the award of moral damages and, consequently, exemplary
damages51 in his favor.
From all the foregoing, we rule that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons. First, the interest cannot be imposed, because any reference to it
under the Real Estate Mortgage Contract is misplaced, as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's redemption rights.
Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot
be presumed to include the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the bank, we hold that neither is the interest due,
because Tuble cannot be deemed to be in default of his obligations.
IN VIEW THEREOF, the assailed 28 March 2008 Decision and 30 July 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 87410 are hereby AFFIRMED.
SO ORDERED.
MARIA LOURDES P.A. SERENO
Associate Justice
FIRST DIVISION
G.R. No. 184053

August 31, 2011

PEOPLE OF THE PHILIPPINES Plaintiff-Appellee,


vs.
VIRGINIA BABY P. MONTANER, Accused-Appellant.
DECISION
LEONARDO-DE CASTRO, J.:
This is an appeal of the Decision1 dated February 12, 2008 of the Court of Appeals in CA-G.R. CR.-H.C. No. 01162, entitled People of the Philippines v. Virginia Baby P. Montaner, which affirmed
the Decision2 dated April 8, 2003 of the Regional Trial Court (RTC) of San Pedro, Laguna, Branch 93, in Criminal Case No. 0748-SPL. The RTC found appellant Virginia Baby P. Montaner guilty
beyond reasonable doubt of the crime of estafa as defined and penalized under paragraph 2(d), Article 315 of the Revised Penal Code.
In an Information3 dated April 21, 1998, appellant was charged as follows:
That on or about May 17, 1996 in the Municipality of San Pedro, Province of Laguna and within the jurisdiction of this Honorable Court accused Virginia (Baby) P. Montaner did then and there
willfully, unlawfully and feloniously defraud one Reynaldo Solis in the following manner: said accused by means of false pretenses and fraudulent acts that her checks are fully funded draw, make
and issue in favor of one Reynaldo Solis the following Prudential Bank Checks Nos.:
1. 0002284 P5,000.00
2. 0002285 P5,000.00
3. 0002286 P5,000.00
4. 0002287 P5,000.00
5. 0002288 P5,000.00
6. 0002289 P5,000.00
7. 0002290 P5,000.00
8. 0002291 P5,000.00
9. 0002292 P5,000.00
10. 0002293 P5,000.00
all having a total value of FIFTY THOUSAND PESOS (P50,000.00) and all aforesaid checks are postdated June 17, 1996 in exchange for cash knowing fully well that she has no funds in the
drawee bank and when the said checks were presented for payment the same were dishonored by the drawee bank on reason of "ACCOUNT CLOSED" and despite demand accused failed and
refused to pay the value thereof to the damage and prejudice of Reynaldo Solis in the aforementioned total amount of P50,000.00.
Appellant pleaded "not guilty" to the charge leveled against her during her arraignment on June 10, 1998.4Thereafter, trial ensued.
The parties evidence was summarized by the trial court, as follows:
The evidence for the prosecution disclose that on May 17, 1996, accused Virginia Baby P. Montaner, in exchange for cash, issued to private complainant Reynaldo Solis in his house at Caliraya
Street, Holiday Homes, San Pedro, Laguna, ten (10) Prudential Bank checks, specifically, check nos. 0002284, 0002285, 0002286, 0002287, 0002288, 0002289, 0002290, 0002291, 0002292, and
0002293 all postdated June 17, 1996, each in the amount of P5,000.00 all in the total amount of P50,000.00. Accused represented to complainant Solis that the checks were fully funded. When
private complainant deposited the checks for encashment however, they were dishonored for the reason "account closed". Private complainant verbally and thereafter, thru demand letter (Exhibit
"A") formally demanded that accused settle her accounts. Despite receipt of the demand letter, accused Montaner failed to pay the value of the ten (10) checks, thus private complainant Reynaldo
Solis filed the instant complaint for estafa. In connection with this complaint, private complainant Solis executed a sworn statement (Exhibit "D").
Ruel Allan Pajarito, Branch Cashier O-I-C of Prudential Bank testified that they placed the mark "account closed" on the ten (10) checks issued in the account of accused Montaner considering that
at the time the same were presented to them, the account of accused Montaner was already closed. Witness Pajarito further testified that as per their records, the account of accused Montaner,
account no. 00099-000050-4 was closed on July 11, 1996. The checks were returned on October 4, 1996 for the reason account closed.
Accused, thru counsel initially manifested that she is intending to file a demurrer to evidence. However, her right to file the same was considered waived in view of her failure to file the demurrer
despite due notice.
To exculpate herself from criminal liability, accused Virginia Baby P. Montaner denied the allegations that she issued ten (10) checks in private complainants favor claiming that the ten (10) checks
were borrowed from her by one Marlyn Galope because the latter needed money. She gave the ten checks to Galope, signed the same albeit the space for the date, amount and payee were left blank
so that the checks cannot be used for any negotiation. She further told Galope that the checks were not funded. When she learned that a case was filed against her for estafa, she confronted Marlyn

Galope and the latter told her that money will not be given to her if she will not issue the said checks. She has no knowledge of the notice of dishonor sent to her by private complainant and claimed
that her husband, who supposedly received the notice of dishonor left for abroad in July 1996 and returned only after a year, that is, in 1997.5
In a Decision dated April 8, 2003, the trial court convicted appellant for the crime of estafa as defined and penalized under paragraph 2(d), Article 315 of the Revised Penal Code. The dispositive
portion of said Decision reads:
WHEREFORE, this Court hereby sentences accused Virginia Baby P. Montaner to suffer an indeterminate penalty of imprisonment from twelve (12) years of prision mayor as minimum to twentytwo (22) years of reclusion perpetua as maximum and to indemnify complainant Reynaldo Solis in the amount of P50,000.00.6
Appellant elevated the case to the Court of Appeals but the adverse ruling was merely affirmed by the appellate court in its Decision dated February 12, 2008, the dispositive portion of which states:
WHEREFORE, premises considered, the instant petition is DENIED. Accordingly, the challenged Decision is hereby AFFIRMED in toto.7
Hence, appellant interposed this appeal before this Court and adopted her Appellants Brief with the Court of Appeals, wherein she put forth a single assignment of error:
THE TRIAL COURT GRAVELY ERRED IN FINDING THE ACCUSEDAPPELLANT GUILTY BEYOND REASONABLE DOUBT OF THE CRIME OF ESTAFA UNDER ARTICLE 315,
PAR. 2 (D) OF THE REVISED PENAL CODE.8
Appellant maintains that she entrusted the subject checks, purportedly signed in blank, to Marilyn Galope (Galope) out of pity in order for the latter to secure a loan. Thus, there is purportedly no
certainty beyond reasonable doubt that she issued the checks purposely to defraud Reynaldo Solis (Solis) into lending her money. She further claims that no transaction had ever transpired between
her and Solis. Admitting that she may have been imprudent, she nonetheless insists that her simple imprudence does not translate to criminal liability.
We are not persuaded.
Paragraph 2(d), Article 315 of the Revised Penal Code provides:
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow x x x:
xxxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud:
xxxx
(d) By postdating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check
has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act.
The elements of estafa under paragraph 2(d), Article 315 of the Revised Penal Code are: (1) the postdating or issuance of a check in payment of an obligation contracted at the time the check was
issued; (2) lack of sufficiency of funds to cover the check; and (3) damage to the payee.9
In the case at bar, the prosecution sufficiently established appellants guilt beyond reasonable doubt for estafa under paragraph 2(d), Article 315 of the Revised Penal Code. According to Soliss clear
and categorical testimony, appellant issued to him the 10 postdated Prudential Bank checks, each in the amount of P5,000.00 or a total of P50,000.00, in his house in exchange for their cash
equivalent. We quote the pertinent portions of the transcript:
[On Direct Examination]
Q: Mr. Witness, why did you file this complaint against the accused?
A: She issued me checks in exchange for cash, ten postdated checks, maam.
Q: When did Mrs. Montaner issue to you these checks?
A: In May 1996, maam.
Q: What was the purpose of issuing to you these checks?
A: Because she needed cash, maam.
Q: And how many checks did she issue to you?
A: Ten checks, maam.
Q: And what is the date of the checks that were issued to you?
A: June 17, 1996, maam.
Q: What is the total value of these ten checks?
A: Fifty Thousand Pesos.
Q: At the time these checks were issued to you, what if any, was her representation about them?
A: To deposit those checks on their due date, maam.
Q: And aside from telling you to deposit those checks on their due date, what else did she represent to you regarding these checks?
A: None, maam.
Q: Did you deposit these checks?
A: Yes, maam.
Q: Where?
A: At the Premier Bank, San Pedro, Laguna.
Q: What happened to these checks after depositing the same?
A: The checks bounced, maam.
Q: All these checks?
A: Yes, maam, all checks bounced for reason account closed.
Q: After these checks were dishonored what did you do?
A: I informed her about that.
Q: Thru what, verbal or written?
A: Initially it was verbal, then I informed her thru a demand letter, maam.

xxxx
Fiscal (continuing):
Q: You said that the accused issued to you ten checks in exchange for cash, where are those checks?
A. The original checks are with me here, maam.
Q. Handed to this representation are checks, Prudential Bank checks Nos. 002284, 002285, 002286, 002287, 002288, 002289, 002290, 002291, 002292, 002293 all dated June 17, 1996 and all in the
amount of P50,000 [should be P5,000.00] each. Mr. Witness, there appears from these checks a signature at the bottom portion whose signature is this?
A. The signature of Mrs. Montaner, maam.
Q. Why do you say it is her signature?
A. She signed those in my presence, maam.
Q. I am showing these checks to the opposing counsel for comparison
Atty. Peala
The checks are admitted, your Honor.
xxxx
[On Cross-Examination]
Atty. Peala (continuing):
Q: When Mrs. Montaner issued those checks, ten checks were they issued in your house or in her house?
A: In my house, sir.
Q: Mrs. Montaner brought the checks in your house?
A: Yes, sir.
Q: Can you tell us the time of the day when she brought the checks to you?
A: May 17, 1996 at 1:00 oclock in the afternoon, sir.
Q: Was she alone or including her husband?
A: She was alone, sir.10
From the circumstances narrated above, it was evident that Solis would not have given P50,000.00 cash to appellant had it not been for her issuance of the 10 Prudential Bank checks. These
postdated checks were undoubtedly issued by appellant to induce Solis to part with his cash. However, when Solis attempted to encash them, they were all dishonored by the bank because the
account was already closed.
Solis wrote appellant a demand letter dated October 13, 199611 which was received by appellants husband to inform appellant that her postdated checks had bounced and that she must settle her
obligation or else face legal action from Solis. Appellant did not comply with the demand nor did she deposit the amount necessary to cover the checks within three days from receipt of notice. This
gave rise to a prima facie evidence of deceit, which is an element of the crime of estafa, constituting false pretense or fraudulent act as stated in the second sentence of paragraph 2(d), Article 315 of
the Revised Penal Code.
As for appellants claims that she merely entrusted to Galope the blank but signed checks imprudently, without knowing that Galope would give them as a guarantee for a loan, the Court views such
statements with the same incredulity as the lower courts.
Evidence, to be believed, must not only proceed from the mouth of a credible witness, but it must be credible in itself such as the common experience and observation of mankind can approve as
probable under the circumstances. The Court has no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs
to the miraculous and is outside judicial cognizance.12 1avvphi1
Appellant wishes to impress upon the Court that she voluntarily parted with her blank but signed checks not knowing or even having any hint of suspicion that the same may be used to defraud
anyone who may rely on them. Verily, appellants assertion defies ordinary common sense and human experience.
Moreover, it is elementary that denial, if unsubstantiated by clear and convincing evidence, is negative and self-serving evidence which has far less evidentiary value than the testimony of credible
witnesses who testify on affirmative matters.13 We agree with the lower courts that appellants bare denial cannot be accorded credence for lack of evidentiary support. As aptly noted by the trial
court, appellants failure to produce Galope as a witness to corroborate her story is fatal to her cause.14 In all, the Court of Appeals committed no error in upholding the conviction of appellant for
estafa.
WHEREFORE, premises considered, the Decision dated February 12, 2008 of the Court of Appeals in CA-G.R. CR.-H.C. No. 01162 is hereby AFFIRMED.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
WE CONCUR:
SECOND DIVISION
G.R. No. 184300

