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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 17122 February 27, 1922

THE UNITED STATES, plaintiff-appellee,

vs.
ANG TANG HO, defendant-appellant.

Williams & Ferrier for appellant.

Acting Attorney-General Tuason for appellee.

JOHNS, J.:

At its special session of 1919, the Philippine Legislature passed Act No. 2868, entitled "An Act
penalizing the monopoly and holding of, and speculation in, palay, rice, and corn under
extraordinary circumstances, regulating the distribution and sale thereof, and authorizing the
Governor-General, with the consent of the Council of State, to issue the necessary rules and
regulations therefor, and making an appropriation for this purpose," the material provisions of
which are as follows:

Section 1. The Governor-General is hereby authorized, whenever, for any cause, conditions arise
resulting in an extraordinary rise in the price of palay, rice or corn, to issue and promulgate, with
the consent of the Council of State, temporary rules and emergency measures for carrying out the
purpose of this Act, to wit:

(a) To prevent the monopoly and hoarding of, and speculation in, palay, rice or corn.

(b) To establish and maintain a government control of the distribution or sale of the commodities
referred to or have such distribution or sale made by the Government itself.

(c) To fix, from time to time the quantities of palay rice, or corn that a company or individual may
acquire, and the maximum sale price that the industrial or merchant may demand.

(d) . . .
SEC. 2. It shall be unlawful to destroy, limit, prevent or in any other manner obstruct the production
or milling of palay, rice or corn for the purpose of raising the prices thereof; to corner or hoard said
products as defined in section three of this Act; . . .

Section 3 defines what shall constitute a monopoly or hoarding of palay, rice or corn within the
meaning of this Act, but does not specify the price of rice or define any basic for fixing the price.

SEC. 4. The violations of any of the provisions of this Act or of the regulations, orders and decrees
promulgated in accordance therewith shall be punished by a fine of not more than five thousands
pesos, or by imprisonment for not more than two years, or both, in the discretion of the
court: Provided, That in the case of companies or corporations the manager or administrator shall
be criminally liable.

SEC. 7. At any time that the Governor-General, with the consent of the Council of State, shall
consider that the public interest requires the application of the provisions of this Act, he shall so
declare by proclamation, and any provisions of other laws inconsistent herewith shall from then on
be temporarily suspended.

Upon the cessation of the reasons for which such proclamation was issued, the Governor-General,
with the consent of the Council of State, shall declare the application of this Act to have likewise
terminated, and all laws temporarily suspended by virtue of the same shall again take effect, but
such termination shall not prevent the prosecution of any proceedings or cause begun prior to such
termination, nor the filing of any proceedings for an offense committed during the period covered
by the Governor-General's proclamation.

August 1, 1919, the Governor-General issued a proclamation fixing the price at which rice should be
sold.

August 8, 1919, a complaint was filed against the defendant, Ang Tang Ho, charging him with the
sale of rice at an excessive price as follows:

The undersigned accuses Ang Tang Ho of a violation of Executive Order No. 53 of the
Governor-General of the Philippines, dated the 1st of August, 1919, in relation with the provisions of
sections 1, 2 and 4 of Act No. 2868, committed as follows:

That on or about the 6th day of August, 1919, in the city of Manila, Philippine Islands, the said Ang
Tang Ho, voluntarily, illegally and criminally sold to Pedro Trinidad, one ganta of rice at the price of
eighty centavos (P.80), which is a price greater than that fixed by Executive Order No. 53 of the
Governor-General of the Philippines, dated the 1st of August, 1919, under the authority of section 1
of Act No. 2868. Contrary to law.

Upon this charge, he was tried, found guilty and sentenced to five months' imprisonment and to pay
a fine of P500, from which he appealed to this court, claiming that the lower court erred in finding
Executive Order No. 53 of 1919, to be of any force and effect, in finding the accused guilty of the
offense charged, and in imposing the sentence.

The official records show that the Act was to take effect on its approval; that it was approved July
30, 1919; that the Governor-General issued his proclamation on the 1st of August, 1919; and that
the law was first published on the 13th of August, 1919; and that the proclamation itself was first
published on the 20th of August, 1919.
The question here involves an analysis and construction of Act No. 2868, in so far as it authorizes
the Governor-General to fix the price at which rice should be sold. It will be noted that section 1
authorizes the Governor-General, with the consent of the Council of State, for any cause resulting in
an extraordinary rise in the price of palay, rice or corn, to issue and promulgate temporary rules and
emergency measures for carrying out the purposes of the Act. By its very terms, the promulgation
of temporary rules and emergency measures is left to the discretion of the Governor-General. The
Legislature does not undertake to specify or define under what conditions or for what reasons the
Governor-General shall issue the proclamation, but says that it may be issued "for any cause," and
leaves the question as to what is "any cause" to the discretion of the Governor-General. The Act
also says: "For any cause, conditions arise resulting in an extraordinary rise in the price of palay,
rice or corn." The Legislature does not specify or define what is "an extraordinary rise." That is also
left to the discretion of the Governor-General. The Act also says that the Governor-General, "with
the consent of the Council of State," is authorized to issue and promulgate "temporary rules and
emergency measures for carrying out the purposes of this Act." It does not specify or define what is
a temporary rule or an emergency measure, or how long such temporary rules or emergency
measures shall remain in force and effect, or when they shall take effect. That is to say, the
Legislature itself has not in any manner specified or defined any basis for the order, but has left it to
the sole judgement and discretion of the Governor-General to say what is or what is not "a cause,"
and what is or what is not "an extraordinary rise in the price of rice," and as to what is a temporary
rule or an emergency measure for the carrying out the purposes of the Act. Under this state of facts,
if the law is valid and the Governor-General issues a proclamation fixing the minimum price at which
rice should be sold, any dealer who, with or without notice, sells rice at a higher price, is a criminal.
There may not have been any cause, and the price may not have been extraordinary, and there
may not have been an emergency, but, if the Governor-General found the existence of such facts
and issued a proclamation, and rice is sold at any higher price, the seller commits a crime.

By the organic law of the Philippine Islands and the Constitution of the United States all powers are
vested in the Legislative, Executive and Judiciary. It is the duty of the Legislature to make the law;
of the Executive to execute the law; and of the Judiciary to construe the law. The Legislature has no
authority to execute or construe the law, the Executive has no authority to make or construe the
law, and the Judiciary has no power to make or execute the law. Subject to the Constitution only,
the power of each branch is supreme within its own jurisdiction, and it is for the Judiciary only to
say when any Act of the Legislature is or is not constitutional. Assuming, without deciding, that the
Legislature itself has the power to fix the price at which rice is to be sold, can it delegate that power
to another, and, if so, was that power legally delegated by Act No. 2868? In other words, does the
Act delegate legislative power to the Governor-General? By the Organic Law, all Legislative power is
vested in the Legislature, and the power conferred upon the Legislature to make laws cannot be
delegated to the Governor-General, or any one else. The Legislature cannot delegate the legislative
power to enact any law. If Act no 2868 is a law unto itself and within itself, and it does nothing more
than to authorize the Governor-General to make rules and regulations to carry the law into effect,
then the Legislature itself created the law. There is no delegation of power and it is valid. On the
other hand, if the Act within itself does not define crime, and is not a law, and some legislative act
remains to be done to make it a law or a crime, the doing of which is vested in the
Governor-General, then the Act is a delegation of legislative power, is unconstitutional and void.

The Supreme Court of the United States in what is known as the Granger Cases (94 U.S., 183-187;
24 L. ed., 94), first laid down the rule:
Railroad companies are engaged in a public employment affecting the public interest and, under the
decision in Munn vs. Ill., ante, 77, are subject to legislative control as to their rates of fare and
freight unless protected by their charters.

The Illinois statute of Mar. 23, 1874, to establish reasonable maximum rates of charges for the
transportation of freights and passengers on the different railroads of the State is not void as being
repugnant to the Constitution of the United States or to that of the State.

It was there for the first time held in substance that a railroad was a public utility, and that, being a
public utility, the State had power to establish reasonable maximum freight and passenger rates.
This was followed by the State of Minnesota in enacting a similar law, providing for, and
empowering, a railroad commission to hear and determine what was a just and reasonable rate.
The constitutionality of this law was attacked and upheld by the Supreme Court of Minnesota in a
learned and exhaustive opinion by Justice Mitchell, in the case of State vs. Chicago, Milwaukee & St.
Paul ry. Co. (38 Minn., 281), in which the court held:

Regulations of railway tariffs — Conclusiveness of commission's tariffs. — Under Laws 1887, c. 10,
sec. 8, the determination of the railroad and warehouse commission as to what are equal and
reasonable fares and rates for the transportation of persons and property by a railway company is
conclusive, and, in proceedings by mandamus to compel compliance with the tariff of rates
recommended and published by them, no issue can be raised or inquiry had on that question.

Same — constitution — Delegation of power to commission. — The authority thus given to the
commission to determine, in the exercise of their discretion and judgement, what are equal and
reasonable rates, is not a delegation of legislative power.

It will be noted that the law creating the railroad commission expressly provides —

That all charges by any common carrier for the transportation of passengers and property shall be
equal and reasonable.

With that as a basis for the law, power is then given to the railroad commission to investigate all the
facts, to hear and determine what is a just and reasonable rate. Even then that law does not make
the violation of the order of the commission a crime. The only remedy is a civil proceeding. It was
there held —

That the legislative itself has the power to regulate railroad charges is now too well settled to
require either argument or citation of authority.

The difference between the power to say what the law shall be, and the power to adopt rules and
regulations, or to investigate and determine the facts, in order to carry into effect a law already
passed, is apparent. The true distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and the conferring an authority or discretion
to be exercised under and in pursuance of the law.

The legislature enacts that all freights rates and passenger fares should be just and reasonable. It
had the undoubted power to fix these rates at whatever it deemed equal and reasonable.

They have not delegated to the commission any authority or discretion as to what the law shall be,
— which would not be allowable, — but have merely conferred upon it an authority and discretion,
to be exercised in the execution of the law, and under and in pursuance of it, which is entirely
permissible. The legislature itself has passed upon the expediency of the law, and what is shall be.
The commission is intrusted with no authority or discretion upon these questions. It can neither
make nor unmake a single provision of law. It is merely charged with the administration of the law,
and with no other power.

The delegation of legislative power was before the Supreme Court of Wisconsin in
Dowling vs. Lancoshire Ins. Co. (92 Wis., 63). The opinion says:

"The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution,
to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made."

The act, in our judgment, wholly fails to provide definitely and clearly what the standard policy
should contain, so that it could be put in use as a uniform policy required to take the place of all
others, without the determination of the insurance commissioner in respect to maters involving the
exercise of a legislative discretion that could not be delegated, and without which the act could not
possibly be put in use as an act in confirmity to which all fire insurance policies were required to be
issued.

The result of all the cases on this subject is that a law must be complete, in all its terms and
provisions, when it leaves the legislative branch of the government, and nothing must be left to the
judgement of the electors or other appointee or delegate of the legislature, so that, in form and
substance, it is a law in all its details in presenti, but which may be left to take effect in futuro, if
necessary, upon the ascertainment of any prescribed fact or event.

The delegation of legislative power was before the Supreme Court in United States vs. Grimaud
(220 U.S., 506; 55 L. ed., 563), where it was held that the rules and regulations of the Secretary of
Agriculture as to a trespass on government land in a forest reserve were valid constitutional. The
Act there provided that the Secretary of Agriculture ". . . may make such rules and regulations and
establish such service as will insure the object of such reservations; namely, to regulate their
occupancy and use, and to preserve the forests thereon from destruction; and any violation of the
provisions of this act or such rules and regulations shall be punished, . . ."

The brief of the United States Solicitor-General says:

In refusing permits to use a forest reservation for stock grazing, except upon stated terms or in
stated ways, the Secretary of Agriculture merely assert and enforces the proprietary right of the
United States over land which it owns. The regulation of the Secretary, therefore, is not an exercise
of legislative, or even of administrative, power; but is an ordinary and legitimate refusal of the
landowner's authorized agent to allow person having no right in the land to use it as they will. The
right of proprietary control is altogether different from governmental authority.

The opinion says:

From the beginning of the government, various acts have been passed conferring upon executive
officers power to make rules and regulations, — not for the government of their departments, but
for administering the laws which did govern. None of these statutes could confer legislative power.
But when Congress had legislated power. But when Congress had legislated and indicated its will, it
could give to those who were to act under such general provisions "power to fill up the details" by
the establishment of administrative rules and regulations, the violation of which could be punished
by fine or imprisonment fixed by Congress, or by penalties fixed by Congress, or measured by the
injury done.

That "Congress cannot delegate legislative power is a principle universally recognized as vital to the
integrity and maintenance of the system of government ordained by the Constitution."

If, after the passage of the act and the promulgation of the rule, the defendants drove and grazed
their sheep upon the reserve, in violation of the regulations, they were making an unlawful use of
the government's property. In doing so they thereby made themselves liable to the penalty
imposed by Congress.

The subjects as to which the Secretary can regulate are defined. The lands are set apart as a forest
reserve. He is required to make provisions to protect them from depredations and from harmful
uses. He is authorized 'to regulate the occupancy and use and to preserve the forests from
destruction.' A violation of reasonable rules regulating the use and occupancy of the property is
made a crime, not by the Secretary, but by Congress."

The above are leading cases in the United States on the question of delegating legislative power. It
will be noted that in the "Granger Cases," it was held that a railroad company was a public
corporation, and that a railroad was a public utility, and that, for such reasons, the legislature had
the power to fix and determine just and reasonable rates for freight and passengers.

The Minnesota case held that, so long as the rates were just and reasonable, the legislature could
delegate the power to ascertain the facts and determine from the facts what were just and
reasonable rates,. and that in vesting the commission with such power was not a delegation of
legislative power.

The Wisconsin case was a civil action founded upon a "Wisconsin standard policy of fire insurance,"
and the court held that "the act, . . . wholly fails to provide definitely and clearly what the standard
policy should contain, so that it could be put in use as a uniform policy required to take the place of
all others, without the determination of the insurance commissioner in respect to matters involving
the exercise of a legislative discretion that could not be delegated."

The case of the United States Supreme Court, supra dealt with rules and regulations which were
promulgated by the Secretary of Agriculture for Government land in the forest reserve.

These decisions hold that the legislative only can enact a law, and that it cannot delegate it
legislative authority.

The line of cleavage between what is and what is not a delegation of legislative power is pointed out
and clearly defined. As the Supreme Court of Wisconsin says:

That no part of the legislative power can be delegated by the legislature to any other department of
the government, executive or judicial, is a fundamental principle in constitutional law, essential to
the integrity and maintenance of the system of government established by the constitution.
Where an act is clothed with all the forms of law, and is complete in and of itself, it may be provided
that it shall become operative only upon some certain act or event, or, in like manner, that its
operation shall be suspended.

The legislature cannot delegate its power to make a law, but it can make a law to delegate a power
to determine some fact or state of things upon which the law makes, or intends to make, its own
action to depend.

The Village of Little Chute enacted an ordinance which provides:

All saloons in said village shall be closed at 11 o'clock P.M. each day and remain closed until 5
o'clock on the following morning, unless by special permission of the president.

Construing it in 136 Wis., 526; 128 A. S. R., 1100,1 the Supreme Court of that State says:

We regard the ordinance as void for two reasons; First, because it attempts to confer arbitrary
power upon an executive officer, and allows him, in executing the ordinance, to make unjust and
groundless discriminations among persons similarly situated; second, because the power to
regulate saloons is a law-making power vested in the village board, which cannot be delegated. A
legislative body cannot delegate to a mere administrative officer power to make a law, but it can
make a law with provisions that it shall go into effect or be suspended in its operations upon the
ascertainment of a fact or state of facts by an administrative officer or board. In the present case
the ordinance by its terms gives power to the president to decide arbitrary, and in the exercise of
his own discretion, when a saloon shall close. This is an attempt to vest legislative discretion in him,
and cannot be sustained.

The legal principle involved there is squarely in point here.

It must be conceded that, after the passage of act No. 2868, and before any rules and regulations
were promulgated by the Governor-General, a dealer in rice could sell it at any price, even at a peso
per "ganta," and that he would not commit a crime, because there would be no law fixing the price
of rice, and the sale of it at any price would not be a crime. That is to say, in the absence of a
proclamation, it was not a crime to sell rice at any price. Hence, it must follow that, if the defendant
committed a crime, it was because the Governor-General issued the proclamation. There was no act
of the Legislature making it a crime to sell rice at any price, and without the proclamation, the sale
of it at any price was to a crime.

The Executive order2 provides:

(5) The maximum selling price of palay, rice or corn is hereby fixed, for the time being as follows:

In Manila —

Palay at P6.75 per sack of 57½ kilos, or 29 centavos per ganta.

Rice at P15 per sack of 57½ kilos, or 63 centavos per ganta.

Corn at P8 per sack of 57½ kilos, or 34 centavos per ganta.

In the provinces producing palay, rice and corn, the maximum price shall be the Manila price less
the cost of transportation from the source of supply and necessary handling expenses to the place
of sale, to be determined by the provincial treasurers or their deputies.

In provinces, obtaining their supplies from Manila or other producing provinces, the maximum price
shall be the authorized price at the place of supply or the Manila price as the case may be, plus the
transportation cost, from the place of supply and the necessary handling expenses, to the place of
sale, to be determined by the provincial treasurers or their deputies.

(6) Provincial treasurers and their deputies are hereby directed to communicate with, and execute
all instructions emanating from the Director of Commerce and Industry, for the most effective and
proper enforcement of the above regulations in their respective localities.

The law says that the Governor-General may fix "the maximum sale price that the industrial or
merchant may demand." The law is a general law and not a local or special law.

The proclamation undertakes to fix one price for rice in Manila and other and different prices in
other and different provinces in the Philippine Islands, and delegates the power to determine the
other and different prices to provincial treasurers and their deputies. Here, then, you would have a
delegation of legislative power to the Governor-General, and a delegation by him of that power to
provincial treasurers and their deputies, who "are hereby directed to communicate with, and
execute all instructions emanating from the Director of Commerce and Industry, for the most
effective and proper enforcement of the above regulations in their respective localities." The
issuance of the proclamation by the Governor-General was the exercise of the delegation of a
delegated power, and was even a sub delegation of that power.

Assuming that it is valid, Act No. 2868 is a general law and does not authorize the Governor-General
to fix one price of rice in Manila and another price in Iloilo. It only purports to authorize him to fix
the price of rice in the Philippine Islands under a law, which is General and uniform, and not local or
special. Under the terms of the law, the price of rice fixed in the proclamation must be the same all
over the Islands. There cannot be one price at Manila and another at Iloilo. Again, it is a mater of
common knowledge, and of which this court will take judicial notice, that there are many kinds of
rice with different and corresponding market values, and that there is a wide range in the price,
which varies with the grade and quality. Act No. 2868 makes no distinction in price for the grade or
quality of the rice, and the proclamation, upon which the defendant was tried and convicted, fixes
the selling price of rice in Manila "at P15 per sack of 57½ kilos, or 63 centavos per ganta," and is
uniform as to all grades of rice, and says nothing about grade or quality. Again, it will be noted that
the law is confined to palay, rice and corn. They are products of the Philippine Islands. Hemp,
tobacco, coconut, chickens, eggs, and many other things are also products. Any law which single
out palay, rice or corn from the numerous other products of the Islands is not general or uniform,
but is a local or special law. If such a law is valid, then by the same principle, the Governor-General
could be authorized by proclamation to fix the price of meat, eggs, chickens, coconut, hemp, and
tobacco, or any other product of the Islands. In the very nature of things, all of that class of laws
should be general and uniform. Otherwise, there would be an unjust discrimination of property
rights, which, under the law, must be equal and inform. Act No. 2868 is nothing more than a
floating law, which, in the discretion and by a proclamation of the Governor-General, makes it a
floating crime to sell rice at a price in excess of the proclamation, without regard to grade or quality.
When Act No. 2868 is analyzed, it is the violation of the proclamation of the Governor-General
which constitutes the crime. Without that proclamation, it was no crime to sell rice at any price. In
other words, the Legislature left it to the sole discretion of the Governor-General to say what was
and what was not "any cause" for enforcing the act, and what was and what was not "an
extraordinary rise in the price of palay, rice or corn," and under certain undefined conditions to fix
the price at which rice should be sold, without regard to grade or quality, also to say whether a
proclamation should be issued, if so, when, and whether or not the law should be enforced, how
long it should be enforced, and when the law should be suspended. The Legislature did not specify
or define what was "any cause," or what was "an extraordinary rise in the price of rice, palay or
corn," Neither did it specify or define the conditions upon which the proclamation should be issued.
In the absence of the proclamation no crime was committed. The alleged sale was made a crime, if
at all, because the Governor-General issued the proclamation. The act or proclamation does not say
anything about the different grades or qualities of rice, and the defendant is charged with the sale
"of one ganta of rice at the price of eighty centavos (P0.80) which is a price greater than that fixed
by Executive order No. 53."