July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,


vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC., Respondents.
DECISION
REYES, J.:
Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co., lnc. (Malayan) assailing the Decision 1 dated February 29, 2008 and Resolution2 dated August 28,
2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to
transport and deliver the formers products to its customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own
products. Philippines First thereby insured Wyeths nutritional, pharmaceutical and other products usual or incidental to the insureds business while the same were being transported or shipped in
the Philippines. The policy covers all risks of direct physical loss or damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by Wyeths representative/s. 4 Nevertheless, it was
admittedly signed by Reputables representatives, the terms thereof faithfully observed by the parties and, as previously stated, the same contract of carriage had been annually executed by the
parties every year since 1989.5
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products
due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY".6
The contract also required Reputable to secure an insurance policy on Wyeths goods.7 Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner
Malayan for the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by
Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeths products was hijacked by about 10 armed men. They threatened to kill the
truck driver and two of his helpers should they refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996. 8 In its complaint, Philippines First stated that Reputable is a "private corporation
engaged in the business of a common carrier." In its answer,9 Reputable claimed that it is a private carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth
since the contract was not signed by Wyeths representative and that the cause of the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan for
P1,000,000.00 with respect to the lost products under the latters Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of
robbery or hijacking.10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to property which at the time of the happening of
such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC to be
liable to Reputable to the extent of the policy coverage. The dispositive portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for the loss of the Wyeth products and orders it to pay Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorneys fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorneys fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was binding despite Wyeths failure to sign the same. Reputable further contended that the provisions of the
contract are unreasonable, unjust, and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by or
would but for the existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any excess beyond the amount which would have been payable under the Fire or
Marine policy or policies had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter against loss and that since the monetary coverage/value of the Marine
Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based on the
amount covered by the policy, subject to the provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby insured, there be any other subsisting insurance or insurances, whether effected by the
insured or by any other person or persons, covering the same property, the company shall not be liable to pay or contribute more than its ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award of
attorneys fees in favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the contract of carriage on the ground of lack of signature of Wyeths representative/s; (2) Reputable is
liable under the contract for the value of the goods even if the same was lost due to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the latter provision;
however, since the ratable proportion provision of Section 12 applies only in case of double insurance, which is not present, then it should not be applied and Malayan should be held liable for the
full amount of the policy coverage, that is, P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied by the CA in its Resolution dated August 28, 2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the liability of common carriers" and the "difference between an other insurance clause and an over
insurance clause."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and should be bound by the contractual stipulations in the contract of carriage. This argument is based on its
assertion that Philippines First judicially admitted in its complaint that Reputable is a common carrier and as such, Reputable should not be held liable pursuant to Article 1745(6) of the Civil
Code.16 Necessarily, if Reputable is not liable for the loss, then there is no reason to hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed to apply the express provisions of Section 5 (referred to by Malayan as over insurance clause) and Section
12 (referred to by Malayan as other insurance clause) of its SR Policy as these provisions could have been read together there being no actual conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a private/special
carrier. It, however, maintains the correctness of the CA ruling that Malayan is liable to Philippines First for the full amount of its policy coverage and not merely a ratable portion thereof under
Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier should be accorded the highest degree of respect and must be considered conclusive between the parties,
and that a review of such finding by the Court is not warranted under the circumstances. As to its alleged judicial admission that Reputable is a common carrier, Philippines First proffered the
declaration made by Reputable that it is a private carrier. Said declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was duly admitted by Malayan in its answer
to the said third-party complaint. In addition, Reputable even presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed decision,
praying that Reputable and Malayan be rendered solidarily liable to it in the amount of P998,000.00, which represents the balance from the P1,000.000.00 coverage of the SR Policy after deducting
P2,000.00 under Section 10 of the said SR Policy.17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk of loss or damage, for any cause whatsoever,
including that due to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to Philippines First.
The Courts Ruling
On the first issue Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and considered conclusive between the parties, save for certain exceptional and meritorious circumstances, none of which are present in
this case.18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common carrier. 19 Invoking Section 4, Rule 129 of the Rules on Evidence that "an admission
verbal or written, made by a party in the course of the proceeding in the same case, does not require proof," it is Malayans position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeths goods should be dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and need not be offered to be considered by the court. "The court, for the proper decision of the case,
may and should consider, without the introduction of evidence, the facts admitted by the parties." 20 The rule on judicial admission, however, also states that such allegation, statement, or admission
is conclusive as against the pleader,21 and that the facts alleged in the complaint are deemed admissions of the plaintiff and binding upon him. 22 In this case, the pleader or the plaintiff who alleged
that Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against Reputable whose nature of business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under the terms of
the contract of carriage. Philippines First is not in any position to make any admission, much more a definitive pronouncement, as to the nature of Reputables business and there appears no other
connection between Philippines First and Reputable which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private
or special carrier.23In addition, Reputable stated in paragraph 2 of its third-party complaint that it is "a private carrier engaged in the carriage of goods."24 Such allegation was, in turn, admitted by
Malayan in paragraph 2 of its answer to the third-party complaint.25 There is also nothing in the records which show that Philippines First persistently maintained its stance that Reputable is a
common carrier or that it even contested or proved otherwise Reputables position that it is a private or special carrier.
Hence, in the face of Reputables contrary admission as to the nature of its own business, what was stated by Philippines First in its complaint is reduced to nothing more than mere allegation, which
must be proved for it to be given any weight or value. The settled rule is that mere allegation is not proof.26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by the evidence on record, primarily, the unrebutted testimony of Reputables Vice
President and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court that Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water
or air for compensation, offering their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself
out to carry goods for the general public.28 A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only. 29 For all intents and
purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of carriage.
The extent of a private carriers obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good
customs, public order, or public policy. "The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Public policy governing
common carriers has no force where the public at large is not involved."30
Thus, being a private carrier, the extent of Reputables liability is fully governed by the stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the
goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure while the goods/products are in transit and until actual delivery to Wyeths customers, salesmen
and dealers.31
On the third issue other insurance vis--vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified other insurance clause". 32 In rendering inapplicable said provisions in the SR Policy, the
CA ruled in this wise:
Since Sec. 5 calls for Malayans complete absolution in case the other insurance would be sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for
a pro-rated contribution between the two insurers. Being the later provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in case of double
insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that there is no double insurance in
this case inasmuch as Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayans stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand
to benefit. Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing the insurance contract in question.33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct circumstances. Malayan argues that "it will not be completely absolved under
Section 5 of its policy if it were the assured itself who obtained additional insurance coverage on the same property and the loss incurred by Wyeths cargo was more than that insured by Philippines
Firsts marine policy. On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage on the same cargo were obtained by someone besides Reputable, in which
case Malayans SR policy will contribute or share ratable proportion of a covered cargo loss."34
Malayans position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, 35 which validity was upheld by
the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 336 is a condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75
of the Insurance Code. It was also the Courts finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the
condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that was
not covered by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that
in order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies
involved were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there
was no double insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due to double insurance. In such case, Section 15
provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or damage." This is in accord with the principle of contribution provided under Section
94(e) of the Insurance Code,37 which states that "where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the
loss in proportion to the amount for which he is liable under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double insurance in this case such that either Section 5 or
Section 12 of the SR Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured
against, it is, however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine
Policy, while Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayans SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputables. The policy issued by Philippines First was in consideration of
the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latters insurable interest over the safety of the goods,
which may become the basis of the latters liability in case of loss or damage to the property and falls within the contemplation of Section 15 of the Insurance Code.39
Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section
12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan.1wphi1 This is in keeping with the rule that:
"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the
insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of
the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with
its obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand
to benefit. x x x41
On the fourth issue Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:
Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of the
insurer under indemnity contracts against third party[- ]liability does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since
they are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the
insurer arises from contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are
hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.
BIENVENIDO L. REYES
Associate justice
WE CONCUR:
THIRD DIVISION
G.R. No. 185906

June 29, 2010

LOURDES AZARCON,1 Petitioner,


vs.
PEOPLE OF THE PHILIPPINES and MARCOSA GONZALES, Respondents.
DECISION
CARPIO MORALES, J.:

On petition for review are the Court of Appeals September 30, 2008 Decision 2 and January 6, 2009 Resolution3affirming with modification the September 15, 2006 Decision of Branch 224 of the
Regional Trial Court (RTC) of Quezon City in Criminal Case Nos. Q-38-021202 to 021288 which upheld the November 15, 2005 Decision of Branch 38 of the Metropolitan Trial Court (MeTC) of
Quezon City convicting Lourdes Azarcon (petitioner) of eighty-four (84) counts of violation of Batas Pambansa (B.P.) Bilang 22,4 otherwise known as the Bouncing Checks Law.
Since 1990, petitioner, a businesswoman, had been borrowing money from Marcosa Gonzales (Marcosa) who was engaged in informal money-lending. Between the months of August to December
1992, as was usual in the normal course of their transactions, petitioner issued several Premiere Bank checks payable to Marcosa, dated at ten-day intervals, in exchange for cash received. Due to
business reverses suffered by petitioner, however, the checks were, on maturity, dishonored for the reason "Account Closed."
Marcosa, through counsel, thus demanded, by letter5 of December 1, 1993 to petitioner, the settlement of herP749,000.00 obligation for which she issued "several Premium Bank checks, with [the]
assurance that all will be honored" but that they were all dishonored due to "Account Closed."
Replying, petitioner, by letter6 of December 17, 1993, sought a "reconciliation of her accountability since [she] has also some receipt payments covering the checks she has issued." She, in the same
letter, expressed willingness to settle her outstanding account. Petitioners husband, Manuel Azarcon (Manuel), later paid on February 15, 1994 the amount of P200,000.00 representing "initial
payment on the account of [petitioner]" with the undertaking to settle the balance within one year via monthly installments.7
More than two and a half years later, as petitioner had not settled her outstanding obligation, Marcosa filed on September 4, 1996 a complaint 8 for violation of B.P. 22 before the Quezon City
Prosecutors Office against her involving 120 dishonored checks amounting to P746,250.00, 87 of which were made the basis of 87 Informations filed against her.
Except for the numbers, dates and amounts (ranging from P1,500.00 to P6,250.00) of the checks9 issued by petitioner subject of the 87 Informations filed against her, each Information uniformly
charged as follows:
That on or about the _______________ in Quezon City, Philippines, the said accused, did then and there willfully, unlawfully and feloniously make or draw and issue to MARCOSA GONZALES to
apply on account or for value PREMIERE BANK check no. 000367 dated ______________ payable to the order of MARCOSA GONZALES in the amount of _________________ Philippine
Currency, said accused well knowing that at the time of issue she did not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment which
check when presented for payment was subsequently dishonored by the drawee bank for insufficiency of funds/ Account Closed and despite receipt of notice of such dishonor, said accused failed to
pay said MARCOSA GONZALES the amount of said check or to make arrangement for full payment of the same within five (5) banking days after receiving said notice.
CONTRARY TO LAW.
Petitioner maintained that her obligations under the various checks had been released, superseded and novated by her husbands assumption of her liabilities. 10 Brushing this position aside, the trial
court convicted petitioner. It, however, deducted from the total amount of the face value of the 87 checks the sum of P11,000.00 representing the face value of three checks11 which the prosecution
failed to offer in evidence, and another sum of P20,000.00 claimed to have been paid to Marcosa which she failed to dispute.
Thus, the trial court, by Decision12 of November 15, 2005, disposed:
WHEREFORE, premises considered, this Court finds accused LOURDES AZARCON guilty, beyond reasonable doubt, of eighty-four (84) counts of violation of the Batas Pambansa Blg. 22 in
Criminal Case Nos. 21202 to 21247, 21249 to 21261, 21263 to 21277 and 21279 to 21288, and hereby sentences her to suffer a penalty of SIX (6) MONTHS IMPRISONMENT for each count of
violation; to restitute to the private complainant the amount of TWO HUNDRED NINETY FIVE THOUSAND TWO HUNDRED FIFTY PESOS ( P295,250.00) representing the value of the checks
less the payment of P20,000.00 plus 12% per annum interest from the date of final demand until said amount is fully paid. The accused is also ordered to pay the complainant the reasonable sum
ofP20,000.00 as attorneys fees.
Further, pursuant to Sec. 34, Rule 132 of the Revised Rules on Criminal Procedure which provides that the court shall consider no evidence which has not been formally offered, Criminal Cases Nos.
21248, 21262 and 21278 are hereby DISMISSED, for insufficiency of evidence.
SO ORDERED.
On appeal, the Quezon City RTC, Br. 22413 affirmed the trial courts judgment by Decision14 of September 15, 2006.
At the Court of Appeals before which petitioner appealed, she questioned 1) the lack of prior demand for the settlement of the checks after their dishonor, the December 1, 1993 demand letter 15 for
the payment of her outstanding balance having failed to mention or enumerate any particular check involved therein, and (2) the lower courts failure to appreciate that novation had taken place with
respect to her civil liability.16
By the challenged decision, the appellate court affirmed the appellants conviction but found the imposition of the penalty of imprisonment (six months for each of the 84 checks) too harsh, citing SC
Administrative Circular 12-200017 and Lim v. People.18 It thus modified the RTC decision, disposing as follows:
WHEREFORE, premises considered, the assailed Judgment of the Regional Trial Court of Quezon City is hereby modified, to wit: This Court finds Petitioner Lourdes Azarcon guilty of having
violated the provisions of Batas Pambansa Bilang 22 and hereby sentences her to pay a fine double the amount stated on each of the 84 checks, to suffer subsidiary imprisonment in case of nonpayment or insolvency and to restitute to the Private Respondent the amount of TWO HUNDRED NINETY FIVE THOUSAND TWO HUNDRED FIFTY PESOS ( P295,250.00) representing the
value of the checks less the payment of P20,000.00, plus 12% per annum interest from the date of final demand until said amount is fully paid. The accused is also ordered to pay the complainant the
reasonable sum of P20,000.00 as attorneys fees.
SO ORDERED. (emphasis supplied; underscoring in the original)
Reconsideration having been denied by Resolution of January 6, 2009, petitioner echoes before this Court substantially the same issues proffered before the appellate court.
Petitioners conviction stands.
Liability for violation of B.P. 22 attaches when the prosecution establishes proof beyond reasonable doubt of the existence of the following elements:
1. The accused makes, draws or issues any check to apply to account or for value;
2. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its
presentment; and
3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or it would have been dishonored for the same reason had not the drawer, without any
valid reason, ordered the bank to stop payment.19
The evidence clearly demonstrates the presence of all three elements. It is not the function of this Court to undertake a review of the factual findings of the trial court, which were sustained by the
RTC and the Court of Appeals.
Petitioner argues, however, that acquittal is in order as the second element of the crime is wanting, citing lack of knowledge of the insufficiency of her credit due to Marcosas failure to specify or
enumerate the dishonored checks in her December 1, 1993 demand letter. Petitioners argument fails.
What constitutes proof of knowledge of insufficiency of funds, Dico v. Court of Appeals20 enlightens:
xxxx
This knowledge of insufficiency of funds or credit at the time of the issuance of the check . . . involves a state of mind of the person making, drawing or issuing the check which is difficult to prove.
[Thus] Section 2 of B.P. Blg. 22 creates a prima facie presumption of such knowledge. Said section reads:
SEC. 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such
bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer pays the
holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid
by the drawee.

x x x In other words, the presumption is brought into existence only after it is proved that the issuer had received a notice of dishonor and that within five days from receipt thereof, he failed to pay
the amount of the check or to make arrangements for its payment. The presumption or prima facie evidence as provided in this section cannot arise, if such notice of nonpayment by the drawee bank
is not sent to the maker or drawer, or if there is no proof as to when such notice was received by the drawer, since there would simply be no way of reckoning the crucial 5-day period.
A notice of dishonor received by the maker or drawer of the check is thus indispensable before a conviction can ensue. The notice of dishonor may be sent by the offended party or the drawee bank.
The notice must be in writing. A mere oral notice to pay a dishonored check will not suffice. The lack of a written notice is fatal for the prosecution.
The requirement of notice, its sending to, and its actual receipt by, the drawer or maker of the check gives the latter the option to prevent criminal prosecution if he pays the holder of the check the
amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that the check has not been paid. (emphasis and
underscoring supplied)
All that the Bouncing Checks Law thus requires is that the accused must be notified in writing of the fact of dishonor.211avvphil
Petitioner admittedly received the December 1, 1993 demand letter of Marcosa. In fact, in her reply letter of December 17, 1993, petitioner sought a reconciliation of accounts and expressed
willingness to settle - an indication of her awareness of what checks Marcosa was referring to in the December 1, 1993 letter.
As for petitioners assertion that novation of her civil liability occurred, it is likewise unavailing.
Iloilo Traders Finance, Inc. v. Heirs of Oscar Soriano, Jr.22 on novation teaches:
Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new
one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test
of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of
four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new
obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension
of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions. (emphasis and
underscoring supplied)
The novation which petitioner suggests as having taken place, whereby Manuel was supposed to assume her obligations as debtor, is neither express nor implied. There is no showing of Marcosa
explicitly agreeing to such a substitution, nor of any act of her from which an inference may be drawn that she had agreed to absolve petitioner from her financial obligations and to instead hold
Manuel fully accountable.
It bears pointing out that the February 15, 1994 receipt23 acknowledging payment of P200,000, apparently that given by Manuel, reads:
February 15, 1994
Received the sum of TWO HUNDRED THOUSAND PESOS only (P200,000.00) covered by two separate checks BPI Check No. 390971 dated February 15, 1994 and BPI
Check No. 390970 dated March 15, 1994 representing initial payment on the account of Mrs. Lourdes N. Azarcon with Mrs. Marcosa Gonzales. The balance of Mrs. Azarcons
account shall be payable in one year through monthly payments until her indebtedness is fully settled. This is without prejudice to whatever legal action Mrs. Marcosa Gonzales
may undertake in case of failure of the spouses Manuel and Lourdes Azarcon to settle in full their obligation, as provided above.
x x x x (underscoring supplied)
Finally, practically all the other receipts24 thereafter issued by Marcosa acknowledging installment payments invariably disclose that they were either made by petitioner herself, or received for "the
account of Mrs. Lourdes Azarcon."
WHEREFORE, the petition is DENIED.
SO ORDERED.
CONCHITA CARPIO MORALES
THIRD DIVISION
G.R. No. 181622

November 20, 2013

GENESIS
INVESTMENT,
INC.,
CEBU
JAYA
REALTY
INC.,
and
SPOUSES
RHODORA
and
LAMBERT
LIM, Petitioners,
vs.
HEIRS of CEFERINO EBARASABAL,* NAMELY: ROGELIO EBARASABAL, SPOUSES LIGAYA E. GULIMLIM AND JOSE GULIMLIM, SPOUSES VISITACION E. CONEJOS
and ELIAS CONEJOS, BEN TEJERO, POCAS TEJERO, GERTRUDES TEJERO, BANING HAYO, LACIO EBARASABAL and JULIETA EBARASABAL; HEIRS OF FLORO
EBARASABAL, namely: SOFIA ABELONG, PEPITO EBARASABAL AND ELPIDIO EBARASABAL; HEIRS OF LEONA EBARASABAL- APOLLO, namely: SILVESTRA A.
MOJELLO and MARCELINO APOLLO; HEIRS OF PEDRO EBARASABAL, namely: BONIFACIO EBARASABAL, SERGIO EBARASABAL and JAIME EBARASABAL; HEIRS
of ISIDRO EBARASABAL, NAMELY: SPOUSES CARLOSA E. NUEVO and FORTUNATO NUEVA;** HEIRS of BENITO EBARASABAL, namely: PAULO BAGAAN, SPOUSES
CATALINA A. MARIBAO and RENE MARIBAO, VICENTE ABRINICA and PATRON EBARASABAL; HEIRS of JULIAN EBARASABAL, NAMELY: ALFREDO BAGAAN, JUAN
BAGAAN, AVELINO BAGAAN, FERDINAND BAGAAN, MAURO BAGAAN, SPOUSES ROWENA B. LASACA and FRANCISCO LACASA,*** SPOUSES MARIA B. CABAG and
EMILIO CABAG and ESTELITA BAGAAN, all being represented herein by VICTOR MOJELLO, FEDERICO BAGAAN and PAULINO EBARASABAL, as their Attorneys-inFact, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the Decision 1 and Resolution,2 dated July 11, 2007 and January 10, 2008,
respectively, of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 01017.
The antecedents of the case are as follows:
On November 12, 2003, herein respondents filed against herein petitioners a Complaint3 for Declaration of Nullity of Documents, Recovery of Shares, Partition, Damages and Attorney's Fees. The
Complaint was filed with the Regional Trial Court (RTC) of Barili, Cebu.
On August 5, 2004, herein petitioners filed a Motion to Dismiss4 contending, among others, that the RTC has no jurisdiction to try the case on the ground that, as the case involves title to or
possession of real property or any interest therein and since the assessed value of the subject property does not exceed P20,000.00 (the same being only P11,990.00), the action falls within the
jurisdiction of the Municipal Trial Court (MTC).5
In its Order6 dated September 29, 2004, the RTC granted petitioners' Motion to Dismiss, holding as follows:
xxxx
And while the prayer of the plaintiffs for the annulment of documents qualified the case as one incapable of pecuniary estimation thus, rendering it cognizable supposedly by the second level courts
but considering that Republic Act No. 7691 expressly provides to cover "all civil actions" which phrase understandably is to include those incapable of pecuniary estimation, like the case at bar, this
Court is of the view that said law really finds application here more so that the same case also "involves title to, or possession of, real property, or any interest therein." For being so, the assessed