We are clearly of the opinion and hold that Act No. 2868, in so far as it undertakes to authorized the
Governor-General in his discretion to issue a proclamation, fixing the price of rice, and to make the
sale of rice in violation of the price of rice, and to make the sale of rice in violation of the
proclamation a crime, is unconstitutional and void.

It may be urged that there was an extraordinary rise in the price of rice and profiteering, which
worked a severe hardship on the poorer classes, and that an emergency existed, but the question
here presented is the constitutionality of a particular portion of a statute, and none of such matters
is an argument for, or against, its constitutionality.

The Constitution is something solid, permanent an substantial. Its stability protects the life, liberty
and property rights of the rich and the poor alike, and that protection ought not to change with the
wind or any emergency condition. The fundamental question involved in this case is the right of the
people of the Philippine Islands to be and live under a republican form of government. We make the
broad statement that no state or nation, living under republican form of government, under the
terms and conditions specified in Act No. 2868, has ever enacted a law delegating the power to any
one, to fix the price at which rice should be sold. That power can never be delegated under a
republican form of government.

In the fixing of the price at which the defendant should sell his rice, the law was not dealing with
government property. It was dealing with private property and private rights, which are sacred
under the Constitution. If this law should be sustained, upon the same principle and for the same
reason, the Legislature could authorize the Governor-General to fix the price of every product or
commodity in the Philippine Islands, and empower him to make it a crime to sell any product at any
other or different price.

It may be said that this was a war measure, and that for such reason the provision of the
Constitution should be suspended. But the Stubborn fact remains that at all times the judicial power
was in full force and effect, and that while that power was in force and effect, such a provision of
the Constitution could not be, and was not, suspended even in times of war. It may be claimed that
during the war, the United States Government undertook to, and did, fix the price at which wheat
and flour should be bought and sold, and that is true. There, the United States had declared war,
and at the time was at war with other nations, and it was a war measure, but it is also true that in
doing so, and as a part of the same act, the United States commandeered all the wheat and flour,
and took possession of it, either actual or constructive, and the government itself became the
owner of the wheat and flour, and fixed the price to be paid for it. That is not this case. Here the rice
sold was the personal and private property of the defendant, who sold it to one of his customers.
The government had not bought and did not claim to own the rice, or have any interest in it, and at
the time of the alleged sale, it was the personal, private property of the defendant. It may be that
the law was passed in the interest of the public, but the members of this court have taken on
solemn oath to uphold and defend the Constitution, and it ought not to be construed to meet the
changing winds or emergency conditions. Again, we say that no state or nation under a republican
form of government ever enacted a law authorizing any executive, under the conditions states, to
fix the price at which a price person would sell his own rice, and make the broad statement that no
decision of any court, on principle or by analogy, will ever be found which sustains the
constitutionality of the particular portion of Act No. 2868 here in question. By the terms of the
Organic Act, subject only to constitutional limitations, the power to legislate and enact laws is
vested exclusively in the Legislative, which is elected by a direct vote of the people of the Philippine
Islands. As to the question here involved, the authority of the Governor-General to fix the maximum
price at which palay, rice and corn may be sold in the manner power in violation of the organic law.

This opinion is confined to the particular question here involved, which is the right of the
Governor-General, upon the terms and conditions stated in the Act, to fix the price of rice and make
it a crime to sell it at a higher price, and which holds that portions of the Act unconstitutional. It
does not decide or undertake to construe the constitutionality of any of the remaining portions of
the Act.

The judgment of the lower court is reversed, and the defendant discharged. So ordered.

Araullo, C.J., Johnson, Street and Ostrand, JJ., concur.

Romualdez, J., concurs in the result.

Separate Opinions

MALCOLM, J., concurring:

I concur in the result for reasons which reach both the facts and the law. In the first place, as to the
facts, — one cannot be convicted ex post facto of a violation of a law and of an executive order
issued pursuant to the law, when the alleged violation thereof occurred on August 6, 1919, while
the Act of the Legislature in question was not published until August 13, 1919, and the order was
not published until August 20, 1919. In the second place, as to the law, — one cannot be convicted
of a violation of a law or of an order issued pursuant to the law when both the law and the order fail
to set up an ascertainable standard of guilt. (U.S. vs. Cohen Grocery Company [1921], 255 U.S., 81,
holding section 4 of the Federal Food Control Act of August 10, 1917, as amended, invalid.)

In order that there may not be any misunderstanding of our position, I would respectfully invite
attention to the decision of the United States Supreme Court in German Alliance Ins. Co. vs. Lewis
([1914, 233 U.S., 389), concerning the legislative regulation of the prices charged by business
affected with a public interest, and to another decision of the United States Supreme Court, that of
Marshall Field & Co. vs. Clark ([1892], 143 U.S., 649), which adopts as its own the principles laid
down in the case of Locke's Appeal ([1873], 72 Pa. St., 491), namely; "The Legislature cannot
delegate its power to make a law; but it can make a law to delegate a power to determine some fact
or state of things upon which the law makes, or intends to make, its own action depend. To deny
this would be to stop the wheels of government. There are many things upon which wise and useful
legislation must depend which cannot be known to the law-making power, and must, therefore, be
a subject of inquiry and determination outside of the halls of legislation."

Avanceña and Villamor, JJ., concur.

Footnotes

1Village of Little Chute vs. Van Camp.

2Executive Order No. 53, series of 1919.

https://lawphil.net/judjuris/juri1997/jan1997/gr_112965_1997.html

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112965 January 30, 1997

PHILIPPINES TODAY, INC., BETTY GO-BELMONTE, MAXIMO V. SOLIVEN, ARTURO A.

BORJAL, and ISAAC G. BELMONTE, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FELIX R. ALEGRE, JR., respondents.

PANGANIBAN, J.:

May a "Memorandum for File" which did not mention the words "resign" and/or "resignation"
nonetheless juridically constitute voluntary resignation? In answering this question, the Court took
into account not merely the literal meaning of the words and phrases used but, more importantly,
the peculiar circumstances attendant to its writing as well as antecedent, contemporaneous and
subsequent actions, which were inconsistent with the desire for continued employment of the writer,
an intelligent executive occupying a position of trust in the Philippine Star and gifted with an
unusual writing ability.

These circumstances and actions are explained by this Court in re-solving this petition
for certiorari assailing the Decision1 of the National Labor Relations Commission (Second
Division)2 in NLRC NCR CA 001863-91 entitled "Felix R. Alegre, Jr. vs. Philippines Today, Inc."
promulgated on September 30, 1993, which reversed the decision of Labor Arbiter Pablo C. Espiritu,
Jr., dated May 15, 1991. In a Resolution dated November 16, 1993, petitioners' motion for
reconsideration was denied.3

The Facts

The undisputed facts are as follows: Petitioner Philippines Today, Inc. (PTI) is the owner of the
Philippine Star, a daily newspaper of national and international circulation, while the individual
petitioners are officers and members of the board of directors of PTI, namely, Betty Go-Belmonte,
chairman of the board; Arturo A. Borjal, president; Maximo V. Soliven, publisher and chairman,
editorial board; and Isaac G. Belmonte, treasurer. Private Respondent Felix R. Alegre, Jr. was
employed by PTI in July 1986 as a senior investigative reporter of the Philippine Star with a monthly
salary of eight thousand pesos (P8,000.00). He later became chief investigative writer and then
assistant to the publisher. His monthly compensation was correspondingly increased to ten
thousand pesos (P10,000.00).

On October 20, 1988, Respondent Alegre filed a request for a thirty-day leave of absence effective
on the same date, citing the advice of his personal physician for him to undergo further medical
consultations abroad.4 Four days later, on October 24, 1988, he wrote a "Memorandum for
File"5 addressed to Petitioner Betty Go-Belmonte with copies furnished to members of the board of
directors of PTI, the text of which is reproduced below:

MEMORANDUM FOR FILE.

FOR: BETTY GO-BELMONTE

Chairman & CEO, The STAR Group of Publications.

FROM: FELIX R. ALEGRE, JR.

DATE: 24 October 1988

SUBJECT: HAVING IT ALL

Truth like medicine hurts. But it cures.

The nice little chat we had last Thursday was most revealing. And certainly disconcerting.

What you had to tell me pained me, of course. But it has helped me just as much. It enabled me to
see things clearly in their right perspectives. More importantly, it provided me with the answers to
the questions that had long nagged me in my wakeful state.

For quite a time, I got this sinking feeling of being treated like a pariah of sorts by most of the senior
executives around here. The frustration at my inability to put a finger at such a feeling somehow
enhanced the angst within me. Until our chat. Now all the demons of my anxiety have been
exorcised. And I am left alone to lick the wounds of my betrayal. It isn't easy, I know. But I shall pull
through. Your candor and demonstrated faith in my person have been most assuaging. And for that
alone, I am most grateful.
It has never occurred to me that, in my acceptance of the invitation from no less than the publisher
himself, to join him at the Philippines Today, Inc., and the STAR Group of Publications, I was
unwittingly signing my own death warrant as well. The insults he had later on hurled at my person,
the malicious innuendoes he had spread around, casting doubts on my personal and professional
integrity, had mercilessly torn at my soul, causing metaphysical death.

My credentials as a working journalist, I'd like to believe, got me this job at the STAR in the first
place. And my bylines in the series of articles in the STAR From Day One of my official affiliation
with the Company, should establish that fact.

I was an investigative reporter at the Manila Times when the publisher offered me to work with him
at the STAR in 1986.

I was given the assignment as senior investigative reporter, then chief investigative writer, until I
was given a fancy title of assistant to the publisher.

As a corporate guy assisting the publisher in his day-to-day official function — and this is where I
feel very strongly about citing some specifics of the things I did in this area, to wit:

. . . (omitted are said "specifics" of Respondent Alegre's accomplishments as assistant to the

publisher deemed by this Court as not relevant to the appreciation of this memorandum in relation
to the consideration of the petition.)

As can be gleaned from this recital of some of the "things done" (despite my distaste for trumpeting
one's deeds, but has to be said, to set the record straight, in this instance), one can see that I
obviously don different hats at any one time, doing administration and operations functions, apart
from my journalistic duties. That I work as a teamplayer, and trying hard to be good (sic) it, cannot
be denied.

FOR DOING ALL THESE in the best spirit of corporate team-upmanship, what did I get in RETURN?

1. A pittance, salary/compensation-wise.

2. Being conveniently bypassed in promotions, pay hikes, and other perks.

3. Hindered from active participation in corporate affairs, by shooting at my ideas that otherwise
would have been workable and profitable for the Company and its people (CF. Item 2 of my memo
dtd 06 September 88 which had you interested in and supportive of).

4. Personally and professionally maligned, and accused of being an NPA (non-performing asshole,
pardon my French).

By and large, all that I got are the twin demons of a civilized, unconscionable society: ECONOMIC
INJUSTICE and PROFESSIONAL SABOTAGE.

When push comes to a shove . . . . . anything or everything comes crashing down. I'M HAVING IT
ALL!

Since I am on leave, I guess I won't be able to see you for a while. I wish to take this opportunity to
express my profound appreciation and sincere thanks for your genuine concren (sic) and honest
initiatives to do a good turn on my behalf. You have been most candid and forthright with me. I
can't be any less.

Thank you for everything. God bless.

Very sincerely,

(Sgd.) FELIX R. ALEGRE, JR.

copy furnished:

Members of the Board, Phils. Today, Inc.

Dr. Ronaldo G. Asuncion
Mr. Antonio Roces

On December 6, 1988, Respondent Alegre received from Petitioner Belmonte a letter,6 as follows:

November 9, 1988

MR. FELIX ALEGRE

Dear Jun,

During our board meeting yesterday, we discussed your letter dated October 24, 1988, and the
Board decided to accept your resignation and that it would take effect on November 22, 1988 upon
expiration of your one-month leave.

I would like to take this opportunity to say that we were happy to have had you with the STAR
Group of Publications and that we would like to wish you the best of luck.

God bless. Thank you.

Very truly yours,

BETTY GO BELMONTE
Chairman of the Board
The Philippine Star

The following day, Respondent Alegre wrote Petitioner Belmonte expressing surprise over the
acceptance of his "resignation" as stated in the above-quoted letter. His letter7 partly stated:

It certainly beats me to be told that my "'resignation" has been accepted, when in truth and in fact,
no such move, however implicit it may be, and no such letter has ever been made from my end.

xxx xxx xxx

I am writing this letter not, certainly, to make any appeal, but simply to go on record that I did not
resign. I filed a leave of absence. Yes. And that was dully ( sic) approved. Then I sent you
a memorandum for file expressing my sentiments on certain things, candid statements that came
to be (sic) expressed inspired by your candor and sincerity in our last little chat. Now, if you read
that memo to mean resignation, that is your responsibility. And I am not just about to contest it. . . .
This was followed by another letter on January 2, 1989, wherein Alegre, through
counsel,8 reiterated that he never resigned. He accused petitioners of illegal dismissal as can be
perceived allegedly from the discrimination against him in promotions, benefits and the ploy to oust
him by considering his memorandum as a resignation. He claimed that as a result, he suffered
mental anguish, social humiliation, besmirched reputation and moral shock. He thus demanded
indemnification for "the material and moral losses he has incurred". He further wrote that he was
not insisting to be taken back after being shown that he was no longer wanted in the company.

Counsel9 for petitioners, in a reply on January 19, 1989, explained that the acceptance of Alegre's
resignation was a collective decision of the board of directors since "nobody in his right mind would
write a memorandum of the sort he wrote and still not resign. To them, the memorandum was
tantamount to a resignation even if Mr. Alegre did not say so in so much words." With respect to his
claim for damages, petitioners' counsel said, "he has not shown any specific fact or circumstance
that would justify his claim, even remotely." Hence, "the Star cannot accede to the same."

On May 17, 1989, Respondent Alegre filed a complaint for illegal dismissal and damages against
herein petitioners. 10 The labor arbiter dismissed said complaint in his decision of May 15, 1991. We
quote significant portions of said decision:

This office has minutely disected (sic) the letter and while it be said that nothing therein mentions
about resigning from his position as Assistant to the Publisher, a perusal of the letter as a whole
shows that the intention of the complainant was to resign from his post. The subject as — "Having
it all" together with his frustrations and disappointment in the office coupled with his statement that
"when push comes to a shove, everything comes crushing (sic) down" and that: he is "having it all"
and with his concluding sentence of "Thank you for everything" are (sic) clear indications that he
was in fact resigning.

As a journalist and a writer, complainant need not write his letter of resignation in black and white.
He can do so in many other ways, words and actions to show his real intention of leaving his job.

xxx xxx xxx

Complainant's subsequent overt acts particularly his failure to report to his job after the expiration
of his leave of absence, his being gainfully employed with the Office of Senator Laurel (as Chief of
Staff) and his act of clearing and removing his personal files, things and belongings from his desk
prior to his (complainant) knowledge or receipt of the letter accepting his resignation(,) clearly
indicates that complainant was not terminated from his job but rather he resigned from his job. . .

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered dismissing the complaint for
illegal dismissal and damages for lack of merit, and ordering respondent, Philippines Today, Inc., to
pay complainant the amount of THIRTY THOUSAND (P30,000.00) PESOS by way of separation pay
in the interest of compassionate labor justice and; dismissing Respondents ( sic) counterclaim for
damages for lack of
merit. 11

On appeal by Alegre, the above decision was set aside by the NLRC. Adopting the definition in
Black's Law Dictionary (5th Edition) of resignation as a "formal renouncement or relinquishment of
an office," it held that herein Respondent Alegre did not resign as there was no actual act of
relinquishment to constitute complete and operative resignation. According to the NLRC, the
request for a leave of absence by Respondent Alegre meant that he intended to return after the
period of his absence. Such intent was bolstered by his filing of a request for an extension of his
leave. Further, when he received the letter of Petitioner Belmonte dated November 9, 1988
informing him of the acceptance by the Board of his resignation, he immediately wrote a letter to
Petitioner Belmonte, expressing in no uncertain terms that he did not resign. These circumstances
led the NLRC to hold that Respondent Alegre was constructively dismissed without just cause and to
order petitioners to pay him full backwages for three years from the time of dismissal, separation
pay in lieu of reinstatement, moral and exemplary damages and attorney's fees. 12

Issues

Petitioners argue that the NLRC committed grave abuse of discretion:

1. in finding them guilty of illegally dismissing Respondent Alegre;

2. in awarding Respondent Alegre moral and exemplary damages and attorney's fees without any
actual and legal basis; and,

3. even assuming that Respondent Alegre was illegally dismissed, in contravening and disregarding
this Court's ruling in Alex Ferrer, et al. vs. NLRC (Second Division) 13 by erroneously computing
backwages, as it did not deduct the amounts earned by Respondent Alegre while he was admittedly
employed in the office of Senator Sotero H. Laurel.

The pivotal question is whether the Memorandum for File of Respondent Alegre addressed to
Petitioner Belmonte constitutes a letter of resignation.

In construing it so, petitioners advance these arguments: (1) Respondent Alegre had spoken openly
to Petitioner Belmonte of his desire to leave the Philippine Star; (2) the contents of his
memorandum indicate an intention on his part not to return to his job even if he did not
categorically mention resignation; (3) he never returned to work after his authorized leave expired
and even cleared his desk of his personal belongings; and, (4) he obtained employment as chief of
staff of the office of Senator Sotero Laurel for which he was paid a higher salary. Having been led to
believe that Alegre wanted to resign and in honestly perceiving his memorandum as a resignation
letter, petitioners cannot be held liable for moral and exemplary damages because they believe
their action was in accordance with law. Lastly, petitioners contend that, even assuming they were
liable for illegal dismissal, the NLRC, in granting backwages, should have deducted the amount
earned by Alegre from his subsequent employment.

Private respondent, on the other hand, maintains that he had no intention of resigning from PTI. He
insists that: (1) in writing the memorandum, he was merely lamenting the work environment at PTI
and apprising Petitioner Belmonte of the situation; (2) a resignation should be unequivocal in
nature; (3) his non-return to work after his original leave expired is explained by his subsequent
request for an extension thereof due to medical reasons; (4) and the letter of Petitioner Belmonte
obviated any desire for him to return to his work since petitioners practically terminated his
employment. He further contends that petitioners' tenacious resistance in admitting their mistake
bespeaks of bad faith and shows their real intention to end his services, which entitles him to moral
and exemplary damages. In representation of public respondent, the Solicitor General supported
private respondent's position.
 The Court's Ruling

The petition is meritorious.

Pivotal Issue: Did the Memorandum for File Constitute Voluntary Resignation?

After a thorough scrutiny of the Memorandum for File of Respondent Alegre and a careful
deliberation on the peculiar circumstances attendant to its writing and the antecedent,
contemporaneous and subsequent actions of private respondent, we hold that said memorandum
juridically constituted a letter of resignation.

We see merit in the findings and conclusions drawn by the labor arbiter. They are more in accord
with prudence, common sense and sound judgment. The labor arbiter correctly deduced from
Alegre's memorandum and attendant actuations that he resigned. In contrast, the NLRC was too
strict in its interpretation of what constitutes "resignation." It adhered literally to the dictionary
meaning of the word without relating it to the peculiarity of the factual circumstances surrounding
the case. Courts and quasi-judicial bodies, in the exercise of their functions and in making decisions,
must not be too dogmatic as to restrict themselves to literal interpretations of words, phrases and
sentences. A complete and wholistic view must be taken in order to render a just and equitable
judgment.