value of the real property involved is determinative of which court has jurisdiction over the case. And the plaintiffs admitting that the assessed value of the litigated area is less than P20,000.00, the
defendants are correct in arguing that the case is beyond this Court's jurisdiction.7
Respondents filed a Motion for Partial Reconsideration,8 arguing that their complaint consists of several causes of action, including one for annulment of documents, which is incapable of pecuniary
estimation and, as such, falls within the jurisdiction of the RTC.9
On March 17, 2005, the RTC issued an Order granting respondents' Motion for Partial Reconsideration and reversing its earlier Order dated September 29, 2004. The RTC ruled, thus:
On the issue of want of jurisdiction, this court likewise finds to be with merit the contention of the movants as indeed the main case or the primary relief prayed for by the movants is for the
declaration of nullity or annulment of documents which unquestionably is incapable of pecuniary estimation and thus within the exclusive original jurisdiction of this court to try although in the
process of resolving the controversy, claims of title or possession of the property in question is involved which together with all the other remaining reliefs prayed for are but purely incidental to or
as a consequence of the foregoing principal relief sought.10
Petitioners filed a Motion for Reconsideration,11 but the RTC denied it in its Order dated June 23, 2005.
Aggrieved, petitioners filed a petition for certiorari with the CA. However, the CA dismissed the petition via its assailed Decision dated July 11, 2007, holding that the subject matter of respondents'
complaint is incapable of pecuniary estimation and, therefore, within the jurisdiction of the RTC, considering that the main purpose in filing the action is to declare null and void the documents
assailed therein.12
Petitioners' Motion for Reconsideration was, subsequently, denied in the CA Resolution dated January 10, 2008.
Hence, the instant petition for review on certiorari raising the sole issue, to wit:
Whether or not the Honorable Court of Appeals gravely erred in concluding that the Regional Trial Court, Branch 60 of Barili, Cebu has jurisdiction over the instant case when the ALLEGATIONS
IN THE COMPLAINT clearly shows that the main cause of action of the respondents is for the Recovery of their Title, Interest, and Share over a Parcel of Land, which has an assessed value
of P11,990.00 and thus, within the jurisdiction of the Municipal Trial Court.13
The petition lacks merit.
For a clearer understanding of the case, this Court, like the CA, finds it proper to quote pertinent portions of respondents' Complaint, to wit:
xxxx
1. Plaintiffs are all Filipino, of legal age, surviving descendants either as grandchildren or great grandchildren and heirs and successors-in-interest of deceased Roman
Ebarsabal, who died on 07 September 1952 x x x
xxxx
8. During the lifetime of Roman Ebarsabal, he acquired a parcel of land situated in Basdaku, Saavedra, Moalboal, Cebu, x x x.
xxxx
with a total assessed value of P2,890.00 x x x. However, for the year 2002, the property was already having (sic) a total assessed value of P11,990.00 x x x.
9. Upon the death of said Roman Ebarsabal, his eight (8) children named in par. 7 above, became co-owners of his above-described property by hereditary succession; taking
peaceful possession and enjoyment of the same in fee simple pro indiviso, paying the real estate taxes thereon and did not partition the said property among themselves until all
of them likewise died, leaving, however, their respective children and descendants and/or surviving heirs and successors-in-interest, and who are now the above-named plaintiffs
herein;
10. The plaintiffs who are mostly residents in (sic) Mindanao and Manila, have just recently uncovered the fact that on 28th January 1997, the children and descendants of
deceased Gil Ebarsabal, namely: Pelagio, Hipolito, Precela, Fructuosa, Roberta, Florentino, Erlinda, Sebastian, Cirilo, all surnamed Ebarsabal, have executed among themselves
a Deed of Extrajudicial Settlement with Sale of Roman Ebarsabal's entire property described above, by virtue of which they allegedly extrajudicially settled the same and,
for P2,600,000.00 although only the sum of P950,000.00 was reflected in their Deed of Sale for reason only known to them, they sold the whole property to defendants Genesis
Investment Inc. represented by co-defendant Rhodora B. Lim, the wife of Lambert Lim, without the knowledge, permission and consent of the plaintiffs who are the vendors' coowners of the lot in question, x x x.
11. Surprisingly, however, the defendant Genesis managed to have the Tax Declaration of the property issued in the name of co-defendant Cebu Jaya Realty Incorporated, a firm
which, as already intimated above, is also owned by Spouses Lambert and Rhodora B. Lim, instead of in the name of Genesis Investment, Incorporated, which is actually the
vendee firm of the lot in question.
xxxx
Hence, the reason why Cebu Jaya Realty, Incorporated is joined and impleaded herein as a co-defendant.
12. Without the participation of the plaintiffs who are co-owners of the lot in question in the proceedings, the aforementioned extrajudicial settlement with sale cannot be binding
upon the plaintiff-co-owners.
13. Further, where as in this case, the other heirs who are the plaintiffs herein, did not consent to the sale of their ideal shares in the inherited property, the sale was only to be
limited to the pro indiviso share of the selling heirs.
xxxx
14. By representation, the plaintiffs, are therefore, by law, entitled to their rightful shares from the estate of the deceased Roman Ebarsabal consisting of seven (7) shares that
would have been due as the shares of seven (7) other children of Roman Ebarsabal who are also now deceased, namely: Ceferino, Floro, Leona, Pedro, Isidoro, Julian and Benito,
all surnamed Ebarsabal.
15. The defendants who had prior knowledge of the existence of the other heirs who are co-owners of the vendors of the property they purchased, had unlawfully acted in bad
faith in insisting to buy the whole property in co-ownership, only from the heirs and successors-in-interest of deceased Gil Ebarsabal, who is only one (1) of the eight (8) children
of deceased Roman Ebarsabal, and without notifying thereof in whatever manner the plaintiffs who are the heirs and successors-in-interest of the other co-owners of the propertyin-question; thus, have compelled the plaintiffs herein to file this instant case in court to protect their interests, x x x.
xxxx

PRAYER
WHEREFORE, in view of all the foregoing, it is most respectfully prayed of this Honorable Court that, after due notice and hearing, judgment shall be rendered in favor of the
plaintiffs, as follows, to wit:
1 Declaring as null and void and not binding upon the plaintiffs, the following documents to wit:
(a) Deed of Extrajudicial Settlement with Sale executed by and between the heirs of deceased Gil Ebarsabal headed by Pedro Ebarsabal, and Genesis Investment,
Inc., represented by Rhodora Lim, dated 28th of January, 1997, marked as Annex-A;
(b) Memorandum of Agreement executed between Pedro Ebarsabal and Genesis Investment, Inc., represented by Rhodora Lim dated 27 January, which document is
notarized;
(c) Tax Declaration of Real Property issued to Cebu Jaya Realty, Inc., marked as Annex-D;
2 Ordering the defendants to make partition of the property in litigation with the plaintiffs into eight (8) equal shares; to get one (1) share thereof, which is the only extent of
what they allegedly acquired by purchase as mentioned above, and to transfer, restore or reconvey and deliver to the plaintiffs, seven (7) shares thereof, as pertaining to and due
for the latter as the heirs and successors-in-interest of the seven (7) brothers and sister of deceased Gil Ebarsabal already named earlier in this complaint;
xxxx
Further reliefs and remedies just and equitable in the premises are also herein prayed for.
x x x x14
It is true that one of the causes of action of respondents pertains to the title, possession and interest of each of the contending parties over the contested property, the assessed value of which falls
within the jurisdiction of the MTC. However, a complete reading of the complaint would readily show that, based on the nature of the suit, the allegations therein, and the reliefs prayed for, the
action is within the jurisdiction of the RTC.
As stated above, it is clear from the records that respondents' complaint was for "Declaration of Nullity of Documents, Recovery of Shares, Partition, Damages and Attorney's Fees." In filing their
Complaint with the RTC, respondents sought to recover ownership and possession of their shares in the disputed parcel of land by questioning the due execution and validity of the Deed of
Extrajudicial Settlement with Sale as well as the Memorandum of Agreement entered into by and between some of their co-heirs and herein petitioners. Aside from praying that the RTC render
judgment declaring as null and void the said Deed of Extrajudicial Settlement with Sale and Memorandum of Agreement, respondents likewise sought the following: (1) nullification of the Tax
Declarations subsequently issued in the name of petitioner Cebu Jaya Realty, Inc.; (2) partition of the property in litigation; (3) reconveyance of their respective shares; and (3) payment of moral and
exemplary damages, as well as attorney's fees, plus appearance fees.1wphi1
Clearly, this is a case of joinder of causes of action which comprehends more than the issue of partition of or recovery of shares or interest over the real property in question but includes an action for
declaration of nullity of contracts and documents which is incapable of pecuniary estimation.15
As cited by the CA, this Court, in the case of Singson v. Isabela Sawmill,16 held that:
In determining whether an action is one the subject matter of which is not capable of pecuniary estimation, this Court has adopted the criterion of first ascertaining the nature of the principal action
or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the courts of
first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or
a consequence of, the principal relief sought, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable by courts
of first instance [now Regional Trial Courts].17
This rule was reiterated in Russell v. Vestil18 and Social Security System v. Atlantic Gulf and Pacific Company of Manila Inc.19
Contrary to petitioners contention, the principal relief sought by petitioners is the nullification of the subject Extrajudicial Settlement with Sale entered into by and between some of their co-heirs and
respondents, insofar as their individual shares in the subject property are concerned. Thus, the recovery of their undivided shares or interest over the disputed lot, which were included in the sale,
simply becomes a necessary consequence if the above deed is nullified. Hence, since the principal action sought in respondents Complaint is something other than the recovery of a sum of money,
the action is incapable of pecuniary estimation and, thus, cognizable by the RTC.20 Well entrenched is the rule that jurisdiction over the subject matter of a case is conferred by law and is
determined by the allegations in the complaint and the character of the relief sought, irrespective of whether the party is entitled to all or some of the claims asserted.21
Moreover, it is provided under Section 5 (c), Rule 2 of the Rules of Court that where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder may
be allowed in the RTC provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein. Thus, as shown above, respondents complaint clearly falls within the
jurisdiction of the RTC.
WHEREFORE, the petition is DENIED. The Decision and Resolution dated July 11, 2007 and January 10, 2008, respectively, of the Court of Appeals in CA-G.R. CEB-SP No. 01017 are
AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice

EN BANC
G.R. No. 182574

September 28, 2010

THE PROVINCE OF NEGROS OCCIDENTAL, represented by its Governor ISIDRO P. ZAYCO, Petitioner,
vs.
THE COMMISSIONERS, COMMISSION ON AUDIT; THE DIRECTOR, CLUSTER IV-VISAYAS; THE REGIONAL CLUSTER DIRECTORS; and THE PROVINCIAL AUDITOR,
NEGROS OCCIDENTAL, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for certiorari1 assailing Decision No. 2006-0442 dated 14 July 2006 and Decision No. 2008-0103 dated 30 January 2008 of the Commission on Audit (COA)
disallowing premium payment for the hospitalization and health care insurance benefits of 1,949 officials and employees of the Province of Negros Occidental.
The Facts

On 21 December 1994, the Sangguniang Panlalawigan of Negros Occidental passed Resolution No. 720-A4allocating P4,000,000 of its retained earnings for the hospitalization and health care
insurance benefits of 1,949 officials and employees of the province. After a public bidding, the Committee on Awards granted the insurance coverage to Philam Care Health System Incorporated
(Philam Care).
Petitioner Province of Negros Occidental, represented by its then Governor Rafael L. Coscolluela, and Philam Care entered into a Group Health Care Agreement involving a total payment
of P3,760,000 representing the insurance premiums of its officials and employees. The total premium amount was paid on 25 January 1996.
On 23 January 1997, after a post-audit investigation, the Provincial Auditor issued Notice of Suspension No. 97-001-101 5 suspending the premium payment because of lack of approval from the
Office of the President (OP) as provided under Administrative Order No. 1036 (AO 103) dated 14 January 1994. The Provincial Auditor explained that the premium payment for health care benefits
violated Republic Act No. 6758 (RA 6758),7 otherwise known as the Salary Standardization Law.
Petitioner complied with the directive post-facto and sent a letter-request dated 12 January 1999 to the OP. In a Memorandum dated 26 January 1999, 8 then President Joseph E. Estrada directed the
COA to lift the suspension but only in the amount of P100,000. The Provincial Auditor ignored the directive of the President and instead issued Notice of Disallowance No. 99-005-101(96) 9 dated
10 September 1999 stating similar grounds as mentioned in Notice of Suspension No. 97-001-101.
Petitioner appealed the disallowance to the COA. In a Decision dated 14 July 2006, the COA affirmed the Provincial Auditors Notice of Disallowance dated 10 September 1999. 10 The COA ruled
that under AO 103, no government entity, including a local government unit, is exempt from securing prior approval from the President granting additional benefits to its personnel. This is in
conformity with the policy of standardization of compensation laid down in RA 6758. The COA added that Section 468(a)(1)(viii) 11 of Republic Act No. 7160 (RA 7160) or the Local Government
Code of 1991 relied upon by petitioner does not stand on its own but has to be harmonized with Section 1212 of RA 6758.
Further, the COA stated that the insurance benefits from Philam Care, a private insurance company, was a duplication of the benefits provided to employees under the Medicare program which is
mandated by law. Being merely a creation of a local legislative body, the provincial health care program should not contravene but instead be consistent with national laws enacted by Congress from
where local legislative bodies draw their authority.
The COA held the following persons liable: (1) all the 1,949 officials and employees of the province who benefited from the hospitalization and health care insurance benefits with regard to their
proportionate shares; (2) former Governor Rafael L. Coscolluela, being the person who signed the contract on behalf of petitioner as well as the person who approved the disbursement voucher; and
(3) the Sangguniang Panlalawigan members who passed Resolution No. 720-A. The COA did not hold Philam Care and Provincial Accountant Merly P. Fortu liable for the disallowed disbursement.
The COA explained that it was unjust to require Philam Care to refund the amount received for services it had duly rendered since insurance law prohibits the refund of premiums after risks had
already attached to the policy contract. As for the Provincial Accountant, the COA declared that the Sangguniang Panlalawigan resolution was sufficient basis for the accountant to sign the
disbursement voucher since there were adequate funds available for the purpose. However, being one of the officials who benefited from the subject disallowance, the inclusion of the accountants
name in the persons liable was proper with regard to her proportionate share of the premium.
The dispositive portion of the COAs 14 July 2006 decision states:
WHEREFORE, premises considered, and finding no substantial ground or cogent reason to disturb the subject disallowance, the instant appeal is hereby denied for lack of merit. Accordingly, Notice
of Disallowance No. 99-005-101(96) dated 10 September 1999 in the total amount of P3,760,000.00 representing the hospitalization and insurance benefits of the officials and employees of the
Province of Negros Occidental is hereby AFFIRMED and the refund thereof is hereby ordered.
The Cluster Director, Cluster IV-Visayas, COA Regional Office No. VII, Cebu City shall ensure the proper implementation of this decision.13
Petitioner filed a Motion for Reconsideration dated 23 October 2006 which the COA denied in a Resolution dated 30 January 2008.
Hence, the instant petition.
The Issue
The main issue is whether COA committed grave abuse of discretion in affirming the disallowance of P3,760,000 for premium paid for the hospitalization and health care insurance benefits granted
by the Province of Negros Occidental to its 1,949 officials and employees.
The Courts Ruling
Petitioner insists that the payment of the insurance premium for the health benefits of its officers and employees was not unlawful and improper since it was paid from an allocation of its retained
earnings pursuant to a valid appropriation ordinance. Petitioner states that such enactment was a clear exercise of its express powers under the principle of local fiscal autonomy which includes the
power of Local Government Units (LGUs) to allocate their resources in accordance with their own priorities. Petitioner adds that while it is true that LGUs are only agents of the national government
and local autonomy simply means decentralization, it is equally true that an LGU has fiscal control over its own revenues derived solely from its own tax base.
Respondents, on the other hand, maintain that although LGUs are afforded local fiscal autonomy, LGUs are still bound by RA 6758 and their actions are subject to the scrutiny of the Department of
Budget and Management (DBM) and applicable auditing rules and regulations enforced by the COA. Respondents add that the grant of additional compensation, like the hospitalization and health
care insurance benefits in the present case, must have prior Presidential approval to conform with the state policy on salary standardization for government workers.
AO 103 took effect on 14 January 1994 or eleven months before the Sangguniang Panlalawigan of the Province of Negros Occidental passed Resolution No. 720-A. The main purpose of AO 103 is
to prevent discontentment, dissatisfaction and demoralization among government personnel, national or local, who do not receive, or who receive less, productivity incentive benefits or other forms
of allowances or benefits. This is clear in the Whereas Clauses of AO 103 which state:
WHEREAS, the faithful implementation of statutes, including the Administrative Code of 1987 and all laws governing all forms of additional compensation and personnel benefits is a Constitutional
prerogative vested in the President of the Philippines under Section 17, Article VII of the 1987 Constitution;
WHEREAS, the Constitutional prerogative includes the determination of the rates, the timing and schedule of payment, and final authority to commit limited resources of government for the
payment of personal incentives, cash awards, productivity bonus, and other forms of additional compensation and fringe benefits;
WHEREAS, the unilateral and uncoordinated grant of productivity incentive benefits in the past gave rise to discontentment, dissatisfaction and demoralization among government
personnel who have received less or have not received at all such benefits;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by law and in order to forestall further demoralization of
government personnel do hereby direct: x x x (Emphasis supplied)
Sections 1 and 2 of AO 103 state:
SECTION 1. All agencies of the National Government including government-owned and/or -controlled corporations and government financial institutions, and local government units , are
hereby authorized to grant productivity incentive benefit in the maximum amount of TWO THOUSAND PESOS ( P2,000.00) each to their permanent and full-time temporary and casual employees,
including contractual personnel with employment in the nature of a regular employee, who have rendered at least one (1) year of service in the Government as of December 31, 1993.
SECTION 2. All heads of government offices/agencies, including government owned and/or controlled corporations, as well as their respective governing boards are hereby enjoined and
prohibited from authorizing/granting Productivity Incentive Benefits or any and all forms of allowances/benefits without prior approval and authorization via Administrative Order by the Office of
the President. Henceforth, anyone found violating any of the mandates in this Order, including all officials/agency found to have taken part thereof, shall be accordingly and severely dealt with in
accordance with the applicable provisions of existing administrative and penal laws.
Consequently, all administrative authorizations to grant any form of allowances/benefits and all forms of additional compensation usually paid outside of the prescribed basic salary under R.A. 6758,
the Salary Standardization Law, that are inconsistent with the legislated policy on the matter or are not covered by any legislative action are hereby revoked. (Emphasis supplied)
It is clear from Section 1 of AO 103 that the President authorized all agencies of the national government as well as LGUs to grant the maximum amount of P2,000 productivity incentive benefit to
each employee who has rendered at least one year of service as of 31 December 1993. In Section 2, the President enjoined all heads of government offices and agencies from granting productivity
incentive benefits or any and all similar forms of allowances and benefits without the Presidents prior approval.
In the present case, petitioner, through an approved Sangguniang Panlalawigan resolution, granted and released the disbursement for the hospitalization and health care insurance benefits of the
provinces officials and employees without any prior approval from the President. The COA disallowed the premium payment for such benefits since petitioner disregarded AO 103 and RA 6758.

We disagree with the COA. From a close reading of the provisions of AO 103, petitioner did not violate the rule of prior approval from the President since Section 2 states that the prohibition applies
only to "government offices/agencies, including government-owned and/or controlled corporations, as well as their respective governing boards." Nowhere is it indicated in Section 2 that the
prohibition also applies to LGUs. The requirement then of prior approval from the President under AO 103 is applicable only to departments, bureaus, offices and government-owned and controlled
corporations under the Executive branch. In other words, AO 103 must be observed by government offices under the Presidents control as mandated by Section 17, Article VII of the Constitution
which states:
Section 17. The President shall have control of all executive departments, bureaus and offices. He shall ensure that the laws be faithfully executed. (Emphasis supplied)1awphi1
Being an LGU, petitioner is merely under the Presidents general supervision pursuant to Section 4, Article X of the Constitution:
Sec. 4. The President of the Philippines shall exercise general supervision over local governments.Provinces with respect to component cities and municipalities, and cities and municipalities
with respect to component barangays shall ensure that the acts of their component units are within the scope of their prescribed powers and functions. (Emphasis supplied)
The Presidents power of general supervision means the power of a superior officer to see to it that subordinates perform their functions according to law.14 This is distinguished from the Presidents
power of control which is the power to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the President over that of the
subordinate officer.15 The power of control gives the President the power to revise or reverse the acts or decisions of a subordinate officer involving the exercise of discretion.16
Since LGUs are subject only to the power of general supervision of the President, the Presidents authority is limited to seeing to it that rules are followed and laws are faithfully executed. The
President may only point out that rules have not been followed but the President cannot lay down the rules, neither does he have the discretion to modify or replace the rules. Thus, the grant of
additional compensation like hospitalization and health care insurance benefits in the present case does not need the approval of the President to be valid.
Also, while it is true that LGUs are still bound by RA 6758, the COA did not clearly establish that the medical care benefits given by the government at the time under Presidential Decree No.
151917 were sufficient to cover the needs of government employees especially those employed by LGUs.
Petitioner correctly relied on the Civil Service Commissions (CSC) Memorandum Circular No. 33 (CSC MC No. 33), series of 1997, issued on 22 December 1997 which provided the policy
framework for working conditions at the workplace. In this circular, the CSC pursuant to CSC Resolution No. 97-4684 dated 18 December 1997 took note of the inadequate policy on basic health
and safety conditions of work experienced by government personnel. Thus, under CSC MC No. 33, all government offices including LGUs were directed to provide a health program for government
employees which included hospitalization services and annual mental, medical-physical examinations.
Later, CSC MC No. 33 was further reiterated in Administrative Order No. 40218 (AO 402) which took effect on 2 June 1998. Sections 1, 2, and 4 of AO 402 state:
Section 1. Establishment of the Annual Medical Check-up Program. An annual medical check-up for government of officials and employees is hereby authorized to be established starting this year,
in the meantime that this benefit is not yet integrated under the National Health Insurance Program being administered by the Philippine Health Insurance Corporation (PHIC).
Section 2. Coverage. x x x Local Government Units are also encouraged to establish a similar program for their personnel.
Section 4. Funding. x x x Local Government Units, which may establish a similar medical program for their personnel, shall utilize local funds for the purpose. (Emphasis supplied)
The CSC, through CSC MC No. 33, as well as the President, through AO 402, recognized the deficiency of the state of health care and medical services implemented at the time. Republic Act No.
787519 or the National Health Insurance Act of 1995 instituting a National Health Insurance Program (NHIP) for all Filipinos was only approved on 14 February 1995 or about two months after
petitioners Sangguniang Panlalawigan passed Resolution No. 720-A. Even with the establishment of the NHIP, AO 402 was still issued three years later addressing a primary concern that basic
health services under the NHIP either are still inadequate or have not reached geographic areas like that of petitioner.
Thus, consistent with the state policy of local autonomy as guaranteed by the 1987 Constitution, under Section 25, Article II20 and Section 2, Article X,21 and the Local Government Code of
1991,22 we declare that the grant and release of the hospitalization and health care insurance benefits given to petitioners officials and employees were validly enacted through an ordinance passed
by petitioners Sangguniang Panlalawigan.
In sum, since petitioners grant and release of the questioned disbursement without the Presidents approval did not violate the Presidents directive in AO 103, the COA then gravely abused its
discretion in applying AO 103 to disallow the premium payment for the hospitalization and health care insurance benefits of petitioners officials and employees.
WHEREFORE, we GRANT the petition. We REVERSE AND SET ASIDE Decision No. 2006-044 dated 14 July 2006 and Decision No. 2008-010 dated 30 January 2008 of the Commission on
Audit.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

THIRD DIVISION
G.R. No. 94209

April 30, 1991

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKING CORPORATION), petitioner,
vs.
THE COURT OF APPEALS, and BERNARDO E. VILLALUZ, respondents.
Pelaez, Adriano & Gregorio for petitioner.
Ezequiel S. Consulta for private respondent.

GUTIERREZ, JR., J.:


This is a petition for review seeking the reversal of the decision of the Court of Appeals dated June 29, 1990 which affirmed the decision of the Regional Trial Court of Rizal dated October 20, 1986
ordering the defendants Christiansen and the petitioner, to pay various sums to respondent Villaluz, jointly and severally.
The facts of the case are as follows:
On June 3, 1971, Bernardo E. Villaluz agreed to sell to the then defendant Axel Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB.
After inspecting the logs, Christiansen issued purchase order No. 76171.
On the arrangements made and upon the instructions of the consignee, Hanmi Trade Development, Ltd., de Santa Ana, California, the Security Pacific National Bank of Los Angeles, California
issued Irrevocable Letter of Credit No. IC-46268 available at sight in favor of Villaluz for the sum of $54,000.00, the total purchase price of the lauan logs.
The letter of credit was mailed to the Feati Bank and Trust Company (now Citytrust) with the instruction to the latter that it "forward the enclosed letter of credit to the beneficiary." (Records, Vol. I,
p. 11)
The letter of credit further provided that the draft to be drawn is on Security Pacific National Bank and that it be accompanied by the following documents:
1. Signed Commercial Invoice in four copies showing the number of the purchase order and certifying that
a. All terms and conditions of the purchase order have been complied with and that all logs are fresh cut and quality equal to or better than that described in H.A.
Christiansen's telex #201 of May 1, 1970, and that all logs have been marked "BEV-EX."
b. One complete set of documents, including 1/3 original bills of lading was airmailed to Consignee and Parties to be advised by Hans-Axel Christiansen, Ship and
Merchandise Broker.