Incendiary words and sarcastic remarks negate alleged desire to improve relations

Alegre's choice of words and way of expression betray his allegation that the memorandum was
simply an "opportunity to open the eyes of (Petitioner) Belmonte to the work environment in
petitioners' newspaper with the end in view of persuading (her) to take a hand at improving said
environment." Apprising his employer (or top-level management) of his frustrations in his job and
differences with his immediate superior is certainly not done in an abrasive, offensive and
disrespectful manner. A cordial or, at the very least, civil attitude, according due deference to one's
superiors, is still observed, especially among high-ranking management officers. The Court takes
judicial notice of the Filipino values of pakikisama and paggalang which are not only prevalent
among members of a family and community but within organizations as well, including work sites.
An employee is expected to extend due respect to management, the employer being the "proverbial
hen that lays the golden egg," 14 so to speak. An aggrieved employee who wants to unburden
himself of his disappointments and frustrations in his job or relations with his immediate superior
would normally approach said superior directly or otherwise ask some other officer possibly to
mediate and discuss the problem with the end in view of settling their differences without causing
ferocious conflicts. No matter how the employee dislikes his employer professionally, and even if he
is in a confrontational disposition, he cannot afford to be disrespectful and dare to talk with an
unguarded tongue and/or with a bileful pen. Here, respondent Alegre was anything but respectful
and polite. His memorandum is too affrontive, combative and confrontational. It certainly causes
resentment, even when read by an objective reader. His incendiary words and sarcastic remarks, to
quote some:

For quite a time, I got this sinking feeling of being treated like a pariah of sorts by most of the senior
executives around here. The frustration at my inability to put a finger at such a feeling somehow
enhanced the angst within me. . . . Now all the demons of my anxiety have been exorcised. And I
am left alone to lick the wounds of my betrayal. . . .
It has never occurred to me that, in my acceptance of the invitation from no less than the publisher
himself, to join him . . . , I was unwittingly signing my own death warrant as well. The insults he had
later on hurled at my person, the malicious innuendoes he had spread around, casting doubts on
my personal and professional integrity, had mercilessly torn at my soul, causing metaphysical
death.

negate any desire to improve work relations with Petitioner Soliven and other PTI executives. Such
strongly worded letter constituted an act of "burning his bridges" with the officers of the company.

Seeking relief incompatible with writing offensive letter

Any management officer, much so an immediate superior, would be offended, if not enraged, with
the insults and innuendoes stated in said memorandum; more so because the memorandum was
not directly addressed to him but to the chairman and CEO and copy furnished all other officers and
members of the board of directors. Any discerning mind can perceive that the letter is not simply a
recitation of respondent Alegre's gripes, disappointments, frustrations and heartaches against the
company and its officers particularly Petitioner Soliven, as postulated by the Solicitor General in his
comment. 15 If it were so, why was it not addressed directly to the person concerned? His
memorandum clearly indicated that his problems involved, or were supposedly caused by only one
person, Mr. Soliven, his immediate superior. But it was not even addressed to him! How can he
expect amends in their relations if that was all he wanted? The Solicitor General was simply turning
a blind eye to the obvious fact that said memorandum, for all intents and purposes, was intended,
wittingly or unwittingly, to end employment relations.

Respondent Alegre a well-educated journalist

It should not escape our attention that respondent Alegre is a professional journalist and persuasive
writer. On top of that, he was a law graduate. He must have known the drilling effect of his bitter
and sarcastic remarks upon the petitioners and must have intended the same. Ordinary words are
to be construed in their ordinary meaning. Common sense dictates that Alegre meant to resign
when he wrote the memorandum. Otherwise, he should have used a more tempered language and
a less confrontational tone. Moreover, he held a position of evident responsibility requiring the
utmost confidence of his immediate superior. As assistant to the publisher doing, in his very own
words, "administration and operations functions, apart from (my) journalistic duties," it is apparent
that Alegre was not employed simply for his writing skills. Top management certainly reposed full
trust and confidence in him and placed him in a position of considerable management influence.

PTI officers of uncommon intelligence and perception

Furthermore, his memorandum was addressed to the chairman and chief executive officer of PTI
and furnished all members of the board of directors. These officers which include the likes of the
late Betty Go-Belmonte, Maximo V. Soliven and Arturo A. Borjal, long-time and well-respected
journalists acclaimed locally and internationally, are themselves people of uncommon perception
and intellect. They will not miscomprehend the meaning and intent of Alegre's memorandum, which
was not by any means a simple way of seeking relief but well a way to get out of the company.
What else could he have meant with these concluding remarks:

By and large, all that I got are the twin demons of a civilized, unconscionable society: ECONOMIC
INJUSTICE and PROFESSIONAL SABOTAGE.
When push comes to a shove . . . . . anything or everything comes crashing down. I'M HAVING IT
ALL!

Respondent Alegre, being a journalist himself and having worked with them for sometime, knew
how his letter would be perceived and received. Besides, as discussed earlier, Alegre is likewise a
well-educated man of more than average intelligence. The conclusion is inevitable that he had more
than enough sense to anticipate the consequences and effects of his words and actions. Indeed,
what a man sows, he reaps.

Trust and confidence breached

In addition, respondent Alegre is a highly confidential employee who holds his job at the pleasure of
his employer or, stated otherwise, for as long as he enjoys the trust and confidence of his employer.
Corollarily, he likewise must repose trust and confidence in his employer or, at the very least, his
immediate superior. But any superior hurled with invectives from a confidential employee, much
more one occupying a managerial position at the same time, will definitely lose trust and confidence
in the latter. And there can be no way to interpret such letter other than as a withering of trust and
confidence by the employee in his boss. The use of offensive language can only mean expression of
disloyalty and disrespect. It renders the writer unworthy of the trust and confidence demanded by
his position. It is beyond human nature to expect two persons with underlying mistrust in each
other to continue to work together effectively, not to say, harmoniously.

Antecedent, Contemporaneous and Subsequent Actions Affirming Resignation

In addition to his memorandum and the circumstances attendant thereto which were just discussed,
the Court notes some peculiar actions confirming Alegre's intention to terminate his employment
with the Star.

(1) Medical reasons for leave of absence not proved

First, he claims that his leave of absence was due to medical reasons, for which he was supposed to
seek relief abroad. However, the Court scoured the records but found nothing to show that he
actually underwent any medical check-up. Much less, medical examination abroad. Nothing really
backs up such claim except his bare statements which, evidentially, are at best self-serving.

(2) Cleared desk of personal belongings

Second, respondent Alegre cleared his desk of his personal belongings even before he knew of the
acceptance of his resignation. 16 Such act certainly bares his intent to leave his job. Respondent
Alegre has not refuted nor offered any sufficient explanation for this action. We cannot but give due
credit to the petitioners' contention that such act was expressive of his intent to resign.

(3) Did not report back to work

Third, respondent Alegre did not return to his job after his authorized leave of absence expired in
November 1988. Although he sent another letter17 requesting for an extension of his leave, there is
no showing on record that the same was approved by petitioners. It is standard office procedure
that applications for leave of absence are subject to the approval of the employer. These are not
automatically granted upon filing. Except to cite in his request "travel log (sic) coupled with advice
of my physician," respondent Alegre has nor proven the emergency nature of the cause/s of his
extended leave. Again, we cannot but give due credence to petitioners' contention that this was
another operative evidence of Alegre's intent to resign.

His non-return to work, though, is not equivalent to abandonment of work. For in the latter, it is
necessary to prove "clear and deliberate intent" coupled with unjustified absence and overt acts
unerringly pointing to the fact that the employee simply does not want to work anymore. 18 In the
case at bench, Alegre voluntarily resigned through his memorandum albeit written in the guise of a
grievance letter. The law and jurisprudence on abandonment have thus no application in the
present case.

(4) Not deprived of chance to return to work

Fourth, if Respondent Alegre had really no intention to resign, he could have reported back to work.
His contention that he was effectively deprived of any chance to return to his work because of the
acceptance of his purported resignation cannot be sustained. He claims that he received the notice
dated November 9, 1988 only on December 6, 1988. But this means that for about two weeks after
his leave expired, he had all chances to return to his work. Yet he chose not to. The obvious reason
is that he had actually no intention of doing so.

(5) Alegre expressly manifested intention to resign

Prior to sending his memorandum, Respondent Alegre informed Petitioner Belmonte of his intention
to resign from the Philippine Star. This is shown by the testimony (cross examination) of the late
Mrs. Belmonte before the labor arbiter on January 13, 1990, as follows:.

ATTY. BORRETA:

And you took that action, meaning the Board acted on this Memo for File which you considered as
his letter of resignation without consulting or talking with the complainant first?

WITNESS:

The complainant had also applied for leave of absence and he talked with me that he was leaving
for the United States. Actually I remember he requested a conversation but he did not specify what
the conversation was about, Your Honor. He was telling me that he wanted to leave, has signed
another job. And I told him that that is not my prerogative and I am only Chairman of the Board;
and he came upon the recommendation of our Publisher and he was at that time Assistant to the
Publisher; that he should talk to the Publisher first and I even advised him to patch up whatever
differences he might have. In that conversation, he said something about leaving and he even said
tome that when he leaves, he would ask his two (2) sons who were working with us to leave too.
And I think I made a comment, and that must be what he was referring to. I said; oh, but your sons
are very hardworking. In fact I said the Publisher, Max Soliven, told me that "sana you were as
good as your sons" maybe that was his feeling. That is my way of trying to tell him that your sons
are very hardworking because he said when I leave I am going to ask them to leave too. Maybe
because of that he gave me the impression that he wanted to leave.

ATTY. BORRETA:

And this happened before he wrote this memo for file on October 24, 1988?
WITNESS:

Yes, sir

ATTY. BORRETA:

And because of that you got the impression that he had the intention to resign?

WITNESS:

Yes, sir. 19

(6) Assumed job in another office

Finally, the most telling of the actions undertaken by Respondent Alegre which evidently
demonstrate his intent to resign was his immediate employment as chief of staff of the office of
then Senator Sotero H. Laurel, with a much higher compensation at P14,600.00 per month plus
P2,000.00 per month driver's allowance. He admitted in his testimony before the labor arbiter on
November 6, 1989 that he was employed therein about a year before (the date of his testimony) or
sometime in November 1988. 20 The date coincided with the period of his leave of absence or
immediately thereafter. If he had no intention of resigning and was on leave for medical reasons as
he alleged, why then did he commence a new job in another office at about the same period? His
assumption of a new job prior to receiving Mrs. Belmonte's letter on December 6, 1988 is clearly
inconsistent with any desire to remain in employment with PTI. This is particularly evident because
both jobs required full-time work. Moreover, working in a newspaper which prides in its
independence from partisan activities is incompatible with a concurrent political office held by
respondent.

Side Issue: May a Resignation Be Unilaterally Withdrawn?

Having established that Respondent Alegre resigned, we now tackle the corollary issue of whether
he can unilaterally withdraw his resignation. We hold that he cannot do so.

The case of Intertrod Maritime, Inc. vs. NLRC 21 is in point. The employee therein who was a ship
engineer, while at Port Pylus, Greece, requested for relief due to "personal reasons." The master of
the ship, who had authority to "sign off" an employee requesting relief, approved his request but
informed the employee that repatriation expenses were for his account and that he had to give
thirty days notice in view of clause 5 of the employment contract. When the vessel was at Port Said,
Egypt four days later, the master "signed him off" and paid him in cash all amounts due him less
repatriation expenses. On his return to the Philippines, the employee filed a complaint charging his
employer with breach of employment contract and violation of the National Seamen Board rules and
regulations. He claimed that his request for relief was only for the sole purpose of enabling him to
take care of a fellow member of the crew who was hospitalized in Greece. Hence, after he was
disallowed from disembarking thereat, the reason no longer existed and, consequently, he was
illegally dismissed when he was forced to "sign off" in Egypt even as he signified his intention of
continuing his work.

The Court ruled against the employee. It held that resignations, once accepted, may not be
withdrawn without the consent of the employer. If the employer accepts the withdrawal, the
employee retains his job. If the employer does not, the employee cannot claim illegal dismissal. To
say that an employee who has resigned is illegally dismissed, is to encroach upon the right of
employers to hire persons who will be of service to them.

Obviously, this is a recognition of the contractual nature of employment which requires mutuality of
consent between the parties. An employment contract is consensual and voluntary. Hence, if the
employee "finds himself in a situation where he believes that personal reasons cannot be sacrificed
in favor of the exigency of the service, then he has no other choice but to disassociate himself from
his employment". 22 If accepted by the employer, the consequent effect of resignation is severance
of the contract of employment.

A resigned employee who desires to take his job back has to re-apply therefor, and he shall have
the status of a stranger who cannot unilaterally demand an appointment. He cannot arrogate unto
himself the same position which he earlier decided to leave. To allow him to do so would be to
deprive the employer of his basic right to choose whom to employ. Such is tantamount to undue
oppression of the employer. It has been held that an employer is free to regulate, according to his
own discretion and judgment, all aspects of employment including hiring. 23 The law, in protecting
the rights of the laborer, impels neither the oppression nor self-destruction of the employer. 24

Consistent with our ruling in Intertrod, the resignation of respondent Alegre after its acceptance by
petitioners can no longer be withdrawn without the consent of the latter. In fairness to the
employer, an employee cannot backtrack on his resignation at his whim and without the conformity
of the former.

The instant case is unlike Molave Tours Corporation vs. NLRC 25 and People's
Security, Inc. vs. NLRC 26 In Molave, acting on reports that the employee was on several occasions
found drunk within work premises, the employer required him to explain in writing said charges.
Notwithstanding his explanation and request for a confrontation with his accusers, the employee
was made to sign a resignation letter. Two months after, he filed a complaint for illegal dismissal.
The labor arbiter, affirmed by the NLRC, found that the employee was merely forced and
intimidated into resigning. The Court reiterated that resignation must be voluntary on the part of
the employee. It thus ordered the employer to reinstate the employee and award backwages and
other benefits due him since there was no effective resignation.

Likewise in People's Security, there was a finding of involuntary resignation. The employees therein
who were security guards were not given assignments by their employer after the latter's security
services contract with Meralco expired. The employees requested for loans to be deducted from
their security bond deposits, which requests were denied by the employer who insisted that they
must turn in their resignations first before their security bond deposits could be released. Not
having been given new work assignments and being in dire financial need, the employees
submitted their resignation letters. Three months later, they filed money claims which were later
amended to include illegal dismissal. The employer contended that the employees voluntarily
severed their employment because they turned in their resignation letters and assumed jobs with
another security agency. Again, the Court held that resignation is a voluntary act of the employee.
When the employees were told that they would not be granted loans unless they resigned, they had
no choice since they desperately needed money to meet their respective families' needs. They were
also forced to accept jobs at another agency as a practical solution to their employment problems
which were caused by the employer's refusal and failure to provide them with new assignments.
In the case of Indophil vs. NLRC, 27 on the other hand, the employee voluntarily submitted a
resignation letter but later tried to retrieve the same. He contended though, that he was thereafter
prevented by the company guard from entering the work premises because of his resignation. He
sued for illegal dismissal. His employer claimed abandonment of work since he was required to
report and to explain his unauthorized absences but did not. In holding that there was no dismissal,
the Court regarded the employer's act of requiring the employee to report and explain his
unauthorized absences as non-acceptance of the previous resignation of the employee. Thus, the
employer still considered him as its employee in spite of the filed resignation letter. With respect to
the latter's allegation that he was prevented by the company guard from entering the premises, the
Court chided him for not having inquired into its veracity and for simply relying on the bare
statement of the guard. It said that the employee should be more vigilant of his rights.

The above three cases are dissimilar to the case at bar. In the first two cases, there were
involuntary resignations while in the third there was an unaccepted resignation. In the instant case,
however, the resignation was voluntary and it was accepted by the employer. Thus, our grant of the
petition.

Since we find no case of illegal dismissal, we will no longer pass upon the two other issues raised by
petitioners which are mere consequences of the contrary finding made by the NLRC. Necessarily,
there can be no award of any moral or exemplary damages, backwages and separation pay.

Epilogue

Both the Constitution and the Labor Code mandate a bias in favor of labor. Hence, this Court , as a
matter of judicial policy, leans backwards to protect labor and the working class against the
machinations and incursions of their more financially entrenched employers. In the present case,
however, it is obvious to us that private respondent's memorandum could not have been intended
merely to persuade management to improve the work environment at the Philippine Star. Rather, it
was evidently a recitation of the facts and reasons why respondent Alegre could no longer continue
working under what he believed were unbearable conditions in the work place. The offensive
language used by a well-educated man endowed with unusual writing skill could not have been
intended merely for the "suggestion box." That it was addressed and given to persons of
uncommon perception themselves takes the letter out of ordinary employer-employee
communications. It is true that there was no direct mention of the word "resignation." However, the
incendiary words employed denote a clear intent to end the writer's association of trust and
confidence with his superiors and employer. This intent becomes even more manifest when viewed
in light of attendant acts of Alegre, particularly his prolonged leave of absence, his clearing of his
own desk of personal belongings, his failure to report back to work after the expiration of his
approved leave, his verbal expression of his intent to resign, and most notably, his assumption of a
higher paying job in a political office which was incompatible with his work at the Star.

In deciding cases, this Court does not matter-of-factly apply and interpret laws in a vacuum.
General principles do not decide specific cases. Rather, laws are interpreted always in the context of
the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be
decided simply on the basis of isolated clinical classroom principles. The circumstances of time,
place, event, person, and particularly attendant circumstances and actions before, during and after
the operative fact should all be taken in their totality so that justice can be rationally and fairly
dispensed.
WHEREFORE, premises considered, the petition is GRANTED. The assailed Decision and Resolution
of the NLRC are SET ASIDE. The temporary restraining order issued by this Court is made
PERMANENT. No costs.

SO ORDERED.

Davide, Jr., Melo and Francisco, JJ., concur.

Narvasa, C.J., concurs in the result.

Footnotes

1 Rollo, pp. 21-34.

2 Composed of Commissioner Domingo H. Zapanta, ponente; Commissioners Edna Bonto-Perez

and Rogelio I. Rayala, concurring.

3 Rollo, p. 36.

4 Assailed Decision, p. 2.

5 Records, pp. 40-42.

6 Records, p. 28.

7 Records, p. 160.

8 Attys. Carag, Caballes, Jamora, Rodriguez and Somera; records, pp. 29-30.

9 Atty. Antonino B. Villano; records, pp. 31-32.

10 NLRC Case No. 00-05-02317-89.

11 Rollo, pp. 44, 46 & 48.

12 Rollo, pp. 31-34.

13 224 SCRA 410, July 05, 1993 (not August 13, 1993 as stated in the petition).

14 Homeowners Savings and Loan Association vs. NLRC, G.R. No. 97067, September 26, 1996,
Justice Regino C. Hermosisima, Jr., ponente.

15 Comment of the Solicitor General, p. 6; rollo, pp. 89-103.

16 Decision of the labor arbiter, pp. 10-11; rollo pp. 46-47.

17 Records, p. 159.

18 Kingsize vs. NLRC, 238 SCRA 349, November 24, 1994; Nueva Ecija vs. Minister of Labor, 184
SCRA 25, April 3, 1990, citing Flexo Manufacturing vs. NLRC, 135 SCRA 145, February 28, 1985,
Penaflor vs. NLRC, 120 SCRA 68, January 17, 1983.
19 TSN, January 13, 1990, pp. 90-94.

20 TSN, November 6, 1989, pp. 5-7.

21 198 SCRA 318, June 19, 1991.

22 Ibid citing Dosch vs. NLRC, 123 SCRA 296, July 5, 1983.

23 See San Miguel Brewery Sales Force Union (PTGWO) vs. Ople, 170 SCRA 25, February 8, 1989;
Homeowners, supra note 14.

24 Supra note 21 citing Philippine Airlines, Inc. vs. PAL Employees Association, 57 SCRA 489, June
28, 1974.

25 250 SCRA 326, November 24, 1995.

26 226 SCRA 146, September 8, 1993.

27 226 SCRA 723, September 27, 1993.

https://www.lawphil.net/judjuris/juri1953/aug1953/gr_l-6355-6_1953.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-6355-56 August 31, 1953

PASTOR M. ENDENCIA and FERNANDO JUGO, plaintiffs-appellees,

vs.
SATURNINO DAVID, as Collector of Internal Revenue, defendant-appellant.

Office of the Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for appellant.
Manuel O. Chan for appellees.

MONTEMAYOR, J.:

This is a joint appeal from the decision of the Court of First Instance of Manila declaring section 13
of Republic Act No. 590 unconstitutional, and ordering the appellant Saturnino David as Collector of
Internal Revenue to re-fund to Justice Pastor M. Endencia the sum of P1,744.45, representing the
income tax collected on his salary as Associate Justice of the Court of Appeals in 1951, and to
Justice Fernando Jugo the amount of P2,345.46, representing the income tax collected on his salary
from January 1,1950 to October 19, 1950, as Presiding Justice of the Court of Appeals, and from
October 20, 1950 to December 31,1950, as Associate Justice of the Supreme Court, without special
pronouncement as to costs.
Because of the similarity of the two cases, involving as they do the same question of law, they were
jointly submitted for determination in the lower court. Judge Higinio B. Macadaeg presiding, in a
rather exhaustive and well considered decision found and held that under the doctrine laid down by
this Court in the case of Perfecto vs. Meer, 85 Phil., 552, the collection of income taxes from the
salaries of Justice Jugo and Justice Endencia was a diminution of their compensation and therefore
was in violation of the Constitution of the Philippines, and so ordered the refund of said taxes.

We see no profit and necessity in again discussing and considering the proposition and the
arguments pro and cons involved in the case of Perfecto vs. Meer, supra, which are raised, brought
up and presented here. In that case, we have held despite the ruling enunciated by the United
States Federal Supreme Court in the case of O 'Malley vs. Woodrought 307 U. S., 277, that taxing
the salary of a judicial officer in the Philippines is a diminution of such salary and so violates the
Constitution. We shall now confine our-selves to a discussion and determination of the remaining
question of whether or not Republic Act No. 590, particularly section 13, can justify and legalize the
collection of income tax on the salary of judicial officers.

According to the brief of the Solicitor General on behalf of appellant Collector of Internal Revenue,
our decision in the case of Perfecto vs. Meer, supra, was not received favorably by Congress,
because immediately after its promulgation, Congress enacted Republic Act No. 590. To bring home
his point, the Solicitor General reproduced what he considers the pertinent discussion in the Lower
House of House Bill No. 1127 which became Republic Act No. 590.

For purposes of reference, we are reproducing section 9, Article VIII of our Constitution:.

SEC. 9. The members of the Supreme Court and all judges of inferior courts shall hold office during
good behavior, until they reach the age of seventy years, or become incapacitated to discharge the
duties of their office. They shall receive such compensation as may be fixed by law, which shall not
be diminished during their continuance in office. Until the Congress shall provide otherwise, the
Chief Justice of the Supreme Court shall receive an annual compensation of sixteen thousand pesos,
and each Associate Justice, fifteen thousand pesos.

As already stated construing and applying the above constitutional provision, we held in the
Perfecto case that judicial officers are exempt from the payment of income tax on their salaries,
because the collection thereof by the Government was a decrease or diminution of their salaries
during their continuance in office, a thing which is expressly prohibited by the Constitution.
Thereafter, according to the Solicitor General, because Congress did not favorably receive the
decision in the Perfecto case, Congress promulgated Republic Act No. 590, if not to counteract the
ruling in that decision, at least now to authorize and legalize the collection of income tax on the
salaries of judicial officers. We quote section 13 of Republic Act No. 590:

SEC 13. No salary wherever received by any public officer of the Republic of the Philippines shall be
considered as exempt from the income tax, payment of which is hereby declared not to be
dimunition of his compensation fixed by the Constitution or by law.

So we have this situation. The Supreme Court in a decision interpreting the Constitution,
particularly section 9, Article VIII, has held that judicial officers are exempt from payment of income
tax on their salaries, because the collection thereof was a diminution of such salaries, specifically
prohibited by the Constitution. Now comes the Legislature and in section 13, Republic Act No. 590,
says that "no salary wherever received by any public officer of the Republic (naturally including a
judicial officer) shall be considered as exempt from the income tax," and proceeds to declare that
payment of said income tax is not a diminution of his compensation. Can the Legislature validly do
this? May the Legislature lawfully declare the collection of income tax on the salary of a public
official, specially a judicial officer, not a decrease of his salary, after the Supreme Court has found
and decided otherwise? To determine this question, we shall have to go back to the fundamental
principles regarding separation of powers.

Under our system of constitutional government, the Legislative department is assigned the power
to make and enact laws. The Executive department is charged with the execution of carrying out of
the provisions of said laws. But the interpretation and application of said laws belong exclusively to
the Judicial department. And this authority to interpret and apply the laws extends to the
Constitution. Before the courts can determine whether a law is constitutional or not, it will have to
interpret and ascertain the meaning not only of said law, but also of the pertinent portion of the
Constitution in order to decide whether there is a conflict between the two, because if there is, then
the law will have to give way and has to be declared invalid and unconstitutional.

Defining and interpreting the law is a judicial function and the legislative branch may not limit or
restrict the power granted to the courts by the Constitution. (Bandy vs. Mickelson et al., 44N. W.,
2nd 341, 342.)

When it is clear that a statute transgresses the authority vested in the legislature by the
Constitution, it is the duty of the courts to declare the act unconstitutional because they cannot
shrink from it without violating their oaths of office. This duty of the courts to maintain the
Constitution as the fundamental law of the state is imperative and unceasing; and, as Chief Justice
Marshall said, whenever a statute is in violation of the fundamental law, the courts must so adjudge
and thereby give effect to the Constitution. Any other course would lead to the destruction of the
Constitution. Since the question as to the constitutionality of a statute is a judicial matter, the courts
will not decline the exercise of jurisdiction upon the suggestion that action might be taken by
political agencies in disregard of the judgment of the judicial tribunals. (11 Am. Jur., 714-715.)

Under the American system of constitutional government, among the most important functions in
trusted to the judiciary are the interpreting of Constitutions and, as a closely connected power, the
determination of whether laws and acts of the legislature are or are not contrary to the provisions of
the Federal and State Constitutions. (11 Am. Jur., 905.).

By legislative fiat as enunciated in section 13, Republic Act NO. 590, Congress says that taxing the
salary of a judicial officer is not a decrease of compensation. This is a clear example of
interpretation or ascertainment of the meaning of the phrase "which shall not be diminished during
their continuance in office," found in section 9, Article VIII of the Constitution, referring to the
salaries of judicial officers. This act of interpreting the Constitution or any part thereof by the
Legislature is an invasion of the well-defined and established province and jurisdiction of the
Judiciary.

The rule is recognized elsewhere that the legislature cannot pass any declaratory act, or act
declaratory of what the law was before its passage, so as to give it any binding weight with the
courts. A legislative definition of a word as used in a statute is not conclusive of its meaning as used
elsewhere; otherwise, the legislature would be usurping a judicial function in defining a term. (11
Am. Jur., 914, emphasis supplied)
The legislature cannot, upon passing a law which violates a constitutional provision, validate it so as
to prevent an attack thereon in the courts, by a declaration that it shall be so construed as not to
violate the constitutional inhibition. (11 Am. Jur., 919, emphasis supplied)

We have already said that the Legislature under our form of government is assigned the task and
the power to make and enact laws, but not to interpret them. This is more true with regard to the
interpretation of the basic law, the Constitution, which is not within the sphere of the Legislative
department. If the Legislature may declare what a law means, or what a specific portion of the
Constitution means, especially after the courts have in actual case ascertain its meaning by
interpretation and applied it in a decision, this would surely cause confusion and instability in
judicial processes and court decisions. Under such a system, a final court determination of a case
based on a judicial interpretation of the law of the Constitution may be undermined or even
annulled by a subsequent and different interpretation of the law or of the Constitution by the
Legislative department. That would be neither wise nor desirable, besides being clearly violative of
the fundamental, principles of our constitutional system of government, particularly those
governing the separation of powers.

So much for the constitutional aspect of the case. Considering the practical side thereof, we believe
that the collection of income tax on a salary is an actual and evident diminution thereof. Under the
old system where the in-come tax was paid at the end of the year or sometime thereafter, the
decrease may not be so apparent and clear. All that the official who had previously received his full
salary was called upon to do, was to fulfill his obligation and to exercise his privilege of paying his
income tax on his salary. His salary fixed by law was received by him in the amount of said tax
comes from his other sources of income, he may not fully realize the fact that his salary had been
decreased in the amount of said income tax. But under the present system of withholding the
income tax at the source, where the full amount of the income tax corresponding to his salary is
computed in advance and divided into equal portions corresponding to the number of pay-days
during the year and actually deducted from his salary corresponding to each payday, said official
actually does not receive his salary in full, because the income tax is deducted therefrom every
payday, that is to say, twice a month. Let us take the case of Justice Endencia. As Associate Justice
of the Court of Appeals, his salary is fixed at p12,000 a year, that is to say, he should receive P1,000
a month or P500 every payday, — fifteenth and end of month. In the present case, the amount
collected by the Collector of Internal Revenue on said salary is P1,744.45 for one year. Divided by
twelve (months) we shall have P145.37 a month. And further dividing it by two paydays will bring it
down to P72.685, which is the income tax deducted form the collected on his salary each half
month. So, if Justice Endencia's salary as a judicial officer were not exempt from payment of the
income tax, instead of receiving P500 every payday, he would be actually receiving P427.31 only,
and instead of receiving P12,000 a year, he would be receiving but P10,255.55. Is it not therefor
clear that every payday, his salary is actually decreased by P72.685 and every year is decreased by
P1,744.45?

Reading the discussion in the lower House in connection with House Bill No. 1127, which became
Republic Act No. 590, it would seem that one of the main reasons behind the enactment of the law
was the feeling among certain legislators that members of the Supreme Court should not enjoy any
exemption and that as citizens, out of patriotism and love for their country, they should pay income
tax on their salaries. It might be stated in this connection that the exemption is not enjoyed by the
members of the Supreme Court alone but also by all judicial officers including Justices of the Court
of Appeals and judges of inferior courts. The exemption also extends to other constitutional officers,
like the President of the Republic, the Auditor General, the members of the Commission on
Elections, and possibly members of the Board of Tax Appeals, commissioners of the Public Service
Commission, and judges of the Court of Industrial Relations. Compares to the number of all these
officials, that of the Supreme Court Justices is relatively insignificant. There are more than 990
other judicial officers enjoying the exemption, including 15 Justices of the Court of Appeals, about
107 Judges of First Instance, 38 Municipal Judges and about 830 Justices of the Peace. The reason
behind the exemption in the Constitution, as interpreted by the United States Federal Supreme
Court and this Court, is to preserve the independence of the Judiciary, not only of this High Tribunal
but of the other courts, whose present membership number more than 990 judicial officials.

The exemption was not primarily intended to benefit judicial officers, but was grounded on public
policy. As said by Justice Van Devanter of the United States Supreme Court in the case of Evans vs.
Gore (253 U. S., 245):

The primary purpose of the prohibition against diminution was not to benefit the judges, but, like
the clause in respect of tenure, to attract good and competent men to the bench and to promote
that independence of action and judgment which is essential to the maintenance of the guaranties,
limitations and pervading principles of the Constitution and to the administration of justice without
respect to person and with equal concern for the poor and the rich. Such being its purpose, it is to
be construed, not as a private grant, but as a limitation imposed in the public interest; in other
words, not restrictively, but in accord with its spirit and the principle on which it proceeds.

Having in mind the limited number of judicial officers in the Philippines enjoying this exemption,
especially when the great bulk thereof are justices of the peace, many of them receiving as low as
P200 a month, and considering further the other exemptions allowed by the income tax law, such
as P3,000 for a married person and P600 for each dependent, the amount of national revenue to be
derived from income tax on the salaries of judicial officers, were if not for the constitutional
exemption, could not be large or substantial. But even if it were otherwise, it should not affect,
much less outweigh the purpose and the considerations that prompted the establishment of the
constitutional exemption. In the same case of Evans vs. Gore, supra, the Federal Supreme Court
declared "that they (fathers of the Constitution) regarded the independence of the judges as far as
greater importance than any revenue that could come from taxing their salaries.

When a judicial officer assumed office, he does not exactly ask for exemption from payment of
income tax on his salary, as a privilege . It is already attached to his office, provided and secured by
the fundamental law, not primarily for his benefit, but based on public interest, to secure and
preserve his independence of judicial thought and action. When we come to the members of the
Supreme Court, this excemption to them is relatively of short duration. Because of the limited
membership in this High Tribunal, eleven, and due to the high standards of experience, practice
and training required, one generally enters its portals and comes to join its membership quite late in
life, on the aver-age, around his sixtieth year, and being required to retire at seventy, assuming
that he does not die or become incapacitated earlier, naturally he is not in a position to receive the
benefit of exemption for long. It is rather to the justices of the peace that the exemption can give
more benefit. They are relatively more numerous, and because of the meager salary they receive,
they can less afford to pay the income tax on it and its diminution by the amount of the income tax
if paid would be real, substantial and onerous.

Considering exemption in the abstract, there is nothing unusual or abhorrent in it, as long as it is
based on public policy or public interest. While all other citizens are subject to arrest when charged
with the commission of a crime, members of the Senate and House of Representatives except in
cases of treason, felony and breach of the peace are exempt from arrest, during their attendance in
the session of the Legislature; and while all other citizens are generally liable for any speech,
remark or statement, oral or written, tending to cause the dishonor, discredit or contempt of a
natural or juridical person or to blacken the memory of one who is dead, Senators and
Congressmen in making such statements during their sessions are extended immunity and
exemption.

And as to tax exemption, there are not a few citizens who enjoy this exemption. Persons, natural
and juridical, are exempt from taxes on their lands, buildings and improvements thereon when used
exclusively for educational purposes, even if they derive income therefrom. (Art. VI, Sec. 22 [3].)
Holders of government bonds are exempted from the payment of taxes on the income or interest
they receive therefrom (sec. 29 (b) [4], National Internal Revenue Code as amended by Republic
Act No. 566). Payments or income received by any person residing in the Philippines under the laws
of the United States administered by the United States Veterans Administration are exempt from
taxation. (Republic Act No. 360). Funds received by officers and enlisted men of the Philippine Army
who served in the Armed Forces of the United States, allowances earned by virtue of such services
corresponding to the taxable years 1942 to 1945, inclusive, are exempted from income tax.
(Republic Act No. 210). The payment of wages and allowances of officers and enlisted men of the
Army Forces of the Philippines sent to Korea are also exempted from taxation. (Republic Act No. 35).
In other words, for reasons of public policy and public interest, a citizen may justifiably by
constitutional provision or statute be exempted from his ordinary obligation of paying taxes on his
income. Under the same public policy and perhaps for the same it not higher considerations, the
framers of the Constitution deemed it wise and necessary to exempt judicial officers from paying
taxes on their salaries so as not to decrease their compensation, thereby insuring the independence
of the Judiciary.

In conclusion we reiterate the doctrine laid down in the case of Perfecto vs. Meer, supra, to the
effect that the collection of income tax on the salary of a judicial officer is a diminution thereof and
so violates the Constitution. We further hold that the interpretation and application of the
Constitution and of statutes is within the exclusive province and jurisdiction of the Judicial
department, and that in enacting a law, the Legislature may not legally provide therein that it be
interpreted in such a way that it may not violate a Constitutional prohibition, thereby tying the
hands of the courts in their task of later interpreting said statute, specially when the interpretation
sought and provided in said statute runs counter to a previous interpretation already given in a case
by the highest court of the land.

In the views of the foregoing considerations, the decision appealed from is hereby affirmed, with no
pronouncement as to costs.

Pablo, Bengzon, Padilla, Tuason, Reyes, and Labrador, JJ., concur.

Separate Opinions

BAUTISTA ANGELO, J., concurring:

Without expressing any opinion on the doctrine laid down by this Court in the case of Perfecto vs.
Meer, G. R. No. L-2314, in view of the part I had in that case as former Solicitor General, I wish
however to state that I concur in the opinion of the majority to the effect that section 13, Republic
Act No. 590, in so far as it provides that taxing of the salary of a judicial officer shall be considered
"not to be a diminution of his compensation fixed by the Constitution or by law", constitutes an
invasion of the province and jurisdiction of the judiciary. In this sense, I am of the opinion that said
section is null and void, it being a transgression of the fundamental principle underlying the
separation of powers.

PARAS, C.J., concurring and dissenting:

I dissent for the same reasons stated in the dissenting opinion of Mr. Justice Ozaeta in Perfecto vs.
Meer, 85 Phil., 552, in which I concurred. But I disagree with the majority in ruling that no
legislation may provide that it be held valid although against a provision of the Constitution.

https://www.lawphil.net/judjuris/juri1974/feb1974/gr_l_30061_1974.html

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-30061 February 27, 1974

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellees,

vs.
JOSE JABINAL Y CARMEN, defendant-appellant.

Office of the Solicitor General Felix V. Makasiar and Solicitor Antonio M. Martinez for
plaintiff-appellee.

Pedro Panganiban y Tolentino for defendant-appellant.

ANTONIO, J.:p

Appeal from the judgment of the Municipal Court of Batangas (provincial capital), Batangas, in
Criminal Case No. 889, finding the accused guilty of the crime of Illegal Possession of Firearm and
Ammunition and sentencing him to suffer an indeterminate penalty ranging from one (1) year and
one (1) day to two (2) years imprisonment, with the accessories provided by law, which raises in
issue the validity of his conviction based on a retroactive application of Our ruling in People v.
Mapa.1
The complaint filed against the accused reads:

That on or about 9:00 o'clock, p.m., the 5th day of September, 1964, in the poblacion, Municipality
of Batangas, Province of Batangas, Philippines, and within the jurisdiction of this Honorable Court,
the above-named accused, a person not authorized by law, did then and there wilfully, unlawfully
and feloniously keep in his possession, custody and direct control a revolver Cal. .22, RG8 German
Made with one (1) live ammunition and four (4) empty shells without first securing the necessary
permit or license to possess the same.

At the arraignment on September 11, 1964, the accused entered a plea of not guilty, after which
trial was accordingly held.

The accused admitted that on September 5, 1964, he was in possession of the revolver and the
ammunition described in the complaint, without the requisite license or permit. He, however,
claimed to be entitled to exoneration because, although he had no license or permit, he had an
appointment as Secret Agent from the Provincial Governor of Batangas and an appointment as
Confidential Agent from the PC Provincial Commander, and the said appointments expressly carried
with them the authority to possess and carry the firearm in question.

Indeed, the accused had appointments from the above-mentioned officials as claimed by him. His
appointment from Governor Feliciano Leviste, dated December 10, 1962, reads:

Reposing special trust and confidence in your civic spirit, and trusting that you will be an effective
agent in the detection of crimes and in the preservation of peace and order in the province of
Batangas, especially with respect to the suppression of trafficking in explosives, jueteng, illegal
cockfighting, cattle rustling, robbery and the detection of unlicensed firearms, you are hereby
appointed a SECRET AGENT of the undersigned, the appointment to take effect immediately, or as
soon as you have qualified for the position. As such Secret Agent, your duties shall be those
generally of a peace officer and particularly to help in the preservation of peace and order in this
province and to make reports thereon to me once or twice a month. It should be clearly understood
that any abuse of authority on your part shall be considered sufficient ground for the automatic
cancellation of your appointment and immediate separation from the service. In accordance with
the decision of the Supreme Court in G.R. No. L-12088 dated December 23, 1959, you will have the
right to bear a firearm, particularly described below, for use in connection with the performance of
your duties.

By virtue hereof, you may qualify and enter upon the performance of your duties by taking your
oath of office and filing the original thereof with us.