c. One set of non-negotiable documents was airmailed to Han Mi Trade Development Company and one set to Consignee and Parties to be advised by Hans-Axel
Christiansen, Ship and Merchandise Broker.
2. Tally sheets in quadruplicate.
3. 2/3 Original Clean on Board Ocean Bills of Lading with Consignee and Parties to be advised by Hans Axel Christiansen, showing Freight Prepaid and marked Notify:
Han Mi Trade Development Company, Ltd., Santa Ana, California.
Letter of Credit No. 46268 dated June 7, 1971
Han Mi Trade Development Company, Ltd., P.O. Box 10480, Santa Ana, California 92711 and Han Mi Trade Development Company, Ltd., Seoul, Korea.
4. Certification from Han-Axel Christiansen, Ship and Merchandise Broker, stating that logs have been approved prior to shipment in accordance with terms and conditions of
corresponding purchase Order. (Record, Vol. 1 pp. 11-12)
Also incorporated by reference in the letter of credit is the Uniform Customs and Practice for Documentary Credits (1962 Revision).
The logs were thereafter loaded on the vessel "Zenlin Glory" which was chartered by Christiansen. Before its loading, the logs were inspected by custom inspectors Nelo Laurente, Alejandro Cabiao,
Estanislao Edera from the Bureau of Customs (Records, Vol. I, p. 124) and representatives Rogelio Cantuba and Jesus Tadena of the Bureau of Forestry (Records, Vol. I, pp. 16-17) all of whom
certified to the good condition and exportability of the logs.
After the loading of the logs was completed, the Chief Mate, Shao Shu Wang issued a mate receipt of the cargo which stated the same are in good condition (Records, Vol. I, p. 363). However,
Christiansen refused to issue the certification as required in paragraph 4 of the letter of credit, despite several requests made by the private respondent.
Because of the absence of the certification by Christiansen, the Feati Bank and Trust Company refused to advance the payment on the letter of credit.
The letter of credit lapsed on June 30, 1971, (extended, however up to July 31, 1971) without the private respondent receiving any certification from Christiansen.
The persistent refusal of Christiansen to issue the certification prompted the private respondent to bring the matter before the Central Bank. In a memorandum dated August 16, 1971, the Central
Bank ruled that:
. . . pursuant to the Monetary Board Resolution No. 1230 dated August 3, 1971, in all log exports, the certification of the lumber inspectors of the Bureau of Forestry . . . shall be
considered final for purposes of negotiating documents. Any provision in any letter of credit covering log exports requiring certification of buyer's agent or representative that said logs
have been approved for shipment as a condition precedent to negotiation of shipping documents shall not be allowed. (Records, Vol. I, p. 367)
Meanwhile, the logs arrived at Inchon, Korea and were received by the consignee, Hanmi Trade Development Company, to whom Christiansen sold the logs for the amount of $37.50 per cubic
meter, for a net profit of $10 per cubic meter. Hanmi Trade Development Company, on the other hand sold the logs to Taisung Lumber Company at Inchon, Korea. (Rollo, p. 39)
Since the demands by the private respondent for Christiansen to execute the certification proved futile, Villaluz, on September 1, 1971, instituted an action for mandamus and specific performance
against Christiansen and the Feati Bank and Trust Company (now Citytrust) before the then Court of First Instance of Rizal. The petitioner was impleaded as defendant before the lower court only to
afford complete relief should the court a quo order Christiansen to execute the required certification.
The complaint prayed for the following:
1. Christiansen be ordered to issue the certification required of him under the Letter of Credit;
2. Upon issuance of such certification, or, if the court should find it unnecessary, FEATI BANK be ordered to accept negotiation of the Letter of Credit and make payment thereon to
Villaluz;
3. Order Christiansen to pay damages to the plaintiff. (Rollo, p. 39)
On or about 1979, while the case was still pending trial, Christiansen left the Philippines without informing the Court and his counsel. Hence, Villaluz, filed an amended complaint to make the
petitioner solidarily liable with Christiansen.
The trial court, in its order dated August 29, 1979, admitted the amended complaint.
After trial, the lower court found:
The liability of the defendant CHRISTIANSEN is beyond dispute, and the plaintiffs right to demand payment is absolute. Defendant CHRISTIANSEN having accepted delivery of the
logs by having them loaded in his chartered vessel the "Zenlin Glory" and shipping them to the consignee, his buyer Han Mi Trade in Inchon, South Korea (Art. 1585, Civil Code), his
obligation to pay the purchase order had clearly arisen and the plaintiff may sue and recover the price of the goods (Art. 1595, Id).
The Court believes that the defendant CHRISTIANSEN acted in bad faith and deceit and with intent to defraud the plaintiff, reflected in and aggravated by, not only his refusal to issue
the certification that would have enabled without question the plaintiff to negotiate the letter of credit, but his accusing the plaintiff in his answer of fraud, intimidation, violence and
deceit. These accusations said defendant did not attempt to prove, as in fact he left the country without even notifying his own lawyer. It was to the Court's mind a pure swindle.
The defendant Feati Bank and Trust Company, on the other hand, must be held liable together with his (sic) co-defendant for having, by its wrongful act, i.e., its refusal to negotiate the
letter of credit in the absence of CHRISTIANSEN's certification (in spite of the Central Bank's ruling that the requirement was illegal), prevented payment to the plaintiff. The said letter
of credit, as may be seen on its face, isirrevocable and the issuing bank, the Security Pacific National Bank in Los Angeles, California, undertook by its terms that the same shall be
honored upon its presentment. On the other hand, the notifying bank, the defendant Feati Bank and Trust Company, by accepting the instructions from the issuing bank, itself assumed
the very same undertaking as the issuing bank under the terms of the letter of credit.
xxx

xxx

xxx

The Court likewise agrees with the plaintiff that the defendant BANK may also be held liable under the principles and laws on both trust and estoppel. When the defendant BANK
accepted its role as the notifying and negotiating bank for and in behalf of the issuing bank, it in effect accepted a trust reposed on it, and became a trustee in relation to plaintiff as the
beneficiary of the letter of credit. As trustee, it was then duty bound to protect the interests of the plaintiff under the terms of the letter of credit, and must be held liable for damages and
loss resulting to the plaintiff from its failure to perform that obligation.
Furthermore, when the defendant BANK assumed the role of a notifying and negotiating BANK it in effect represented to the plaintiff that, if the plaintiff complied with the terms and
conditions of the letter of credit and presents the same to the BANK together with the documents mentioned therein the said BANK will pay the plaintiff the amount of the letter of
credit. The Court is convinced that it was upon the strength of this letter of credit and this implied representation of the defendant BANK that the plaintiff delivered the logs to defendant
CHRISTIANSEN, considering that the issuing bank is a foreign bank with whom plaintiff had no business connections and CHRISTIANSEN had not offered any other Security for the
payment of the logs. Defendant BANK cannot now be allowed to deny its commitment and liability under the letter of credit:
A holder of a promissory note given because of gambling who indorses the same to an innocent holder for value and who assures said party that the note has no legal defect,
is in estoppel from asserting that there had been an illegal consideration for the note, and so, he has to pay its value. (Rodriguez v. Martinez, 5 Phil. 67).
The defendant BANK, in insisting upon the certification of defendant CHRISTIANSEN as a condition precedent to negotiating the letter of credit, likewise in the Court's opinion acted
in bad faith, not only because of the clear declaration of the Central Bank that such a requirement was illegal, but because the BANK, with all the legal counsel available to it must have
known that the condition was void since it depended on the sole will of the debtor, the defendant CHRISTIANSEN. (Art. 1182, Civil Code) (Rollo, pp. 29-31)
On the basis of the foregoing the trial court on October 20, 1986, ruled in favor of the private respondent. The dispositive portion of its decision reads:
WHEREFORE, judgment is hereby rendered for the plaintiff, ordering the defendants to pay the plaintiff, jointly and severally, the following sums:
a) $54,000.00 (US), or its peso equivalent at the prevailing rate as of the time payment is actually made, representing the purchase price of the logs;
b) P17,340.00, representing government fees and charges paid by plaintiff in connection with the logs shipment in question;

c) P10,000.00 as temperate damages (for trips made to Bacolod and Korea).


All three foregoing sums shall be with interest thereon at 12% per annum from September 1, 1971, when the complaint was filed, until fully paid:
d) P70,000.00 as moral damages;
e) P30,000.00 as exemplary damages; and
f) P30,000.00 as attorney's fees and litigation expense.
(Rollo, p. 28)
The petitioner received a copy of the decision on November 3, 1986. Two days thereafter, or on November 5, 1986, it filed a notice of appeal.
On November 10, 1986, the private respondent filed a motion for the immediate execution of the judgment on the ground that the appeal of the petitioner was frivolous and dilatory.
The trial court ordered the immediate execution of its judgment upon the private respondent's filing of a bond.
The petitioner then filed a motion for reconsideration and a motion to suspend the implementation of the writ of execution. Both motions were, however, denied. Thus, petitioner filed before the
Court of Appeals a petition forcertiorari and prohibition with preliminary injunction to enjoin the immediate execution of the judgment.
The Court of Appeals in a decision dated April 9, 1987 granted the petition and nullified the order of execution, the dispositive portion of the decision states:
WHEREFORE, the petition for certiorari is granted. Respondent Judge's order of execution dated December 29, 1986, as well as his order dated January 14, 1987 denying the
petitioner's urgent motion to suspend the writ of execution against its properties are hereby annulled and set aside insofar as they are sought to be enforced and implemented against the
petitioner Feati Bank & Trust Company, now Citytrust Banking Corporation, during the pendency of its appeal from the adverse decision in Civil Case No. 15121. However, the
execution of the same decision against defendant Axel Christiansen did not appeal said decision may proceed unimpeded. The Sheriff s levy on the petitioner's properties, and the notice
of sale dated January 13, 1987 (Annex M), are hereby annulled and set aside. Rollo p. 44)
A motion for reconsideration was thereafter filed by the private respondent. The Court of Appeals, in a resolution dated June 29, 1987 denied the motion for reconsideration.
In the meantime, the appeal filed by the petitioner before the Court of Appeals was given due course. In its decision dated June 29, 1990, the Court of Appeals affirmed the decision of the lower
court dated October 20, 1986 and ruled that:
1. Feati Bank admitted in the "special and negative defenses" section of its answer that it was the bank to negotiate the letter of credit issued by the Security Pacific National Bank of Los
Angeles, California. (Record, pp. 156, 157). Feati Bank did notify Villaluz of such letter of credit. In fact, as such negotiating bank, even before the letter of credit was presented for
payment, Feati Bank had already made an advance payment of P75,000.00 to Villaluz in anticipation of such presentment. As the negotiating bank, Feati Bank, by notifying Villaluz of
the letter of credit in behalf of the issuing bank (Security Pacific), confirmed such letter of credit and made the same also its own obligation. This ruling finds support in the authority
cited by Villaluz:
A confirmed letter of credit is one in which the notifying bank gives its assurance also that the opening bank's obligation will be performed. In such a case, the notifying bank will not
simply transmit but will confirm the opening bank's obligation by making it also its own undertaking, or commitment, or guaranty or obligation. (Ward & Hatfield, 28-29, cited in
Agbayani, Commercial Laws, 1978 edition, p. 77).
Feati Bank argues further that it would be considered as the negotiating bank only upon negotiation of the letter of credit. This stance is untenable. Assurance, commitments or guaranties
supposed to be made by notifying banks to the beneficiary of a letter of credit, as defined above, can be relevant or meaningful only with respect to a future transaction, that is,
negotiation. Hence, even before actual negotiation, the notifying bank, by the mere act of notifying the beneficiary of the letter of credit, assumes as of that moment the obligation of the
issuing bank.
2. Since Feati Bank acted as guarantor of the issuing bank, and in effect also of the latter's principal or client, i.e. Hans Axel-Christiansen. (sic) Such being the case, when Christiansen
refused to issue the certification, it was as though refusal was made by Feati Bank itself. Feati Bank should have taken steps to secure the certification from Christiansen; and, if the latter
should still refuse to comply, to hale him to court. In short, Feati Bank should have honored Villaluz's demand for payment of his logs by virtue of the irrevocable letter of credit issued
in Villaluz's favor and guaranteed by Feati Bank.
3. The decision promulgated by this Court in CA-G.R. Sp No. 11051, which contained the statement "Since Villaluz" draft was not drawn strictly in compliance with the terms of the
letter of credit, Feati Bank's refusal to negotiate it was justified," did not dispose of this question on the merits. In that case, the question involved was jurisdiction or discretion, and not
judgment. The quoted pronouncement should not be taken as a preemptive judgment on the merits of the present case on appeal.
4. The original action was for "Mandamus and/or specific performance." Feati Bank may not be a party to the transaction between Christiansen and Security Pacific National Bank on
the one hand, and Villaluz on the other hand; still, being guarantor or agent of Christiansen and/or Security Pacific National Bank which had directly dealt with Villaluz, Feati Bank may
be sued properly on specific performance as a procedural means by which the relief sought by Villaluz may be entertained. (Rollo, pp. 32-33)
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the decision appealed from is affirmed; and accordingly, the appeal is hereby dismissed. Costs against the petitioner. (Rollo, p. 33)
Hence, this petition for review.
The petitioner interposes the following reasons for the allowance of the petition.
First Reason
THE RESPONDENT COURT ERRONEOUSLY CONCLUDED FROM THE ESTABLISHED FACTS AND INDEED, WENT AGAINST THE EVIDENCE AND DECISION OF
THIS HONORABLE COURT, THAT PETITIONER BANK IS LIABLE ON THE LETTER OF CREDIT DESPITE PRIVATE RESPONDENTS NON-COMPLIANCE WITH THE
TERMS THEREOF,
Second Reason
THE RESPONDENT COURT COMMITTED AN ERROR OF LAW WHEN IT HELD THAT PETITIONER BANK, BY NOTIFYING PRIVATE RESPONDENT OF THE LETTER
OF CREDIT, CONFIRMED SUCH CREDIT AND MADE THE SAME ALSO ITS OBLIGATION AS GUARANTOR OF THE ISSUING BANK.
Third Reason
THE RESPONDENT COURT LIKEWISE COMMITTED AN ERROR OF LAW WHEN IT AFFIRMED THE TRIAL COURT'S DECISION. (Rollo, p. 12)
The principal issue in this case is whether or not a correspondent bank is to be held liable under the letter of credit despite non-compliance by the beneficiary with the terms thereof?
The petition is impressed with merit.
It is a settled rule in commercial transactions involving letters of credit that the documents tendered must strictly conform to the terms of the letter of credit. The tender of documents by the
beneficiary (seller) must include all documents required by the letter. A correspondent bank which departs from what has been stipulated under the letter of credit, as when it accepts a faulty tender,
acts on its own risks and it may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary Thus the rule of strict compliance.
In the United States, commercial transactions involving letters of credit are governed by the rule of strict compliance. In the Philippines, the same holds true. The same rule must also be followed.
The case of Anglo-South America Trust Co. v. Uhe et al. (184 N.E. 741 [1933]) expounded clearly on the rule of strict compliance.
We have heretofore held that these letters of credit are to be strictly complied with which documents, and shipping documents must be followed as stated in the letter. There is no
discretion in the bank or trust company to waive any requirements. The terms of the letter constitutes an agreement between the purchaser and the bank. (p. 743)