Very truly yours,

(Sgd.) FELICIANO LEVISTE

Provincial Governor

FIREARM AUTHORIZED TO CARRY:

Kind: — ROHM-Revolver

Make: — German
SN: — 64

Cal:— .22

On March 15, 1964, the accused was also appointed by the PC Provincial Commander of Batangas
as Confidential Agent with duties to furnish information regarding smuggling activities, wanted
persons, loose firearms, subversives and other similar subjects that might affect the peace and
order condition in Batangas province, and in connection with these duties he was temporarily
authorized to possess a ROHM revolver, Cal. .22 RG-8 SN-64, for his personal protection while in
the performance of his duties.

The accused contended before the court a quo that in view of his above-mentioned appointments
as Secret Agent and Confidential Agent, with authority to possess the firearm subject matter of the
prosecution, he was entitled to acquittal on the basis of the Supreme Court's decision in People vs.
Macarandang2 and People vs. Lucero.3 The trial court, while conceding on the basis of the evidence
of record the accused had really been appointed Secret Agent and Confidential Agent by the
Provincial Governor and the PC Provincial Commander of Batangas, respectively, with authority to
possess and carry the firearm described in the complaint, nevertheless held the accused in its
decision dated December 27, 1968, criminally liable for illegal possession of a firearm and
ammunition on the ground that the rulings of the Supreme Court in the cases
of Macarandang and Lucero were reversed and abandoned in People vs. Mapa, supra. The court
considered as mitigating circumstances the appointments of the accused as Secret Agent and
Confidential Agent.

Let us advert to Our decisions in People v. Macarandang, supra, People v. Lucero,

supra, and People v. Mapa, supra. In Macarandang, We reversed the trial court's judgment of
conviction against the accused because it was shown that at the time he was found to possess a
certain firearm and ammunition without license or permit, he had an appointment from the
Provincial Governor as Secret Agent to assist in the maintenance of peace and order and in the
detection of crimes, with authority to hold and carry the said firearm and ammunition. We therefore
held that while it is true that the Governor has no authority to issue any firearm license or permit,
nevertheless, section 879 of the Revised Administrative Code provides that "peace officers" are
exempted from the requirements relating to the issuance of license to possess firearms; and
Macarandang's appointment as Secret Agent to assist in the maintenance of peace and order and
detection of crimes, sufficiently placed him in the category of a "peace officer" equivalent even to a
member of the municipal police who under section 879 of the Revised Administrative Code are
exempted from the requirements relating to the issuance of license to possess firearms. In Lucero,
We held that under the circumstances of the case, the granting of the temporary use of the firearm
to the accused was a necessary means to carry out the lawful purpose of the batallion commander
to effect the capture of a Huk leader. In Mapa, expressly abandoning the doctrine in Macarandang,
and by implication, that in Lucero, We sustained the judgment of conviction on the following
ground:

The law is explicit that except as thereafter specifically allowed, "it shall be unlawful for any person
to ... possess any firearm, detached parts of firearms or ammunition therefor, or any instrument or
implement used or intended to be used in the manufacture of firearms, parts of firearms, or
ammunition." (Sec. 878, as amended by Republic Act No. 4, Revised Administrative Code.) The next
section provides that "firearms and ammunition regularly and lawfully issued to officers, soldiers,
sailors, or marines [of the Armed Forces of the Philippines], the Philippine Constabulary, guards in
the employment of the Bureau of Prisons, municipal police, provincial governors, lieutenant
governors, provincial treasurers, municipal treasurers, municipal mayors, and guards of provincial
prisoners and jails," are not covered "when such firearms are in possession of such officials and
public servants for use in the performance of their official duties." (Sec. 879, Revised Administrative
Code.)

The law cannot be any clearer. No provision is made for a secret agent. As such he is not
exempt. ... .

It will be noted that when appellant was appointed Secret Agent by the Provincial Government in
1962, and Confidential Agent by the Provincial Commander in 1964, the prevailing doctrine on the
matter was that laid down by Us in People v. Macarandang (1959) and People v. Lucero (1958).
Our decision in People v. Mapa reversing the aforesaid doctrine came only in 1967. The sole
question in this appeal is: Should appellant be acquitted on the basis of Our rulings
in Macarandang and Lucero, or should his conviction stand in view of the complete reversal of
the Macarandang and Lucero doctrine in Mapa? The Solicitor General is of the first view, and he
accordingly recommends reversal of the appealed judgment.

Decisions of this Court, although in themselves not laws, are nevertheless evidence of what the
laws mean, and this is the reason why under Article 8 of the New Civil Code "Judicial decisions
applying or interpreting the laws or the Constitution shall form a part of the legal system ... ." The
interpretation upon a law by this Court constitutes, in a way, a part of the law as of the date that
law originally passed, since this Court's construction merely establishes the contemporaneous
legislative intent that law thus construed intends to effectuate. The settled rule supported by
numerous authorities is a restatement of legal maxim "legis interpretatio legis vim obtinet" — the
interpretation placed upon the written law by a competent court has the force of law. The doctrine
laid down in Lucero and Macarandang was part of the jurisprudence, hence of the law, of the land,
at the time appellant was found in possession of the firearm in question and when he arraigned by
the trial court. It is true that the doctrine was overruled in the Mapa case in 1967, but when a
doctrine of this Court is overruled and a different view is adopted, the new doctrine should be
applied prospectively, and should not apply to parties who had relied on the old doctrine and acted
on the faith thereof. This is especially true in the construction and application of criminal laws,
where it is necessary that the punishability of an act be reasonably foreseen for the guidance of
society.

It follows, therefore, that considering that appellant conferred his appointments as Secret Agent
and Confidential Agent and authorized to possess a firearm pursuant to the prevailing doctrine
enunciated in Macarandang and Lucero, under which no criminal liability would attach to his
possession of said firearm in spite of the absence of a license and permit therefor, appellant must
be absolved. Certainly, appellant may not be punished for an act which at the time it was done was
held not to be punishable.

WHEREFORE, the judgment appealed from is hereby reversed, and appellant is acquitted, with
costs de oficio.

Zaldivar (Chairman), Barredo, Fernandez and Aquino, JJ., concur.

Fernando, J., took no part.

Footnotes

1 L-22301, August 30, 1967, 20 SCRA 1164.

2 106 Phil. (1959), 713.

3 103 Phil. (1958), 500.

https://www.lawphil.net/judjuris/juri1968/aug1968/gr_l-24116-17_1968.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. Nos. 24116-17 August 22, 1968

CEBU PORTLAND CEMENT COMPANY, plaintiff-appellant,

vs.
MUNICIPALITY OF NAGA, CEBU, ET AL., defendants-appellees.

Tomas P. Matic, Jr. and Lorenzo R. Mosqueda for plaintiff-appellant.

Fernan, Osmeña and Bellaflor for defendants-appellees.

FERNANDO, J.:

In two separate actions, plaintiff-appellant Cebu Portland Cement Company sought to test the
validity of the distraint and thereafter the sale at public auction by the principal defendant-appellee,
Municipality of Naga, Cebu, of 100,000 bags of cement for the purpose of satisfying its alleged
deficiency in the payment of the municipal license tax for 1960, municipal license tax for 1961 as
well as the penalty, all in the total sum of P204,300.00. The lower court rendered a joint decision
sustaining the validity of the action taken by defendant-appellee Municipality of Naga. The case is
now before us on appeal. We affirm.

According to the appealed decision: "From all the evidence, mostly documentary, adduced during
the hearing the following facts have been established. The efforts of the defendant Treasurer to
collect from the plaintiff the municipal license tax imposed by Amended Ordinance No. 21. Series of
1959 on cement factories located within the Municipality of Naga, Cebu, have met with rebuff time
and again. The demands made on the taxpayer ... have not been entirely successful. Finally, the
defendant Treasurer decided on June 26, 1961 to avail of the Civil remedies provided for under
Section 2304 of the Revised Administrative Code and gave the plaintiff a period of ten days from
receipt thereof within which to settle the account, computed as follows ...: Deficiency Municipal
License Tax for 1960 — P80,250.00; Municipal License Tax for 1961 — P90,000.00; and 20%
Penalty — P34,050.00, stating in exasperation, "This is our last recourse as we had exhausted all
efforts for an amicable solution of our problem." "1

It was further shown: "On July 6, 1961, at 11:00 A.M., the defendant Treasurer notified the Plant
Manager of the plaintiff that he was "distraining 100,000 bags of Apo cement in satisfaction of your
delinquency in municipal license taxes in the total amount of P204,300.00" ... This notice was
received by the acting officer in charge of the plaintiff's plant, Vicente T. Garaygay, according to his
own admission. At first, he was not in accord with the said letter, asking the defendant Treasurer
for time to study the same, but in the afternoon he [acknowledged the] distraint ..." 2

As was noted in the decision, the defendant Treasurer in turn "signed the receipt for goods, articles
or effects seized under authority of Section 2304 of the Revised Administrative Code, certifying that
he has constructively distrained on July 6, 1961 from the Cebu Portland Cement Company at its
plant at Tina-an, Naga, Cebu, 100,000 bags of Apo cement in tanks, and that "the said articles or
goods will be sold at public auction to the highest bidder on July 27, 1961, and the proceeds thereof
will be utilized in part satisfaction of the account of the said company in municipal licenses and
penalties in the total amount of P204,300.00 due the Municipality of Naga Province of Cebu" ..."3

The lower court likewise found as a fact that on the same day, July 6, 1961, the municipal treasurer
posted the notice of sale to the effect that pursuant to the provisions of Section 2305 of the Revised
Administrative Code, he would sell at public auction for cash to the highest bidder at the main
entrance of the municipal building of the Municipality of Naga, Province of Cebu, Philippines on the
27th day of July, 1961, at 9 o'clock in the morning, the property seized and distrained or levied
upon from the Cebu Portland Cement Company in satisfaction of the municipal license taxes and
penalties in the amount of P204,300.00, specifying that what was to be sold was 100,000 bags of
Apo cement.4 No sale, as thus announced, was held on July 27, 1961. It was likewise stated in the
appealed decision that there was stipulation by the parties to this effect: "1. The auction sale took
place on January 30, 1962, ..."5

In this appeal from the above joint decision, plaintiff-appellant Cebu Portland Cement Company
upholds the view that the distraint of the 100,000 bags of cement as well as the sale at public
auction thereafter made ran counter to the law. As earlier noted, we do not see it that way.

1. On the validity of the distraint — In the first two errors assigned, plaintiff-appellant submits as
illegal the distraint of 100,000 bags of cement made on July 6, 1961. Its contention is premised on
the fact that in the letter of defendant-appellee dated June 26, 1961, requiring plaintiff-appellant to
settle its account of P204,300.00, it was given a period of 10 days from receipt within which it could
pay, failure to do so being the occasion for the distraint of its property. It is now alleged that the
10-day period of grace was not allowed to lapse, the distraint having taken place on July 6, 1961.

It suffices to answer such a contention by referring to the explicit language of the law. According to
the Revised Administrative Code: "The remedy by distraint shall proceed as follows: Upon the
failure of the person owing any municipal tax or revenue to pay the same, at the time required, the
municipal treasurer may seize and distrain any personal property belonging to such person or any
property subject to the tax lien, in sufficient quantity to satisfy the tax or charge in question,
together with any increment thereto incident to delinquency, and the expenses of the distraint."6

The clear and explicit language of the law leaves no room for doubt. The municipal treasurer "may
seize and distrain any personal property" of the individual or entity subject to the tax upon failure
"to pay the same, at the time required ..." There was such a failure on the part of plaintiff-appellant
to pay the municipal tax at the time required. The power of the municipal treasurer in accordance
with the above provision therefore came into play.1äwphï1.ñët

Whatever might have been set forth in the letter of the municipal treasurer could not change or
amend the law it has to be enforced as written. That was what the lower court did. What was done
then cannot be rightfully looked upon as a failure to abide by what the statutory provision requires.
Time and time again, it has been repeatedly declared by this Court that where the law speaks in
clear and categorical language, there is no room for interpretation. There is only room for
application. That was what occurred in this case.7

2. On the validity of the auction sale — The validity of the auction sale held on January 30, 1962 is
challenged in the next two errors assigned as allegedly committed by the lower court.
Plaintiff-appellant's argument is predicated on the fact that it was not until January 16, 1962 that it
was notified that the public auction sale was to take place on January 29, 1962. It is its view that
under the Revised Administrative Code8 the sale of the distrained property cannot take place "less
than twenty days after notice to the owner or possessor of the property [distrained] ... and the
publication or posting of such notice."

Why such a contention could not prosper is explained clearly by the lower court in the appealed
decision. Thus: "With respect to the claim that the auction sale held on January 30, 1962 pursuant
to the distraint was null and void for being contrary to law because not more than twenty days have
elapsed from the date of notice, it is believed that the defendant Municipality of Naga and Municipal
Treasurer of Naga have substantially complied with the requirements provided for by Section 2305
of the Revised Administrative Code. From the time that the plaintiff was first notified of the distraint
on July 6, 1961 up to the date of the sale on January 30, 1962, certainly, more than twenty days
have elapsed. If the sale did not take place, as advertised, on July 27, 1961, but only on January 30,
1962, it was due to the requests for deferment made by the plaintiff which unduly delayed the
proceedings for collection of the tax, and the said taxpayer should not be allowed now to complain
that the required period has not yet elapsed when the intention of the tax collector was already
well-publicized for many months."9 The reasonableness of the above observation of the lower court
cannot be disputed. Under the circumstances, the allegation that there was no observance of the
twenty-day period hardly carries conviction.

The point is further made that the auction sale took place not on January 29, 1962, as stated in the
notice of sale, but on the next day, January 30, 1962. According to plaintiff-appellant: "On this
score alone, the sale ..., was illegal as it was not made on the time stated in the notice." 10

There is no basis to sustain such a plea as the finding of the lower court is otherwise. Thus: "On
January 16, 1962, the defendant Treasurer informed Garaygay that he would cause the
readvertisement for sale at public auction of the 100,000 bags of Apo cement which were under
constructive distraint ... On January 19, 1962, the said defendant issued the corresponding notice
of sale, which fixed January 30, 1962, at 10:00 A.M., as the date of sale, posting the said notice in
public places and delivering copies thereof to the interested parties in the previous notice, ...
Ultimately, the bidding was conducted on that day, January 30, 1962, with the representatives of
the Provincial Auditor and Provincial Treasurer present. Only two bidders submitted sealed bids.
After the bidding, the defendant-treasurer informed the plaintiff that an award was given to the
winning bidder, ..." 11
This being a direct appeal to us, plaintiff-appellant must be deemed to have accepted as conclusive
what the lower court found as established by the evidence, only questions of law being brought to
us for review. It is the established rule that when a party appeals directly to this Court, he is
deemed to have waived the right to dispute any finding of fact made by the court below. 12

WHEREFORE, the decision of the lower court dated 23, 1964, is affirmed in toto. With costs against
plaintiff-appellant.1äwphï1.ñët

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ.,
concur.

Footnotes

1Decision of July 23, 1964 of the lower court, Record on Appeal, pp. 166- 167.

2Ibid, pp. 167-168.

3Ibid, pp. 169-170.

4Ibid, pp. 170-171.

5Ibid, p. 172.

6Section 2304, Act No. 2711 as amended.

7Cf.Lizarraga Hermanos v. Yap Tico, 24 Phil. 504 (1913); People v. Mapa, L-22301, August 30,
1967; Pacific Oxygen and Acytelene Co. v. Central Bank, L-21881, March 1, 1968; Dequito v. Lopez,
L-27757, March 28, 1968.

8"See. 2305. Proceedings subsequent to seizure. — The officer levying the distraint shall make or
cause to be made an account of the goods or effects distrained, a copy of which signed by himself
shall be left either with the owner or person from whose possession such goods or effects were
taken, or at the dwelling or place of business of such person and with some one of suitable age and
discretion, to which list shall be added a statement of the sum demanded and note of the time and
place of sale; and the said officer shall forthwith cause a notification to be exhibited in not less than
two public places in the municipality where the distraint was made, specifying the time and place of
sale and the articles distrained. The time of sale shall not be less than twenty days after notice to
the owner or possessor of the property as above specified and the publication or posting of such
notice. One place for the posting of such notice shall be at the office of the mayor of the
municipality in which the property is distrained. At the time and place fixed in such notice the said
officer shall sell the goods, or effects, so distrained, at public auction, to the highest bidder for
cash..." .

9Decision of the lower court, Record on Appeal, p. 180.

10Brief for Plaintiff-Appellant, p. 37.

11Decision of July 23, 1964 of the lower court, p. 175.

12Republicv. Luzon Stevedoring Corp., L-21749, September 29, 1967. See also Perez v. Araneta,
L-18414, July 15, 1968 and the cases cited therein.

https://lawphil.net/judjuris/juri1969/oct1969/gr_l-19617_1969.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19617 October 31, 1969

UNIVERSITY OF THE PHILIPPINES BOARD OF REGENTS and CRISTINO

JAMIAS, petitioners,
vs.
AUDITOR GENERAL and the GOVERNMENT SERVICE INSURANCE SYSTEM, respondents.

Crispen D. Baizas and Perfecto V. Fernandez for petitioners.

Leovigildo Monasterial, Rodolfo R. Magsarili, V. B. Magadia and Samson G. Binag for respondent
Government Service Insurance System.
Office of the Solicitor General Arturo A. Alafriz and Solicitor Conrado T. Limcaoco for respondent
Auditor General.

SANCHEZ, J.:

The question of power this original action for prohibition presents is whether or not the Board of
Regents of the University of the Philippines (U.P.) may extend the tenure of a professor beyond the
retirement age by law fixed at 65 years. Respondents answered in the negative. Petitioners came to
this Court.

Petitioner Cristino Jamias started service in U.P. on June 26, 1924. At the time the present petition
was filed in this Court on April 3, 1962, he was a Professor of English Language and Literature and
concurrently Head of the University Publications Department. His service had been unquestionably
continuous for more than fifteen years before he reached the age of 65 years on July 20, 1961.

Prior thereto, on June 12, 1961, Dean (now Regent) Tomas S. Fonacier of the U.P. College of Arts
and Sciences — the immediate superior of Prof. Jamias — having first obtained the latter's consent,
wrote U.P. President Vicente G. Sinco with the request that Jamias' service be extended for one
academic year ending April 15, 1962. Fonacier's reasons were that Prof. Jamias was still quite
healthy; that he had been commissioned to write the history of U.P. but had just finished half of
it, i.e., from U.P.'s establishment to the Benton era that he could continue to act as Head of the
University Publications until the administration would find someone to take his place; that Dr.
Dionisia Rola who would take over the courses of Prof. Jamias had been assigned to the U.P.
College in Baguio; and that the extension would enable the discipline of English to adjust itself to
the teaching of Prof. Jamias' courses.
On June 20, 1961, President Sinco favorably endorsed Dean Fonacier's request to the Board of
Regents. On July 27, 1961, said board resolved to approve the extension of Prof. Jamias' services
until April 15, 1962.

The present controversy started on December 28, 1961 when Auditor Alfredo Liboro, the Auditor
General's representative at U.P., questioned the legality of the July 27, 1961 resolution of the Board
of Regents just adverted to. U.P. sought reconsideration by the Auditor General. On February 1,
1962, Auditor General Pedro M. Gimenez affirmed the U.P. Auditor's ruling. The Auditor General,
citing Opinion 117, dated September 1, 1961, of the Secretary of Justice, held that the Board of
Regents was without power to extend the services of U.P. professors beyond the compulsory limit
of 65 years.

The Government Service Insurance System (GSIS) joined hands with the Auditor General.
Accordingly, on January 5, 1962, GSIS wrote Prof. Jamias that his services rendered after the
compulsory retirement age were illegal; and that he (Jamias) was not entitled to compensation. The
GSIS letter to Prof. Jamias concluded: "Thus, if you were paid salary for services rendered after you
became due for compulsory retirement, the same should be refunded to the University of the
Philippines; otherwise, it will be deducted from the annuity due you under CA 186, as amended,
pursuant to a ruling of the Auditor General in a similar case and turned over to the University of the
Philippines." Prof. Jamias sought reconsideration. GSIS turned it down.