Although in some American decisions, banks are granted a little discretion to accept a faulty tender as when the other documents may be considered immaterial or superfluous, this theory could lead
to dangerous precedents. Since a bank deals only with documents, it is not in a position to determine whether or not the documents required by the letter of credit are material or superfluous. The
mere fact that the document was specified therein readily means that the document is of vital importance to the buyer.
Moreover, the incorporation of the Uniform Customs and Practice for Documentary Credit (U.C.P. for short) in the letter of credit resulted in the applicability of the said rules in the governance of
the relations between the parties.
And even if the U.C.P. was not incorporated in the letter of credit, we have already ruled in the affirmative as to the applicability of the U.C.P. in cases before us.
In Bank of P.I. v. De Nery (35 SCRA 256 [1970]), we pronounced that the observance of the U.C.P. in this jurisdiction is justified by Article 2 of the Code of Commerce. Article 2 of the Code of
Commerce enunciates that in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by the usages and customs generally observed.
There being no specific provision which governs the legal complexities arising from transactions involving letters of credit not only between the banks themselves but also between banks and seller
and/or buyer, the applicability of the U.C.P. is undeniable.
The pertinent provisions of the U.C.P. (1962 Revision) are:
Article 3.
An irrevocable credit is a definite undertaking on the part of the issuing bank and constitutes the engagement of that bank to the beneficiary and bona fide holders of drafts drawn and/or
documents presented thereunder, that the provisions for payment, acceptance or negotiation contained in the credit will be duly fulfilled, provided that all the terms and conditions of the
credit are complied with.
An irrevocable credit may be advised to a beneficiary through another bank (the advising bank) without engagement on the part of that bank, but when an issuing bank authorizes or
requests another bank to confirm its irrevocable credit and the latter does so, such confirmation constitutes a definite undertaking of the confirming bank. . . .
Article 7.
Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit,"
Article 8.
Payment, acceptance or negotiation against documents which appear on their face to be in accordance with the terms and conditions of a credit by a bank authorized to do so, binds the
party giving the authorization to take up documents and reimburse the bank which has effected the payment, acceptance or negotiation. (Emphasis Supplied)
Under the foregoing provisions of the U.C.P., the bank may only negotiate, accept or pay, if the documents tendered to it are on their face in accordance with the terms and conditions of the
documentary credit. And since a correspondent bank, like the petitioner, principally deals only with documents, the absence of any document required in the documentary credit justifies the refusal
by the correspondent bank to negotiate, accept or pay the beneficiary, as it is not its obligation to look beyond the documents. It merely has to rely on the completeness of the documents tendered by
the beneficiary.
In regard to the ruling of the lower court and affirmed by the Court of Appeals that the petitioner is not a notifying bank but a confirming bank, we find the same erroneous.
The trial court wrongly mixed up the meaning of an irrevocable credit with that of a confirmed credit. In its decision, the trial court ruled that the petitioner, in accepting the obligation to notify the
respondent that theirrevocable credit has been transmitted to the petitioner on behalf of the private respondent, has confirmed the letter.
The trial court appears to have overlooked the fact that an irrevocable credit is not synonymous with a confirmed credit. These types of letters have different meanings and the legal relations arising
from there varies. A credit may be an irrevocable credit and at the same time a confirmed credit or vice-versa.
An irrevocable credit refers to the duration of the letter of credit. What is simply means is that the issuing bank may not without the consent of the beneficiary (seller) and the applicant (buyer)
revoke his undertaking under the letter. The issuing bank does not reserve the right to revoke the credit. On the other hand, a confirmed letter of credit pertains to the kind of obligation assumed by
the correspondent bank. In this case, the correspondent bank gives an absolute assurance to the beneficiary that it will undertake the issuing bank's obligation as its own according to the terms and
conditions of the credit. (Agbayani, Commercial Laws of the Philippines, Vol. 1, pp. 81-83)
Hence, the mere fact that a letter of credit is irrevocable does not necessarily imply that the correspondent bank in accepting the instructions of the issuing bank has also confirmed the letter of credit.
Another error which the lower court and the Court of Appeals made was to confuse the obligation assumed by the petitioner.
In commercial transactions involving letters of credit, the functions assumed by a correspondent bank are classified according to the obligations taken up by it. The correspondent bank may be called
a notifying bank, a negotiating bank, or a confirming bank.
In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit to the beneficiary the existence of the letter of credit. (Kronman and Co., Inc. v. Public
National Bank of New York, 218 N.Y.S. 616 [1926]; Shaterian, Export-Import Banking, p. 292, cited in Agbayani, Commercial Laws of the Philippines, Vol. 1, p. 76). A negotiating bank, on the
other hand, is a correspondent bank which buys or discounts a draft under the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with
respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating bank and the seller. (Scanlon v. First National Bank of Mexico, 162 N.E. 567 [1928];
Shaterian, Export-Import Banking, p. 293, cited in Agbayani, Commercial Laws of the Philippines, Vol. 1, p. 76)
In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and its liability is a primary one as if the correspondent bank itself had issued the letter of credit.
(Shaterian, Export-Import Banking, p. 294, cited in Agbayani Commercial Laws of the Philippines, Vol. 1, p. 77)
In this case, the letter merely provided that the petitioner "forward the enclosed original credit to the beneficiary." (Records, Vol. I, p. 11) Considering the aforesaid instruction to the petitioner by the
issuing bank, the Security Pacific National Bank, it is indubitable that the petitioner is only a notifying bank and not a confirming bank as ruled by the courts below.
If the petitioner was a confirming bank, then a categorical declaration should have been stated in the letter of credit that the petitioner is to honor all drafts drawn in conformity with the letter of
credit. What was simply stated therein was the instruction that the petitioner forward the original letter of credit to the beneficiary.
Since the petitioner was only a notifying bank, its responsibility was solely to notify and/or transmit the documentary of credit to the private respondent and its obligation ends there.
The notifying bank may suggest to the seller its willingness to negotiate, but this fact alone does not imply that the notifying bank promises to accept the draft drawn under the documentary credit.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only with that of the issuing bank and not with the beneficiary to whom he assumes no
liability. It follows therefore that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action against the petitioner for the enforcement of his rights under the
letter. (See Kronman and Co., Inc. v. Public National Bank of New York, supra)
In order that the petitioner may be held liable under the letter, there should be proof that the petitioner confirmed the letter of credit.
The records are, however, bereft of any evidence which will disclose that the petitioner has confirmed the letter of credit. The only evidence in this case, and upon which the private respondent
premised his argument, is the P75,000.00 loan extended by the petitioner to him.
The private respondent relies on this loan to advance his contention that the letter of credit was confirmed by the petitioner. He claims that the loan was granted by the petitioner to him, "in
anticipation of the presentment of the letter of credit."
The proposition advanced by the private respondent has no basis in fact or law. That the loan agreement between them be construed as an act of confirmation is rather far-fetched, for it depends
principally on speculative reasoning.
As earlier stated, there must have been an absolute assurance on the part of the petitioner that it will undertake the issuing bank's obligation as its own. Verily, the loan agreement it entered into
cannot be categorized as an emphatic assurance that it will carry out the issuing bank's obligation as its own.
The loan agreement is more reasonably classified as an isolated transaction independent of the documentary credit.