Then followed the directive of U.P. Auditor Alfredo Liboro that Prof. Jamias' salary be withheld
beginning with the weekly salary due on March 7, 1962.

It was upon the foregoing backdrop that petitioners U.P. Board of Regents and Cristino Jamias
came to this Court on an original petition for prohibition against respondents Auditor General and
GSIS. They seek to stop the Auditor General and his men from withholding Prof. Jamias' salary and
to restrain GSIS from deducting any amount from his five-year lump sum retirement annuity upon
retirement on April 16, 1962. We declined to issue the preliminary injunctive writ prayed for in the
petition.

As adverted to at the start of this opinion, the core of the case is this: May the U.P. Board of
Regents extend the tenure of a professor beyond retirement age?

1. It is undisputed that U.P. employees, including its professors, are employees of the Government.

The U.P. charter entrusts the university with the duty "to provide advanced instruction in literature,
philosophy, the sciences, and arts, and to give professional and technical training." 1 This is in line
with the obligation expressly imposed upon the State by the Constitution of the
Philippines.2 Intrinsically valid then is the holding in University of the Philippines vs. Court of
Industrial Relations 107 Phil. 848, 850, that U.P. performs a "legitimate governmental function, ...
is maintained by the Government, ... declares no dividends, and is, obviously, not a corporation
created for profit but an institution of higher education and therefore not an industrial or business
organization."

As government employees, U.P. professors are compulsorily covered by the Retirement Law,
Commonwealth Act 186, as amended, which creates a uniform retirement system for all members
of the GSIS. It does not take much thought to come to this conclusion. The applicable retirement
law at the time Prof. Jamias reached retirement age of 65 years on July 20, 1961 was Section 4 (a),
Commonwealth Act 186, as successively amended by Republic Acts 660 (approved June 16, 1951),
1573 (approved June 16, 1956) and 1820 (approved June 22, 1957). Section 4, as amended by said
Acts, then read:

SEC. 4. Scope of application of System. — (a) Membership in the System shall be compulsory upon
all regularly and permanently appointed employees, including judges of the Courts of First Instance
and those whose tenure of office is fixed or limited by law; upon all teachers except only those who
are substitutes; upon all regular employees of the Philippine Tuberculosis Society, and upon all
regular officers and enlisted men of the Armed Forces of the Philippines.3

The view that U.P. is definitely governed by Commonwealth Act 186, as amended, is not without
support. A rundown of the genealogy of the law gives this thesis a lift. Originally, Section 4 of the
law (Commonwealth Act 186, which took effect on November 14, 1936) reads:

Sec. 4. Scope of application of System. — Regular membership in the system shall be compulsory
upon —

xxx xxx xxx

(f) Regular and permanent employees of other Government boards or agencies, except the
University of the Philippines and the Government-owned or controlled, business corporations; ... .

To be noted is that in the early 1936 statute just quoted, Congress did expressly exclude U.P. from
the operation of the Retirement Law. But then Section 4 (g) of the same original law gave U.P. the
option to join GSIS, viz.:

(g) ... Provided, That any provincial, city or municipal, government, or the University of the
Philippines or any other corporation owned or controlled by the Government, shall have the option
of joining the System, and if it so joins, the membership shall be compulsory upon all its permanent
and regular employees, . . .

The option spoken of by the above-quoted provision was taken advantage of by U.P. when it chose
to participate in the GSIS.4

But as the law stood in 1961, the provisions exempting U.P. from GSIS coverage and granting it the
option to join GSIS were eliminated by Republic Act 660 which took effect on June 16, 1951 and
succeeding acts. Section 4(a) of Republic Act 660 approved June 16, 1951 provided that:

(a) Membership in the System shall be compulsory upon all regularly and permanently appointed
employees, including those whose tenure of office is fixed or limited by law; upon all teachers
except only those who are substitutes; and upon all regular officers and enlisted men of the Armed
Forces of the Philippines.5

It makes eminent sense to say that the deletion of the University of the Philippines from
the exception cannot be of de minimis effect. That omission is not elusive of exact comprehension
either. The plain and natural impact thereof is that U.P. became covered by the System. Because,
the option to join or not to join was left solely and exclusively to be exercised by "an elective official
of the National Government or of a local government that is a member of the System" — and by no
other.6 The ineluctable conclusion that follows is that since U.P. is not within the limited limits of the
exception, it is a compulsory member of the System.
2. Let us now take a look at the law decisive of the present question — the Board of Regents' power
to extend appointment of U.P. professors. It may perhaps be conducive to better analysis if we go
into the history of that law. Initially, the power to extend service was lodged solely with the
President of the Philippines.

Section 12 (c) of Commonwealth Act 186, as amended by Republic Act 660, read as follows:

(c) Retirement shall be automatic and compulsory at the age of sixty-five years, if he has completed
fifteen years of service, and if he has not, he shall be allowed to continue in the service until he shall
have completed fifteen years unless he is otherwise eligible for disability retirement. This clause
shall not apply to members of the judiciary and constitutional officers whose tenure of office is
guaranteed. Upon specific approval of the President of the Philippines, an employee may be allowed
to continue to serve after the age of sixty-five years if he possesses special qualifications and his
services are needed. It shall be the duty of the employer concerned to notify each such employee
under its direction of the date of his automatic separation from the service at least sixty days in
advance thereof.

By Republic Act 728 (approved June 18, 1952) which amended Section 12 (c), that power to extend
service was expanded to include the President of the Senate, the Speaker of the House of
Representatives, and the Chief Justice of the Supreme Court, viz.:

(c) ... Upon specific approval of the President of the Philippines, the President of the Senate, the
Speaker of the House of Representatives, or the Chief Justice of the Supreme Court, as the case
may be, an employee may be allowed to continue to serve in the Executive, Legislative, or Judicial
Branch of the Government after the age of sixty-five years if he possesses special qualifications and
his services are needed. ... .

The above provision later became section 12 (e) because Republic Act 1616 (approved May 31,
1957) added paragraphs (b) and (c) to Section 12.

Then came Republic Act 3096, effective June 17, 1961, which displaced Section 12 (e), thus —

(e) Retirement shall be automatic and compulsory at the age of sixty-five years, and optional
retirement at the age of sixty-three shall be allowed with lump sum payment of present value of
annuity for first five years, and future annuity to be paid monthly, and other benefits given to a
compulsorily retired member as provided for in Republic Act Numbered Six hundred sixty, as
amended, if he has completed fifteen years of service and if he has not been separated from the
service during the last three years of service prior to retirement; otherwise he shall be allowed to
continue in the service until he shall have completed the required length of service unless he is
otherwise eligible for disability retirement. This clause shall not apply to members of the judiciary
and constitutional officers whose tenure of office is guaranteed. It shall be the duty of the employer
concerned to notify each such employee under its direction of the date of his automatic separation
from the service at least sixty days in advance thereof.

Not escaping notice is that the power to extend service of an employee beyond retirement age —
previously given to the President of the Philippines, the Senate President, the Speaker, or the Chief
Justice — was expressly deleted from the law. The directive that retirement "shall be automatic and
compulsory" is imperative. The law does not admit of exception. Such was the legal provision
actually in force at the time Prof. Jamias reached 65 years of age.7
In summary, it may be said that in accordance with Republic Act 660, retirement was automatically
compulsory at age 65 if the employee had completed 15 years of service; except that upon specific
approval by the President of the Philippines, an employee might be allowed to continue to serve
after the age of 65 years if he possessed special qualifications and his services were needed. This
power given to the President by Republic Act 660 was granted also by Republic Act 728 to the
President of the Senate, the Speaker of the House of Representatives and the Chief Justice of the
Supreme Court. However, when Republic Act 3096 (the law here applicable) took effect on June 17,
1961, this grant of power to extend the service of an employee beyond the age of 65 was
eliminated. Such elimination operates to repeal the eliminated provision.8

There can be no mistake as to this. Both the language of the statute (Republic Act 3096) and the
express legislative intent deleted the power to grant extension of service. House Bill 1224 which
became Republic Act 3096 specifically wrote off the power of the President of the Philippines, the
President of the Senate, the Speaker of the House of Representatives, and the Chief Justice of the
Supreme Court to extend services of government employees beyond the age of 65 years.9 Needless
it is to deeply explore the underlying rationale of this particular amendment. The explanatory note
is there. It reads in part:

In the course of operations of the Government Service Insurance System, it has been found that
Commonwealth Act No. 186, as amended, still requires further improvement in order that the life
and retirement insurance provided therein may be more responsive to the needs of government
employees. To attain this end, the following changes are necessary:

xxx xxx xxx

3. To realize the purpose behind requiring that retirement be compulsory upon attainment of age
65, the continuance in the service of those who are already eligible to compulsory retirement
should no longer be allowed.10

Taking stock of the prohibition in Republic Act 3096, the executive department of the government
made the impact of the law — which bans extension of service after retirement age — clear to its
different agencies. This was when the Office of the President of the Philippines issued
Memorandum Circular 30 dated September 15, 1961 "enjoining against the continuance in the
service of officials and employees beyond the due date of their automatic and compulsory
retirement." That circular called attention to the fact that Section 12(e) of Commonwealth Act 186,
as amended by Republic Act 3096, "no longer contains the provisions empowering the President of
the Philippines, the President of the Senate, the Speaker of the House of Representatives, and the
Chief Justice of the Supreme Court to continue an employee in the service in the Executive,
Legislative or Judicial Branch of the Government, as the case may be, after reaching the automatic
and compulsory retirement age of 65 years." The circular directed strict compliance with the last
portion of said Section 12(e) which makes it a duty on the part of the employer concerned to notify
the employee of the date of his automatic separation at least 60 days in advance thereof.

Prof. Cristino Jamias reached 65 years of age on July 20, 1961. At that time, Republic Act 3096 —
enacted on June 17, 1961 — was in force. No power or authority there was then to extend the
service of a government employee beyond 65 years of age. Prohibition to extend is patent and clear.
The retirement of Prof. Jamias became automatic and compulsory. The Board of Regents is
powerless to extend his service beyond July 20, 1961. And, its resolution now under consideration is
null and void.
3. But petitioners would want to anchor the power of the Board of Regents to so extend upon
Section 6(e) of the U.P. Charter, Act 1870, as amended, in which the language is —

SEC 6. The Board of Regents shall have the following powers and duties, in addition to its general
powers of administration and the exercise of the powers of the corporation:

xxx xxx xxx

(e) To appoint, on the recommendation of the President of the University, professors, instructors,
lecturers and other employees of the University; to fix their compensations, hours of service, and
such other duties and conditions as it may deem proper; to grant to them in its discretion leave of
absence under such regulations as it may promulgate, any other provisions of law to the contrary
notwithstanding, and to remove them for cause after an investigation and hearing shall have been
had. 11

Petitioners' trenchant claim is that the foregoing gives the Board of Regents plenary power to deal
with all aspects of service or employment in the university. Their position is that legislative intention
there is to free U.P.'s academicians from control and interference by other bureaus and offices of
the government. They aver that the board is with power to fix conditions of employment "as it may
deem proper."

We are thus required to pit Section 6(e) of the U.P. Charter against Section 12(e) of the Retirement
Law, as amended by Republic Act 3096. As we do so, we find that the Board of Regents' power to
fix conditions of service "as it may deem proper" is but a general statement. It lacks that
illuminating specific authority to place the Board of Regents beyond the reach of Republic Act 3096,
which in letter and legislative intent proscribed extension of service. We are hard pressed to
understand how the cited provision in the U.P. Charter could give the Board of Regents power to
extend where none was theretofore granted, and given the fact that even the President of the
Philippines who previously had that authority was shorn of it by law. Absent an express
congressional direction that the Board of Regents may so extend, we are unprepared to indulge in
unbridled expansive construction and to say that U.P. is beyond the reach of that positive and
unambiguous law, Commonwealth Act 186, as amended by Republic Act 3096, on the retirement of
government employees which include U.P. professors.

The cited provisions of Act 1870 (the U.P. Charter) must be deemed restricted or limited by
Commonwealth Act 186, as amended by Republic Act 3096, which makes 65
the automatic and compulsory age for retirement, the conditions set forth by the law being present.
The Board of Regents was not, by the applicable statute, Republic Act 3096, singled out as an
exception, one with sole authority to grant extension of service. In fact, even the President of the
Philippines, to repeat, was divested of that power. It is because of this that we would rather adhere,
than depart, from the rule that courts may not introduce exceptions or conditions by construction
from considerations of convenience, public welfare, or for any other laudable purpose. 12

This should dispose then of petitioners' contention that policy considerations behind compulsory
retirement in the government service are not applicable to U.P. by the very nature of the conditions
of the service rendered therein — and these conditions are even debatable — viz.: U.P. faculty
members for the most part lead sheltered quiet lives; that owing to the leisurely pace of academic
work the faculty members normally are spared the rigors of an eight-hour day, their duties being
within their energies as a whole; that they perform their work with like efficiency as before the age
of 65; and that unlike regular bureaus and offices of the government where old age decreases
efficiency by the very nature of the work, U.P. calls for special services and qualifications, not
necessarily affected by age. On the other side of the coin, of course, is the thought quite often
expressed that no man — not even one with the learning and wisdom of a 65-year old — is
indispensable. Anyway, whether or not as a rule the university professors maintain, increase or
diminish their efficiency as they reach 65 years, is a consideration which would not give this Court a
desirable approach to the problem before us. Policy that is proper for legislation is beyond the ambit
of court powers. Suffice it to say that these suasions are best addressed to Congress. Because
courts cannot simply melt and recast a statute.

4. Petitioners next assert that their theory that a retired employee may be retained in the
government beyond 65 years of age finds support from Section 12(d) of Commonwealth Act 186, as
amended. This section reads:

(d) An employee separated from the service who is receiving an annuity described under section
eleven shall not be eligible again to appointment to any appointive position or employment under
any 'employer' unless the appointing authority determines that he is possessed of special
qualifications and his medical examination has been approved by the System, in which event he
shall not be entitled to payments of his annuity during the period of his new employment: Provided,
however, That nothing in this Act shall be so construed as to affect the rights of the annuitant's
beneficiary if the annuitant has been receiving or had elected, and was otherwise entitled to, a
reduced annuity under subsection (a) of section eleven: Provided, further, That upon the
termination of his new appointment, the payments of the annuity which were discontinued shall be
resumed: And provided, finally, That if the annuitant's salary in his new position is less than the
annuity granted to him under this Act, he shall be entitled to receive the difference. 13

To be observed is that under the above provision, an employee separated from the service who is
receiving an annuity may be eligible again to another appointment in the government if the
appointing authority determines that he is possessed of special qualifications and his medical
examination has been approved by the GSIS. This provision of law must be viewed in the context of
other provisions of Commonwealth Act 186 and in accordance with the history of the law.

Section 12(e), as we have seen, expressly exacts automatic and compulsory retirement at age 65 if
the conditions therein stated are met; that while previous amendments have granted the power of
extension of service of retirable employees to the four top officials of the government, Republic Act
3096 (the law which here governs) eliminated such power. To adopt petitioners' view then in
reference to Section 12(d) above-quoted would be to make the provisions of Section 12(e) conflict
with those of Section 12(d) of the law. The former would be rendered nugatory by the latter. This is
an effect that should be avoided. Consistency in statutes is of prime importance. All laws are
presumed to be consistent with each other. In interpreting laws, courts are hidebound by the rule
that theirs is to reconcile and to harmonize; and, if possible, to avoid inconsistency and repugnancy;
to give the laws a conjoint not discordant effect. As we said in a previous case,14 "[w]e have to take
the thought conveyed by the statute as a whole; construe the constituent parts together; ascertain
the legislative intent from the whole act; consider each and every provision thereof in the light of
the general purpose of the statute; and endeavour to make every part effective, harmonious,
sensible."

To harmonize Section 12(d) with Section 12(e) — as it stood amended by Republic Act 3096 — is to
hold that a retired employee who is receiving annuity from the GSIS may be reappointed to the
government service only if he has not yet reached the age of 65 years. The prohibition in Section
12(e) against the extension of the service of a retirable government employee where the conditions
for automatic and compulsory retirement exist is so patent and so clear that it will not admit of any
other construction that would violate legislative intent.

5. Petitioners bring in the concept of academic freedom. Their argument is that the law as we now
interpret it would trench upon the academic freedom enjoyed by the university as guaranteed by
the Constitution. Petitioners refer to Section 5, Article XIV of the Constitution, which provides that
"[u]niversities established by the State shall enjoy academic freedom." Petitioners mention the
concurring opinion of Justice Frankfurter, whom Justice Harlan joins, in Sweezy vs. New Hampshire,
354 U.S. 234, 1 L. Ed. 2d. 1311, 1327, 1332. This concurring opinion quotes a passage from a
report entitled "The Open Universities in South Africa" where statement was made that academic
freedom of a university consists of four essential freedoms — "to determine for itself on academic
grounds who may teach, what may be taught, how it shall be taught, and who may be admitted to
study." Petitioners insist that Commonwealth Act 186, as amended, would trample upon U.P.'s
freedom to decide who may teach.

We do not discern in the statute just referred to a meaning violative of U.P.'s academic freedom. It
does not erode the substance of the freedom in any way. It must be stressed that what we are
concerned with here is retirement, not appointment. We hold that the law here involved is a
reasonable regulation. It is an expression by Congress of sound judgment on when an employee
shall, because of age, stop. The purpose was summed up in the explanatory note to the bill
that "continuance in the service of those who are already eligible to compulsory retirement should
no longer be allowed."15 That law lays down the rule that at the age of 65, a person is ripe for
retirement. There is no discrimination. All government employees who are members of the System
and similarly situated are governed thereby. U.P. professors are not exempt therefrom.

Barenblatt vs. U.S.16 is illuminating. It was there held that the academic freedom of a university has
not been violated because the congressional investigation into communist infiltration into the field
of education is not shown to be directed at controlling what has been taught at the university.
Pertinent is the following passage found in said case: "The claims of academic freedom cannot be
asserted unqualifiedly. The social interest it embodies is but one of the larger set, within which the
interest in national self-preservation and enlightened and well-informed lawmaking also
prominently appeal. When two major interests collide, as they do in the present case, neither the
one nor the other can claim a priori supremacy. But it is in the nature of our system of laws that
there must be demonstrable justification for an action by the Government which endangers or
denies the freedom guaranteed by the Constitution."17

We accordingly, hold that the constitutionally-guaranteed academic freedom has not been here
violated.

6. Having reached the conclusion that the Board of Regents was bereft of authority to extend Prof.
Jamias' tenure for one school year, there remains for consideration this last question: Is Prof.
Jamias to be compensated during the extended period in which he worked?

The obligation to compensate may not perhaps be fully comprehended unless we view the case in
the environment in which Prof. Jamias' service was extended.
At the time Prof. Jamias reached 65 years, he was assigned a specific job, namely, to write the
history of the University of the Philippines. Retirement age caught him half through with this
undertaking. There is the desirability of having Prof. Jamias complete this assignment which he
started. Besides, Prof. Jamias was then the head of the University Publications. Retirement would
create a vacuum. U.P. had yet to find a qualified fill up. Then, also, Dr. Dionisia Rola, who was to
relieve Prof. Jamias of his teaching courses, was still assigned to Baguio. The discipline of English
had yet to adjust itself to the teaching of the courses he handled. Again, Prof. Jamias had to stay.
The interests of the students so demanded.

It is in this factual configuration that the university authorities took it upon themselves to engage
the services of Prof. Jamias until the termination of the school year, which was April 15, 1962. The
unique and peculiar circumstances under which Prof. Jamias' services were sought, engaged and
harnessed anew, sufficiently justified a special contract of services up to April 15, 1962. This the
Board of Regents had authority to do, even as it had no power to extend his original term. The
questioned resolution must be viewed in this sense. He is thus entitled to payment of his salary up
to the last named date.

Upon the view we take of this case —

(1) We vote to grant the writ of prohibition prayed for by petitioners;

(2) Respondent Auditor General and his representatives are hereby permanently enjoined from
withholding the salary of petitioner Cristino Jamias corresponding to the extended period of service
from July 20, 1961 to April 15, 1962; and, in the event the Auditor General and his representatives
have already done so, they are hereby directed to return to petitioner Jamias the compensation due
the latter for the said period; and

(3) Respondent Government Service Insurance System is hereby permanently enjoined from
deducting any amount from petitioner Jamias' five-year retirement annuity; and if said System has
already done so, it is hereby directed to return to petitioner Jamias what it has already deducted.

No costs allowed. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and
Barredo, JJ.,concur.

Footnotes

1 Section 2, Act 1870.

2 Section 5, Article XIV, Constitution.

3By Republic Act 4968, which took effect on June 17, 1967, said Section 4(a) of Commonwealth Act
186 now reads:

(a) Membership in the System shall be compulsory upon all appointive officers and employees in the
executive, legislative, and judicial branches of the government, including those whose tenure of
office is fixed or limited by the Constitution or by law; upon all regular employees of the Philippine
Tuberculosis Society and the Philippine National Red Cross, and other employees of the
government-owned or controlled corporations; upon all regular officers and enlisted men of the
Armed Forces of the Philippines; and upon all elective officials receiving compensation as defined in
this Act: Provided, That casual, substitute, or temporary employees and substitute or temporary
teachers shall be hereby covered for purposes of term insurance for two thousand seven hundred
and fifty pesos if appointed for a period of not less than two months, the term insurance to be
effective in the month next following the month in which the premium prescribed in Section five
hereof has been paid: And provided, further, That said casual, substitute or temporary employees
and substitute or temporary teachers shall not be covered by the retirement insurance plan
provided for in this Act: Provided, finally, That the term 'appointive officer and employee' as used
herein shall include those extended permanent appointments and provisional appointments as used
in the civil service law but excluding those without any kind of civil service eligibility when so
required."

4 See: Articles 266-268, Revised Code of the U.P.

5The deletion of U.P. from the exceptions remained in subsequent statutes: Republic Act 1573
approved June 16, 1956; and Republic Act 1820, June 22, 1957.

6 See: Section 4(b), Commonwealth Act 186, as amended by Republic Act 660.

7The newest amendment to Section 12(e) has been effected by Republic Act 4968, effective June 2,
1967. Said Section 12(e) as it is now composed in part reads:

"(e) Retirement shall be automatic and compulsory at the age of sixty-five years with lump-sum
payment of present value of annuity for the first five years and future annuity to be paid monthly,
and other benefits given to a compulsorily retired member as provided for in Republic Act
Numbered Six hundred and sixty, as amended, if he has completed fifteen years of service and if he
has not been separated from the service during the last three years of service prior to retirement;
otherwise he shall be allowed to continue in the service until he shall have completed the required
length of service, unless he is otherwise eligible for disability retirement. This paragraph shall not
apply to elective officials and constitutional officers whose tenure of office is guaranteed. Upon
specific approval of the President of the Philippines, the President of the Senate, the Speaker of the
House of Representatives or the Chief Justice of the Supreme Court, as the case may be, an
employee may be allowed to continue to serve in the executive, legislative or judicial branch of the
government after the age of sixty-five years if he possesses special qualifications and the
corresponding Department Secretary certifies in writing that his service(s) are needed."

850 Am. Jur. 556-557; Crawford, The Construction of Statutes, 1940 ed., pp. 621-622; 1
Sutherland, Statutory Construction, Third Ed., pp. 419- 421.

9 See: Congressional Record (House of Representatives), Fourth Congress, First Regular Session,
May 7, 1958, Vol. I, No. 66, p. 2155.

10 Id., at p. 2154; emphasis supplied.

11As successively amended by Act 2759, effective February 23, 1918 and Act 3745, effective
November 24, 1930.

12 50 Am. Jur., 454-455.

13As successively amended by Republic Acts 660, effective June 16, 1951, and 1573, effective June
16, 1956.

14Republic vs. Reyes (1966), 17 SCRA 170, 173, citing Crawford, Interpretation of Laws, pp.
260-261.

15 Congressional Record, supra, at p. 2154; emphasis supplied.

16 (1959) 360 U.S. 109, 3 L. Ed. 2d. 1115.

17At p. 1131, footnote 29, quoting the Amicus Brief of the American Association of University
Professors.

https://lawphil.net/judjuris/juri2007/mar2007/gr_158253_2007.html

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 158253 March 2, 2007

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC WORKS

AND HIGHWAYS, COMMISSION ON AUDIT and THE NATIONAL TREASURER, Petitioner,
vs.
CARLITO LACAP, doing business under the name and style CARWIN CONSTRUCTION
AND CONSTRUCTION SUPPLY, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
assailing the Decision1 dated April 28, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 56345
which affirmed with modification the Decision2 of the Regional Trial Court, Branch 41, San Fernando,
Pampanga (RTC) in Civil Case No. 10538, granting the complaint for Specific Performance and
Damages filed by Carlito Lacap (respondent) against the Republic of the Philippines (petitioner).

The factual background of the case is as follows:

The District Engineer of Pampanga issued and duly published an "Invitation To Bid" dated January
27, 1992. Respondent, doing business under the name and style Carwin Construction and
Construction Supply (Carwin Construction), was pre-qualified together with two other contractors.
Since respondent submitted the lowest bid, he was awarded the contract for the concreting
of Sitio 5 Bahay Pare.3 On November 4, 1992, a Contract Agreement was executed by respondent
and petitioner.4 On September 25, 1992, District Engineer Rafael S. Ponio issued a Notice to
Proceed with the concreting of Sitio 5 Bahay Pare.5 Accordingly, respondent undertook the works,
made advances for the purchase of the materials and payment for labor costs.6

On October 29, 1992, personnel of the Office of the District Engineer of San Fernando, Pampanga
conducted a final inspection of the project and found it 100% completed in accordance with the
approved plans and specifications. Accordingly, the Office of the District Engineer issued
Certificates of Final Inspection and Final Acceptance.7

Thereafter, respondent sought to collect payment for the completed project.8 The DPWH prepared
the Disbursement Voucher in favor of petitioner.9 However, the DPWH withheld payment from
respondent after the District Auditor of the Commission on Audit (COA) disapproved the final
release of funds on the ground that the contractor’s license of respondent had expired at the time of
the execution of the contract. The District Engineer sought the opinion of the DPWH Legal
Department on whether the contracts of Carwin Construction for various Mount Pinatubo
rehabilitation projects were valid and effective although its contractor’s license had already expired
when the projects were contracted.10

In a Letter-Reply dated September 1, 1993, Cesar D. Mejia, Director III of the DPWH Legal
Department opined that since Republic Act No. 4566 (R.A. No. 4566), otherwise known as the
Contractor’s License Law, does not provide that a contract entered into after the license has expired
is void and there is no law which expressly prohibits or declares void such contract, the contract is
enforceable and payment may be paid, without prejudice to any appropriate administrative liability
action that may be imposed on the contractor and the government officials or employees
concerned.11

In a Letter dated July 4, 1994, the District Engineer requested clarification from the DPWH Legal
Department on whether Carwin Construction should be paid for works accomplished despite an
expired contractor’s license at the time the contracts were executed.12

In a First Indorsement dated July 20, 1994, Cesar D. Mejia, Director III of the Legal Department,
recommended that payment should be made to Carwin Construction, reiterating his earlier legal
opinion.13 Despite such recommendation for payment, no payment was made to respondent.

Thus, on July 3, 1995, respondent filed the complaint for Specific Performance and Damages
against petitioner before the RTC.14

On September 14, 1995, petitioner, through the Office of the Solicitor General (OSG), filed a Motion
to Dismiss the complaint on the grounds that the complaint states no cause of action and that the
RTC had no jurisdiction over the nature of the action since respondent did not appeal to the COA
the decision of the District Auditor to disapprove the claim.15

Following the submission of respondent’s Opposition to Motion to Dismiss,16 the RTC issued an
Order dated March 11, 1996 denying the Motion to Dismiss.17 The OSG filed a Motion for
Reconsideration18 but it was likewise denied by the RTC in its Order dated May 23, 1996.19

On August 5, 1996, the OSG filed its Answer invoking the defenses of non-exhaustion of
administrative remedies and the doctrine of non-suability of the State.20

Following trial, the RTC rendered on February 19, 1997 its Decision, the dispositive portion of which
reads as follows:
WHEREFORE, in view of all the foregoing consideration, judgment is hereby rendered in favor of the
plaintiff and against the defendant, ordering the latter, thru its District Engineer at Sindalan, San
Fernando, Pampanga, to pay the following:

a) ₱457,000.00 – representing the contract for the concreting project of Sitio 5 road, Bahay Pare,
Candaba, Pampanga plus interest at 12% from demand until fully paid; and

b) The costs of suit.

SO ORDERED.21

The RTC held that petitioner must be required to pay the contract price since it has accepted the
completed project and enjoyed the benefits thereof; to hold otherwise would be to overrun the long
standing and consistent pronouncement against enriching oneself at the expense of another.22

Dissatisfied, petitioner filed an appeal with the CA.23 On April 28, 2003, the CA rendered its Decision
sustaining the Decision of the RTC. It held that since the case involves the application of the
principle of estoppel against the government which is a purely legal question, then the principle of
exhaustion of administrative remedies does not apply; that by its actions the government is
estopped from questioning the validity and binding effect of the Contract Agreement with the
respondent; that denial of payment to respondent on purely technical grounds after successful
completion of the project is not countenanced either by justice or equity.

The CA rendered herein the assailed Decision dated April 28, 2003, the dispositive portion of which
reads:

WHEREFORE, the decision of the lower court is hereby AFFIRMED with modification in that the
interest shall be six percent (6%) per annum computed from June 21, 1995.

SO ORDERED.24

Hence, the present petition on the following ground:

THE COURT OF APPEALS ERRED IN NOT FINDING THAT RESPONDENT HAS NO CAUSE OF ACTION
AGAINST PETITIONER, CONSIDERING THAT:

(a) RESPONDENT FAILED TO EXHAUST ADMINISTRATIVE REMEDIES; AND

(b) IT IS THE COMMISSION ON AUDIT WHICH HAS THE PRIMARY JURISDICTION TO RESOLVE
RESPONDENT’S MONEY CLAIM AGAINST THE GOVERNMENT.25

Petitioner contends that respondent’s recourse to judicial action was premature since the proper
remedy was to appeal the District Auditor’s disapproval of payment to the COA, pursuant to Section
48, Presidential Decree No. 1445 (P.D. No. 1445), otherwise known as the Government Auditing
Code of the Philippines; that the COA has primary jurisdiction to resolve respondent’s money claim
against the government under Section 2(1),26 Article IX of the 1987 Constitution and Section 2627 of
P.D. No. 1445; that non-observance of the doctrine of exhaustion of administrative remedies and
the principle of primary jurisdiction results in a lack of cause of action.
Respondent, on the other hand, in his Memorandum28 limited his discussion to Civil Code provisions
relating to human relations. He submits that equity demands that he be paid for the work
performed; otherwise, the mandate of the Civil Code provisions relating to human relations would
be rendered nugatory if the State itself is allowed to ignore and circumvent the standard of behavior
it sets for its inhabitants.

The present petition is bereft of merit.

The general rule is that before a party may seek the intervention of the court, he should first avail of
all the means afforded him by administrative processes.29 The issues which administrative agencies
are authorized to decide should not be summarily taken from them and submitted to a court
without first giving such administrative agency the opportunity to dispose of the same after due
deliberation.30

Corollary to the doctrine of exhaustion of administrative remedies is the doctrine of primary

jurisdiction; that is, courts cannot or will not determine a controversy involving a question which is
within the jurisdiction of the administrative tribunal prior to the resolution of that question by the
administrative tribunal, where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and services of the administrative tribunal to
determine technical and intricate matters of fact.31

Nonetheless, the doctrine of exhaustion of administrative remedies and the corollary doctrine of
primary jurisdiction, which are based on sound public policy and practical considerations, are not
inflexible rules. There are many accepted exceptions, such as: (a) where there is estoppel on the
part of the party invoking the doctrine; (b) where the challenged administrative act is patently
illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction
that will irretrievably prejudice the complainant; (d) where the amount involved is relatively small
so as to make the rule impractical and oppressive; (e) where the question involved is purely legal
and will ultimately have to be decided by the courts of justice;32 (f) where judicial intervention is
urgent; (g) when its application may cause great and irreparable damage; (h) where the
controverted acts violate due process; (i) when the issue of non-exhaustion of administrative
remedies has been rendered moot;33 (j) when there is no other plain, speedy and adequate remedy;
(k) when strong public interest is involved; and, (l) in quo warranto proceedings.34Exceptions (c)
and (e) are applicable to the present case.

Notwithstanding the legal opinions of the DPWH Legal Department rendered in 1993 and 1994 that
payment to a contractor with an expired contractor’s license is proper, respondent remained unpaid
for the completed work despite repeated demands. Clearly, there was unreasonable delay and
official inaction to the great prejudice of respondent.

Furthermore, whether a contractor with an expired license at the time of the execution of its
contract is entitled to be paid for completed projects, clearly is a pure question of law. It does not
involve an examination of the probative value of the evidence presented by the parties. There is a
question of law when the doubt or difference arises as to what the law is on a certain state of facts,
and not as to the truth or the falsehood of alleged facts.35 Said question at best could be resolved
only tentatively by the administrative authorities. The final decision on the matter rests not with
them but with the courts of justice. Exhaustion of administrative remedies does not apply, because
nothing of an administrative nature is to be or can be done.36 The issue does not require technical
knowledge and experience but one that would involve the interpretation and application of law.
Thus, while it is undisputed that the District Auditor of the COA disapproved respondent’s claim
against the Government, and, under Section 4837 of P.D. No. 1445, the administrative remedy
available to respondent is an appeal of the denial of his claim by the District Auditor to the COA itself,
the Court holds that, in view of exceptions (c) and (e) narrated above, the complaint for specific
performance and damages was not prematurely filed and within the jurisdiction of the RTC to
resolve, despite the failure to exhaust administrative remedies. As the Court aptly stated in
Rocamora v. RTC-Cebu (Branch VIII):38

The plaintiffs were not supposed to hold their breath and wait until the Commission on Audit and
the Ministry of Public Highways had acted on the claims for compensation for the lands
appropriated by the government. The road had been completed; the Pope had come and gone; but
the plaintiffs had yet to be paid for the properties taken from them. Given this official indifference,
which apparently would continue indefinitely, the private respondents had to act to assert and
protect their interests.39

On the question of whether a contractor with an expired license is entitled to be paid for completed
projects, Section 35 of R.A. No. 4566 explicitly provides:

SEC. 35. Penalties. Any contractor who, for a price, commission, fee or wage, submits or attempts
to submit a bid to construct, or contracts to or undertakes to construct, or assumes charge in a
supervisory capacity of a construction work within the purview of this Act, without first securing a
license to engage in the business of contracting in this country; or who shall present or file the
license certificate of another, give false evidence of any kind to the Board, or any member thereof in
obtaining a certificate or license, impersonate another, or use an expired or revoked certificate or
license, shall be deemed guilty of misdemeanor, and shall, upon conviction, be sentenced to pay a
fine of not less than five hundred pesos but not more than five thousand pesos. (Emphasis
supplied)

The "plain meaning rule" or verba legis in statutory construction is that if the statute is clear, plain
and free from ambiguity, it must be given its literal meaning and applied without
interpretation.40 This rule derived from the maxim Index animi sermo est (speech is the index of
intention) rests on the valid presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from construing it differently. The
legislature is presumed to know the meaning of the words, to have used words advisedly, and to
have expressed its intent by use of such words as are found in the statute. 41 Verba legis non est
recedendum, or from the words of a statute there should be no departure.42

The wordings of R.A. No. 4566 are clear. It does not declare, expressly or impliedly, as void
contracts entered into by a contractor whose license had already expired. Nonetheless, such
contractor is liable for payment of the fine prescribed therein. Thus, respondent should be paid for
the projects he completed. Such payment, however, is without prejudice to the payment of the fine
prescribed under the law.

Besides, Article 22 of the Civil Code which embodies the maxim Nemo ex alterius incommode debet
lecupletari (no man ought to be made rich out of another’s injury) states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the latter without just or legal ground,
shall return the same to him.
This article is part of the chapter of the Civil Code on Human Relations, the provisions of which were
formulated as "basic principles to be observed for the rightful relationship between human beings
and for the stability of the social order, x x x designed to indicate certain norms that spring from the
fountain of good conscience, x x x guides human conduct [that] should run as golden threads
through society to the end that law may approach its supreme ideal which is the sway and
dominance of justice."43 The rules thereon apply equally well to the Government.44 Since
respondent had rendered services to the full satisfaction and acceptance by petitioner, then the
former should be compensated for them. To allow petitioner to acquire the finished project at no
cost would undoubtedly constitute unjust enrichment for the petitioner to the prejudice of
respondent. Such unjust enrichment is not allowed by law.

WHEREFORE, the present petition is DENIED for lack of merit. The assailed Decision of the Court
of Appeals dated April 28, 2003 in CA-G.R. CV No. 56345 is AFFIRMED. No pronouncement as to
costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

(On Leave)
ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO
Associate Justice Asscociate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it
is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice

Footnotes

1Penned by Associate Justice Rosmari D. Carandang and concurred in by Associate Justices

Conrado M. Vasquez, Jr. and Mercedes Gozo-Dadole, CA rollo, p. 167.

2 Original Records, p. 120.

3 Id. at 7.

4 Id. at 8.

5 Id. at 12.

6 CA rollo, p. 268.

7 Original Records, p. 12-A.

8 Id. at 13.

9 Id. at 14.

10 Id. at 15.

11 Ibid.

12 Id. at 16.

13 Id.

14 Id. at 1.

15 Id. at 37.

16 Id. at 48.

17 Id. at 50.

18 Id. at 58.

19 Id. at 67.

20 Id. at 78.

21 Id. at 125.

22 Id. at 124-125.
23 CA rollo, p. 17.

24 Id. at 273.

25 Id. at 33.

26 SEC. 2 (1) The Commission on Audit shall have the power, authority, and duty to examine, audit
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds
and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned or controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commission and offices that have
been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through
the Government, which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the audited agencies
is inadequate, the Commission may adopt such measures, including temporary or special pre-audit,
as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of
the Government and for such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto.

27Section 26. General jurisdiction. – The authority and powers of the Commission shall extend to
and comprehend all matters relating to auditing procedures, systems and controls, the keeping of
the general accounts of the Government, the preservation of vouchers pertaining thereto for a
period of ten years, the examination and inspection of the books, records, and papers relating to
those accounts; and the audit and settlement of the accounts of all persons respecting funds or
property received or held by them in an accountable capacity, as well as the examination, audit,
and settlement of all debts and claims of any sort due from or owing the Government or any of its
subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned
or controlled corporations, including their subsidiaries, and other self-governing boards,
commissions, or agencies of the Government, and as herein prescribed, including
non-governmental entities subsidized by the government, those funded by donation through the
government, those required to pay levies of government share, and those which the government
has put up a counterpart fund or those partly funded by the government.

28 Rollo, p. 152.

29ACWS, Ltd. v. Dumlao, 440 Phil. 787, 801-802 (2002); Zabat v. Court of Appeals, 393 Phil. 195,
206 (2000).

30 ACWS case, id. at 802.

31Paloma v. Mora, G.R. No. 157783, September 23, 2005, 470 SCRA 711, 725; Fabia v. Court of
Appeals, 437 Phil. 389, 403 (2002).

32Rocamora v. Regional Trial Court-Cebu (Branch VIII), No. L-65037, November 23, 1988, 167
SCRA 615, 623.

33 Carale v. Abarintos, 336 Phil. 126, 137 (1997).

34 Castro v. Sec. Gloria, 415 Phil. 645, 651-652 (2001).

35 Castro v. Sec. Gloria case, id. at 652.

36Espina v. Court of Appeals, 356 Phil. 15, 21 (1998); Prudential Bank v. Gapultos, G.R. Nos. 41835
& 49293, January 19, 1990, 181 SCRA 159, 168.