Of course, it may be presumed that the petitioner loaned the money to the private respondent in anticipation that it would later be paid by the latter upon the receipt of the letter. Yet, we would have
no basis to rule definitively that such "act" should be construed as an act of confirmation.
The private respondent no doubt was in need of money in loading the logs on the ship "Zenlin Glory" and the only way to satisfy this need was to borrow money from the petitioner which the latter
granted. From these circumstances, a logical conclusion that can be gathered is that the letter of credit was merely to serve as a collateral.
At the most, when the petitioner extended the loan to the private respondent, it assumed the character of a negotiating bank. Even then, the petitioner will still not be liable, for a negotiating bank
before negotiation has no contractual relationship with the seller.
The case of Scanlon v. First National Bank (supra) perspicuously explained the relationship between the seller and the negotiating bank, viz:
It may buy or refuse to buy as it chooses. Equally, it must be true that it owes no contractual duty toward the person for whose benefit the letter is written to discount or purchase any
draft drawn against the credit. No relationship of agent and principal, or of trustee and cestui, between the receiving bank and the beneficiary of the letter is established. (P.568)
Whether therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held liable. Absent any definitive proof that it has confirmed the letter of credit or has actually negotiated with
the private respondent, the refusal by the petitioner to accept the tender of the private respondent is justified.
In regard to the finding that the petitioner became a "trustee in relation to the plaintiff (private respondent) as the beneficiary of the letter of credit," the same has no legal basis.
A trust has been defined as the "right, enforceable solely in equity, to the beneficial enjoyment of property the legal title to which is vested to another." (89 C.J.S. 712)
The concept of a trust presupposes the existence of a specific property which has been conferred upon the person for the benefit of another. In order therefore for the trust theory of the private
respondent to be sustained, the petitioner should have had in its possession a sum of money as specific fund advanced to it by the issuing bank and to be held in trust by it in favor of the private
respondent. This does not obtain in this case.
The mere opening of a letter of credit, it is to be noted, does not involve a specific appropriation of a sum of money in favor of the beneficiary. It only signifies that the beneficiary may be able to
draw funds upon the letter of credit up to the designated amount specified in the letter. It does not convey the notion that a particular sum of money has been specifically reserved or has been held in
trust.
What actually transpires in an irrevocable credit is that the correspondent bank does not receive in advance the sum of money from the buyer or the issuing bank. On the contrary, when the
correspondent bank accepts the tender and pays the amount stated in the letter, the money that it doles out comes not from any particular fund that has been advanced by the issuing bank, rather it
gets the money from its own funds and then later seeks reimbursement from the issuing bank.
Granting that a trust has been created, still, the petitioner may not be considered a trustee. As the petitioner is only a notifying bank, its acceptance of the instructions of the issuing bank will not
create estoppel on its part resulting in the acceptance of the trust. Precisely, as a notifying bank, its only obligation is to notify the private respondent of the existence of the letter of credit. How then
can such create estoppel when that is its only duty under the law?
We also find erroneous the statement of the Court of Appeals that the petitioner "acted as a guarantor of the issuing bank and in effect also of the latter's principal or client, i.e., Hans Axel
Christiansen."
It is a fundamental rule that an irrevocable credit is independent not only of the contract between the buyer and the seller but also of the credit agreement between the issuing bank and the buyer.
(See Kingdom of Sweden v. New York Trust Co., 96 N.Y.S. 2d 779 [1949]). The relationship between the buyer (Christiansen) and the issuing bank (Security Pacific National Bank) is entirely
independent from the letter of credit issued by the latter.
The contract between the two has no bearing as to the non-compliance by the buyer with the agreement between the latter and the seller. Their contract is similar to that of a contract of services (to
open the letter of credit) and not that of agency as was intimated by the Court of Appeals. The unjustified refusal therefore by Christiansen to issue the certification under the letter of credit should
not likewise be charged to the issuing bank.
As a mere notifying bank, not only does the petitioner not have any contractual relationship with the buyer, it has also nothing to do with the contract between the issuing bank and the buyer
regarding the issuance of the letter of credit.
The theory of guarantee relied upon by the Court of Appeals has to necessarily fail. The concept of guarantee vis-a-vis the concept of an irrevocable credit are inconsistent with each other.
In the first place, the guarantee theory destroys the independence of the bank's responsibility from the contract upon which it was opened. In the second place, the nature of both contracts is mutually
in conflict with each other. In contracts of guarantee, the guarantor's obligation is merely collateral and it arises only upon the default of the person primarily liable. On the other hand, in an
irrevocable credit the bank undertakes a primary obligation. (SeeNational Bank of Eagle Pass, Tex v. American National Bank of San Francisco, 282 F. 73 [1922])
The relationship between the issuing bank and the notifying bank, on the contrary, is more similar to that of an agency and not that of a guarantee. It may be observed that the notifying bank is
merely to follow the instructions of the issuing bank which is to notify or to transmit the letter of credit to the beneficiary. ( See Kronman v. Public National Bank of New York, supra). Its
commitment is only to notify the beneficiary. It does not undertake any assurance that the issuing bank will perform what has been mandated to or expected of it. As an agent of the issuing bank, it
has only to follow the instructions of the issuing bank and to it alone is it obligated and not to buyer with whom it has no contractual relationship.
In fact the notifying bank, even if the seller tenders all the documents required under the letter of credit, may refuse to negotiate or accept the drafts drawn thereunder and it will still not be held
liable for its only engagement is to notify and/or transmit to the seller the letter of credit.
Finally, even if we assume that the petitioner is a confirming bank, the petitioner cannot be forced to pay the amount under the letter. As we have previously explained, there was a failure on the part
of the private respondent to comply with the terms of the letter of credit.
The failure by him to submit the certification was fatal to his case.1wphi1 The U.C.P. which is incorporated in the letter of credit ordains that the bank may only pay the amount specified under the
letter if all the documents tendered are on their face in compliance with the credit. It is not tasked with the duty of ascertaining the reason or reasons why certain documents have not been submitted,
as it is only concerned with the documents. Thus, whether or not the buyer has performed his responsibility towards the seller is not the bank's problem.
We are aware of the injustice committed by Christiansen on the private respondent but we are deciding the controversy on the basis of what the law is, for the law is not meant to favor only those
who have been oppressed, the law is to govern future relations among people as well. Its commitment is to all and not to a single individual. The faith of the people in our justice system may be
eroded if we are to decide not what the law states but what we believe it should declare. Dura lex sed lex.
Considering the foregoing, the materiality of ruling upon the validity of the certificate of approval required of the private respondent to submit under the letter of credit, has become insignificant.
In any event, we affirm the earlier ruling of the Court of Appeals dated April 9, 1987 in regard to the petition before it for certiorari and prohibition with preliminary injunction, to wit:
There is no merit in the respondent's contention that the certification required in condition No. 4 of the letter of credit was "patently illegal." At the time the letter of credit was issued
there was no Central Bank regulation prohibiting such a condition in the letter of credit. The letter of credit (Exh. C) was issued on June 7, 1971, more than two months before the
issuance of the Central Bank Memorandum on August 16, 1971 disallowing such a condition in a letter of credit. In fact the letter of credit had already expired on July 30, 1971 when the
Central Bank memorandum was issued. In any event, it is difficult to see how such a condition could be categorized as illegal or unreasonable since all that plaintiff Villaluz, as seller of
the logs, could and should have done was to refuse to load the logs on the vessel "Zenlin Glory", unless Christiansen first issued the required certification that the logs had been approved
by him to be in accordance with the terms and conditions of his purchase order. Apparently, Villaluz was in too much haste to ship his logs without taking all due precautions to assure
that all the terms and conditions of the letter of credit had been strictly complied with, so that there would be no hitch in its negotiation. (Rollo, p. 8)
WHEREFORE, the COURT RESOLVED to GRANT the petition and hereby NULLIFIES and SETS ASIDE the decision of the Court of Appeals dated June 29, 1990. The amended complaint in
Civil Case No. 15121 is DISMISSED.
SO ORDERED.
Feliciano, Bidin and Davide, Jr., JJ., concur.
Fernan, C.J., took no part.
THIRD DIVISION

G.R. No. 94716 November 15, 1991


ASSOCIATION OF COURT OF APPEALS EMPLOYEES (ACAE), petitioner,
vs.
HON. PURA FERRER-CALLEJA, in her capacity as Director, Bureau of Labor Relations, and UNION OF CONCERNED EMPLOYEES OF THE COURT OF APPEALS
(UCECA), respondents.

GUTIERREZ, JR., J.:p


We are asked in this petition to ascertain the power, if any, of the Department of Labor and Employment (DOLE), more specifically the Bureau of Labor Relations (BLR), to supervise the activities
of government employees; in this case, unions of judiciary personnel who serve in the Court of Appeals.
The question of power is quite significant. Hitherto, the BLR has concentrated on labor relations in the private sector. Its enforcement machinery and the mass of law and jurisprudence governing its
functions are entirely geared to the handling of the peculiar problems arising in private employment. In this case, the BLR has tasked itself to intervene not only in a quarrel between two groups of
government employees but more important, in a quarrel between employees working for an independent branch of government, the Judiciary.
The two issues raised in this petition are: (1) whether or not the respondent Bureau of Labor Relations acted with grave abuse of discretion when it granted the petition for certification election to
determine the certified bargaining agent to represent the rank-and-file employees of the Court of Appeals; and (2) whether or not a petition for cancellation of registration of the union requesting for
a certification election is a bar to the resolution of a prior petition for certification election.
The antecedent facts of the case are as follows:
On April 4, 1990, the respondent Union of Concerned Employees of the Court of Appeals (UCECA), a registered union filed a petition for accreditation and/or certification election with the Bureau
of Labor Relations (docketed as BLR Case No. 4-11-90) alleging that the petitioner, Association of Court of Appeals Employees (ACAE) which is the incumbent bargaining representative, no longer
enjoys the support of the majority of the rank-and-file employees. The UCECA alleged that there was a mass resignation of ACAE members on April 14, 1989.
On May 10, 1990, the ACAE filed its Comment and/or Opposition. It stated that the listing by the ACAE of its membership at three hundred three (303) employees was a product of fraud. It charged
the UCECA with misrepresentation, forgery and perjury in attaching to its (UCECA) petition, a copy of the names of members some of which were twice listed, written without consent or unsigned,
and some of the signatures of which were forged. In addition, the petitioner alleged that some of the UCECA members, upon learning of the fraudulent act, resigned from the union.
In its reply, the UCECA stated that its registry book was not smeared with fraud and claimed that any mistakes were only clerical errors.
On June 18, 1990, petitioner ACAE filed a Petition for Cancellation of Certificate of Registration of the UCECA in BLR Case No. 6-19-90 on the ground of fraud and misrepresentation by UCECA
in obtaining its Registration Certificate No. 159 and in preparing its Registry Book of members. On June 28, 1990, the ACAE moved for deferment of the resolution of the case of BLR 4-11-90
pending the case of BLR 6-19-90.
On July 16, 1990, the UCECA filed a motion to dismiss BLR 6-19-90 for being dilatory, to which ACAE replied that the maxim of res ipsa loquitur should be applied as the "fraudulent documents
submitted by UCECA speak for themselves."
On July 30, 1990, the Bureau of Labor Relationsruled that BLR 6-19-90 (cancellation proceedings) is not a bar to the holding of a certification election. It granted the UCECA's prayer for a
certification election. The BLR found that UCECA was supported by three hundred three (303) or forty (40%) percent of the seven hundred sixty two (762) rank-and-file employees of the court.
ACAE's motion for reconsideration was denied.
On August 21, 1990, the respondent Bureau conducted a pre-election conference.
Feeling that it was being stampeded into participating in a certification election, ACAE filed this petition forcertiorari and prohibition. We issued a temporary restraining order effective August 29,
1990.
The first question that arises is the jurisdiction of the Bureau of Labor Relations to handle disputes among associations of employees working for the judiciary.
There is no question that government employees may organize provided the purposes behind such organization are legitimate.
No less than the Bill of Rights specifically identifies government employees as having the right of self-organization. It provides:
xxx xxx xxx
Sec. 8. The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall
not be abridged. (Article III, 1987 Constitution)
In the provisions governing the Civil Service Commission, we find:
Sec. 2. (1) The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations
with original charters.
xxx xxx xxx
Sec. 2. (5) The right to self-organization shall not be denied to government employees.
xxx xxx xxx
(Article IX-B, Section 2 (1) and (5), Constitution)
The article on Social Justice and Human Rights adds:
Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment
opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in
accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law. (Article XIII, Section 3, 1st and 2nd paragraphs)
xxx xxx xxx
The issue of what governs and who supervises unions of government employees is of more than passing concern especially when those who organize and hope to engage in certain forms of
concerted action are court employees.
Government personnel find themselves in an equivocal and ambivalent position. They have a right but it is not clear to what extent they may exercise it. Congress has not legislated as yet on the
complicated problems arising from unionism in government as distinguished from unionism in the private sector. Obviously, the same rules do not and cannot apply under the present state of the law.
A major re-ordering of government, notably its civil service laws and budgetary and fiscal procedures would result if Congress, in enacting the laws required by the constitutional provisions, gives
exactly the same rights and privileges to all workers in the public and private sectors.
At present, the terms and conditions of employment in the government service are governed by law, not by the relative strengths of management and labor as they hammer out mutually acceptable
terms across the collective bargaining table. Paradoxically, all the representatives of "labor" and "management" in government are employees. At the same time, everybody forms part of the "owner"
of the enterprise, the sovereign people. The qualifications and eligibilities of civil servants, their appointment and promotion, standardization of salaries, disciplinary actions, fringe benefits, and
retirement gratuities, among others, are governed by statutes, rules, and established principles which are the products of decades of experience, not to mention borrowings from civil service systems
abroad.

The provisions of civil service law on the terms and conditions of employment including the regulation of labor-management relations in the government sector, unless Congress decides to amend or
repeal them, form part of the response to any requests or demands of organized groups of government personnel. Any understanding between the top officials of a government agency and the union
which represents the rank-and-file is subordinate to the law governing the particular issue or situation.
We emphasize the above because in ascertaining what agency should supervise certification elections in the public sector, we limit the determination strictly to the question before us the holding
of certification elections. Jurisdiction over questions which may arise after the certified bargaining representative flexes its muscles and engages in concerted action will have to await the filing of
more appropriate cases and, hopefully, the enactment of applicable legislation.
The Constitution provides that the rights of all workers to self-organization, collective bargaining, and peaceful concerted activities, including the right to strike, are guaranteed provided these are in
accordance with law. There is reference to the need for a law governing the procedures incident to self-organization.
What is the law which governs certification elections in the Court of Appeals?
The Solicitor General argues that the applicable law is Executive Order No. 180 issued on June 1, 1987 entitled "Providing Guidelines for the Exercise of the Right to Organ