37Section 48. Appeal from the decision of auditors. – Any person aggrieved by the decision of an
auditor of any government agency in the settlement of account or claim may within six months from
receipt of a copy of the decision appeal in writing to the Commission.

38 Supra note 32.

39 Id. at 624-625.

40Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 15,
2005, 456 SCRA 414, 443; National Federation of Labor v. National Labor Relations Commission,
383 Phil. 910, 918 (2000); Ruben E. Agpalo, Statutory Construction, 2003 Ed., p. 124.

41Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corporation, G.R. No.
158540, July 8, 2004, 434 SCRA 65, 93; Republic v. Court of Appeals, 359 Phil. 530, 602 (2000).

42Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648, 656 (1995); Globe-Mackay
Cable and Radio Corporation v. National Labor Relations Commission, G.R. No. 82511, March 3,
1992, 206 SCRA 701, 711.

43Advanced Foundation Construction Systems Corporation v. New World Properties and Ventures,
Inc., G.R. Nos. 143154 & 143177, June 21, 2006, 491 SCRA 557, 578; Security Bank & Trust Co. v.
Court of Appeals, 319 Phil. 312, 317 (1995), citing Report of the Code Commission, p. 39, cited in
Padilla, Ambrosio, Civil Code Annotated, Vol. 1, 1975.

44Palma Development Corp. v. Municipality of Malangas, Zamboanga Del Sur, 459 Phil. 1042, 1050
(2003); Republic v. Court of Appeals, No. L-31303-04, May 31, 1978, 83 SCRA 453, 480.

https://lawphil.net/judjuris/juri2005/mar2005/gr_163448_2005.html

Republic of the Philippines

SUPREME COURT

FIRST DIVISION

G.R. No. 163448. March 08, 2005

NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his capacity as

Regional Director, NFA Regional Office No. 1, San Juan, La Union, Petitioners,
vs.
MASADA SECURITY AGENCY, INC., represented by its Acting President & General
Manager, COL. EDWIN S. ESPEJO (RET.), Respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review under Rule 45 of the Rules of Court is the February 12, 2004
decision1 of the Court of Appeals in CA-G.R. CV No. 76677, which dismissed the appeal filed by
petitioner National Food Authority (NFA) and its April 30, 2004 resolution denying petitioner’s
motion for reconsideration.

The antecedent facts show that on September 17, 1996, respondent MASADA Security Agency, Inc.,
entered into a one year2 contract3 to provide security services to the various offices, warehouses
and installations of NFA within the scope of the NFA Region I, comprised of the provinces of
Pangasinan, La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration of said contract, the
parties extended the effectivity thereof on a monthly basis under same terms and condition.4

Meanwhile, the Regional Tripartite Wages and Productivity Board issued several wage orders
mandating increases in the daily wage rate. Accordingly, respondent requested NFA for a
corresponding upward adjustment in the monthly contract rate consisting of the increases in the
daily minimum wage of the security guards as well as the corresponding raise in their overtime pay,
holiday pay, 13th month pay, holiday and rest day pay. It also claimed increases in Social Security
System (SSS) and Pag-ibig premiums as well as in the administrative costs and margin. NFA,
however, granted the request only with respect to the increase in the daily wage by multiplying the
amount of the mandated increase by 30 days and denied the same with respect to the adjustments
in the other benefits and remunerations computed on the basis of the daily wage.

Respondent sought the intervention of the Office of the Regional Director, Regional Office No. I, La
Union, as Chairman of the Regional Tripartite Wages and Productivity Board and the DOLE
Secretary through the Executive Director of the National Wages and Productivity Commission.
Despite the advisory5 of said offices sustaining the claim of respondent that the increase mandated
by Republic Act No. 6727 (RA 6727) and the wage orders issued by the RTWPB is not limited to the
daily pay, NFA maintained its stance that it is not liable to pay the corresponding adjustments in the
wage related benefits of respondent’s security guards.

On May 4, 2001, respondent filed with the Regional Trial Court of Quezon, City, Branch 83, a case
for recovery of sum of money against NFA. Docketed as Civil Case No. Q-01-43988, the
complaint6 sought reimbursement of the following amounts allegedly paid by respondent to the
security guards, to wit: P2,949,302.84, for unpaid wage related benefits brought about by the
effectivity of Wage Order Nos. RB 1-05 and RB CAR-04;7 RB 1-06 and RB CAR-05;8 RB 1-07 and RB
CAR-06;9 and P975,493.04 for additional cost and margin, plus interest. It also prayed for damages
and litigation expenses.10

In its answer with counterclaim,11 NFA denied that respondent paid the security guards their wage
related benefits and that it shouldered the additional costs and margin arising from the
implementation of the wage orders. It admitted, however, that it heeded respondent’s request for
adjustment only with respect to increase in the minimum wage and not with respect to the other
wage related benefits. NFA argued that respondent cannot demand an adjustment on said salary
related benefits because it is bound by their contract expressly limiting NFA’s obligation to pay only
the increment in the daily wage.

At the pre-trial, the only issue raised was whether or not respondent is entitled to recover from NFA
the wage related benefits of the security guards.12

On September 19, 2002, the trial court rendered a decision13 in favor of respondent holding that
NFA is liable to pay the security guards’ wage related benefits pursuant to RA 6727, because the
basis of the computation of said benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium,
is the increased minimum wage. It also found NFA liable for the consequential adjustments in
administrative costs and margin. The trial court absolved defendant Juanito M. David having been
impleaded in his official capacity as Regional Director of NFA Regional Office No. 1, San Juan, La
Union. The dispositive portion thereof, reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security Agency, Inc., and
against defendant National Food Authority ordering said defendant to make the corresponding
adjustment in the contract price in accordance with the increment mandated under the various
wage orders, particularly Wage Order Nos. RBI-05, RBCAR-04, RBI-06, RBCAR-05, RBI-07 and
RBCAR-06 and to pay plaintiff the amounts representing the adjustments in the wage-related
benefits of the security guards and consequential increase in its administrative cost and margin
upon presentment by plaintiff of the corresponding voucher claims.

Plaintiff’s claims for damages and attorney’s fees and defendants counterclaim for damages are
hereby denied.

Defendant Juanito M. David is hereby absolved from any liability.

SO ORDERED.14

NFA appealed to the Court of Appeals but the same was dismissed on February 12, 2004. The
appellate court held that the proper recourse of NFA is to file a petition for review under Rule 45
with this Court, considering that the appeal raised a pure question of law. Nevertheless, it
proceeded to discuss the merits of the case for "purposes of academic discussion" and eventually
sustained the ruling of the trial court that NFA is under obligation to pay the administrative costs
and margin and the wage related benefits of the respondent’s security guards.15

On April 30, 2004, the Court of Appeals denied NFA’s motion for reconsideration. 16 Hence, the
instant petition.

The issue for resolution is whether or not the liability of principals in service contracts under Section
6 of RA 6727 and the wage orders issued by the Regional Tripartite Wages and Productivity Board is
limited only to the increment in the minimum wage.

At the outset, it should be noted that the proper remedy of NFA from the adverse decision of the
trial court is a petition for review under Rule 45 directly with this Court because the issue involved a
question of law. However, in the interest of justice we deem it wise to overlook the procedural
technicalities if only to demonstrate that despite the procedural infirmity, the instant petition is
impressed with merit.17
RA 672718 (Wage Rationalization Act), which took effect on July 1, 1989,19 declared it a policy of the
State to rationalize the fixing of minimum wages and to promote productivity-improvement and
gain-sharing measures to ensure a decent standard of living for the workers and their families; to
guarantee the rights of labor to its just share in the fruits of production; to enhance employment
generation in the countryside through industrial dispersal; and to allow business and industry
reasonable returns on investment, expansion and growth.20

In line with its declared policy, RA 6727, created the National Wages and Productivity Commission
(NWPC),21vested, inter alia, with the power to prescribe rules and guidelines for the determination
of appropriate minimum wage and productivity measures at the regional, provincial or industry
levels;22 and the Regional Tripartite Wages and Productivity Boards (RTWPB) which, among others,
determine and fix the minimum wage rates applicable in their respective region, provinces, or
industries therein and issue the corresponding wage orders, subject to the guidelines issued by the
NWPC.23 Pursuant to its wage fixing authority, the RTWPB issue wage orders which set the daily
minimum wage rates.24

Payment of the increases in the wage rate of workers is ordinarily shouldered by the employer.
Section 6 of RA 6727, however, expressly lodged said obligation to the principals or indirect
employers in construction projects and establishments providing security, janitorial and similar
services. Substantially the same provision is incorporated in the wage orders issued by the
RTWPB.25 Section 6 of RA 6727, provides:

SEC. 6. In the case of contracts for construction projects and for security, janitorial and similar
services, the prescribed increases in the wage rates of the workers shall be borne by the
principals or clients of the construction/service contractors and the contract shall be deemed
amended accordingly. In the event, however, that the principal or client fails to pay the prescribed
wage rates, the construction/service contractor shall be jointly and severally liable with his principal
or client. (Emphasis supplied)

NFA claims that its additional liability under the aforecited provision is limited only to the payment of
the increment in the statutory minimum wage rate, i.e., the rate for a regular eight (8) hour work
day.

The contention is meritorious.

In construing the word "wage" in Section 6 of RA 6727, reference must be had to Section 4 (a) of
the same Act. It states:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all workers
and employees in the private sector, whether agricultural or non-agricultural, shall be increased
by twenty-five pesos (P25) per day … (Emphasis supplied)

The term "wage" as used in Section 6 of RA 6727 pertains to no other than the "statutory minimum
wage" which is defined under the Rules Implementing RA 6727 as the lowest wage rate fixed by law
that an employer can pay his worker.26 The basis thereof under Section 7 of the same Rules is the
normal working hours, which shall not exceed eight hours a day. Hence, the prescribed increases or
the additional liability to be borne by the principal under Section 6 of RA 6727 is the increment or
amount added to the remuneration of an employee for an 8-hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is expressly limited to certain
matters, it may not, by interpretation or construction, be extended to others.27 Since the increase in
wage referred to in Section 6 pertains to the "statutory minimum wage" as defined herein,
principals in service contracts cannot be made to pay the corresponding wage increase in the
overtime pay, night shift differential, holiday and rest day pay, premium pay and other benefits
granted to workers. While basis of said remuneration and benefits is the statutory minimum wage,
the law cannot be unduly expanded as to include those not stated in the subject provision.

The settled rule in statutory construction is that if the statute is clear, plain and free from ambiguity,
it must be given its literal meaning and applied without interpretation. This plain meaning rule
or verba legis derived from the maxim index animi sermo est (speech is the index of intention)
rests on the valid presumption that the words employed by the legislature in a statute correctly
express its intention or will and preclude the court from construing it differently. The legislature is
presumed to know the meaning of the words, to have used words advisedly, and to have expressed
its intent by use of such words as are found in the statute. Verba legis non est recedendum, or from
the words of a statute there should be no departure.28

The presumption therefore is that lawmakers are well aware that the word "wage" as used in
Section 6 means the statutory minimum wage. If their intention was to extend the obligation of
principals in service contracts to the payment of the increment in the other benefits and
remuneration of workers, it would have so expressly specified. In not so doing, the only logical
conclusion is that the legislature intended to limit the additional obligation imposed on principals in
service contracts to the payment of the increment in the statutory minimum wage.

The general rule is that construction of a statute by an administrative agency charged with the task
of interpreting or applying the same is entitled to great weight and respect. The Court, however, is
not bound to apply said rule where such executive interpretation, is clearly erroneous, or when
there is no ambiguity in the law interpreted, or when the language of the words used is clear and
plain, as in the case at bar. Besides, administrative interpretations are at best advisory for it is the
Court that finally determines what the law means.29 Hence, the interpretation given by the labor
agencies in the instant case which went as far as supplementing what is otherwise not stated in the
law cannot bind this Court.

It is not within the province of this Court to inquire into the wisdom of the law for indeed, we are
bound by the words of the statute.30 The law is applied as it is. At any rate, the interest of the
employees will not be adversely affected if the obligation of principals under the subject provision
will be limited to the increase in the statutory minimum wage. This is so because all remuneration
and benefits other than the increased statutory minimum wage would be shouldered and paid by
the employer or service contractor to the workers concerned. Thus, in the end, all allowances and
benefits as computed under the increased rate mandated by RA 6727 and the wage orders will be
received by the workers.

Moreover, the law secures the welfare of the workers by imposing a solidary liability on principals
and the service contractors. Under the second sentence of Section 6 of RA 6727, in the event that
the principal or client fails to pay the prescribed wage rates, the service contractor shall be held
solidarily liable with the former. Likewise, Articles 106, 107 and 109 of the Labor Code provides:
ART. 106. Contractor or Subcontractor. – Whenever an employer enters into contract with another
person for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wage of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work performed under the contract, in the
same manner and extent that he is liable to employees directly employed by him.

ART. 107. Indirect Employer. – The provisions of the immediately preceding Article shall likewise
apply to any person, partnership, association or corporation which, not being an employer,
contracts with an independent contractor for the performance of any work, task, job or project.

ART. 109. Solidary Liability. – The provisions of existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their civil liability
under this Chapter, they shall be considered as direct employers.

Based on the foregoing interpretation of Section 6 of RA 6727, the parties may enter into
stipulations increasing the liability of the principal. So long as the minimum obligation of the
principal, i.e., payment of the increased statutory minimum wage is complied with, the Wage
Rationalization Act is not violated.

In the instant case, Article IV.4 of the service contract provides:

IV.4. In the event of a legislated increase in the minimum wage of security guards and/or in the
PADPAO rate, the AGENCY may negotiate for an adjustment in the contract price. Any adjustment
shall be applicable only to the increment, based on published and circulated rates and not on mere
certification.31

In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:

3. For purposes of wage adjustments, consider only the rate based on the wage Order issued by the
Regional Tripartite Wage Productivity Board (RTWPB). Unless otherwise provided in the Wage
Order issued by the RTWPB, the wage adjustment shall be limited to the increment in the legislated
minimum wage;32

The parties therefore acknowledged the application to their contract of the wage orders issued by
the RTWPB pursuant to RA 6727. There being no assumption by NFA of a greater liability than that
mandated by Section 6 of the Act, its obligation is limited to the payment of the increased statutory
minimum wage rates which, as admitted by respondent, had already been satisfied by NFA.33 Under
Article 1231 of the Civil Code, one of the modes of extinguishing an obligation is by payment.
Having discharged its obligation to respondent, NFA no longer have a duty that will give rise to a
correlative legal right of respondent. The latter’s complaint for collection of remuneration and
benefits other than the increased minimum wage rate, should therefore be dismissed for lack of
cause of action.
The same goes for respondent’s claim for administrative cost and margin. Considering that
respondent failed to establish a clear obligation on the part of NFA to pay the same as well as to
substantiate the amount thereof with documentary evidence, the claim should be denied.

WHEREFORE, the petition is GRANTED. The February 12, 2004 decision and the April 30, 2004
resolution of the Court of Appeals which dismissed petitioner National Food Authority’s appeal and
motion for reconsideration, respectively, in CA-G.R. CV No. 76677, are REVERSED and SET ASIDE.
The complaint filed by respondent MASADA Security Agency, Inc., docketed as Civil Case No.
Q-01-43988, before the Regional Trial Court of Quezon, City, Branch 83, is ordered DISMISSED.

SO ORDERED.

Davide Jr., C.J., (Chairman), Quisumbing, Carpio and Azcuna, JJ., concur.

Footnotes

1 Rollo, p. 35. Penned by Associate Justice Bienvenido L. Reyes and concurred in by Associate
Justices Conrado M. Vasquez, Jr. and Arsenio J. Magpale.

2 August 1, 1996 to August 1, 1997.

3 Records, pp. 12-18.

4 Contract, II.19, Records, p. 15. See also Memorandum, AO-98-03-005, Records, p. 56.

5Issued by Ricardo S. Martinez, Sr., CESO III, Regional Director, Records, pp. 30-31; and by Ciriaco
A. Lagunzad III, Executive Director, DOLE, National Wages and Productivity Commission, Records,
pp. 37-38.

6 Records, pp. 1-11.

7 Took effect on March 1, 1997 and May 1, 1997, respectively. (Comment, Rollo, p. 259).

8Mandating two-tiered increases in the minimum daily wage effective March 5, 1998/July 1, 1998
and June 8, 1998/December 18, 1998, respectively. (Comment, Rollo, pp. 259-260).

9 Took effect on December 1, 1999 and November 8, 1999, respectively. (Comment, Rollo, p. 260).

10 Complaint, Records, pp. 9-10.

11 Records, pp. 50-53.

12 Pre-trial Order, Records, p. 104.

13 Rollo, p. 100.

14 Id. at 113.

15 The dispositive portion thereof, reads:

WHEREFORE, in view of the discussions conveyed above, the instant appeal is hereby DISMISSED.

SO ORDERED. (Rollo, p. 45)

16 Rollo, pp. 47-48.

17 Martillano v. Court of Appeals, G.R. No. 148277, 29 June 2004.

18An Act to Rationalize Wage Policy Determination by Establishing the Mechanism and Proper
Standards Therefor, Amending for the Purpose Article 99 of, and Incorporating Articles 120, 121,
122, 123, 124, 126 and 127 into Presidential Decree No. 442, as amended, Otherwise Known as the
Labor Code of the Philippines, Fixing New Wage Rates, Providing Wage Incentives for Industrial
Dispersal to the Countryside, and for Other Purposes.

19See UERM-Memorial Medical Center v. National Labor Relations Commission, 336 Phil. 66, 68
(1997).

20 Section 2 of RA 6727.

21 Article 120, Labor Code.

22 Article 121, Id.

23 Article 122, Id.

24 Article 123, Id.

25Section 7 of Wage Order No. RB 1-05, Rollo, p. 299; Section 6 of Wage Order No.
RB-CAR-04, Rollo, p. 302; Section 7 of Wage Order No. RB 1-06, Rollo, p. 305; Section 5 of Wage
Order No. RB-CAR-05, Rollo, pp. 307-308; Section 8 of Wage Order No. RB 1-07, Rollo, p. 312; and
Section 6 of Wage Order No. RB-CAR-06, Rollo, p. 334.

26 Item (o), Definition of Terms.

27Commissioner of Customs v. Court of Tax Appeals, G.R. Nos. 48886-88, 21 July 1993, 224 SCRA
665, 670.

28Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648, 656 (1995), citing
Globe-Mackay Cable and Radio Corporation v. National Labor Relations Commission, G.R. No.
82511, 3 March 1992, 206 SCRA 701.

29 Energy Regulatory Board v. Court of Appeals, G.R. No. 113079, 20 April 2001, 357 SCRA 30, 40.

30Commissioner of Internal Revenue v. Manila Star Ferry, Inc., G.R. Nos. 31776-78, 21 October
1993, 227 SCRA 317, 322.

31 Contract, Records, p. 17.

32 Records, p. 56.

33 Complaint, Records, p. 3.
https://www.lawphil.net/judjuris/juri2005/jun2005/gr_152609_2005.html

THIRD DIVISION

G.R. No. 152609 June 29, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

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

DECISION

PANGANIBAN, J.:

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

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28,
2002 Decision2of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed
as follows:

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

The Facts

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

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

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

Period
Exhibit Date Filed
Covered

1997 1st
D April 18, 1997
Qtr.

F 2nd Qtr. July 21, 1997

October 2,
G 3rd Qtr.
1997

January 20,
H 4th Qtr.
1998

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

Exh Taxable Output Zero-rated Domestic Input

1997 Sales VAT Sales Purchases VAT

I 1st
₱59,597.20 ₱5,959.72 ₱17,513,801.11 ₱6,778,182.30 ₱677,818.23
qtr

J
2nd 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
qtr

K
3rd 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
qtr

L 4th
67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21
qtr
Total ₱247,045.30 ₱24,704.53 ₱80,309,633.20 ₱37,630,604.30 ₱3,763,060.43

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

‘Section 110. Tax Credits. -

xxxxxxxxx

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

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

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

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

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

(1) x x x

(2) Services other than those mentioned in the preceding subparagraph, the consideration is paid
for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the BSP. x x x.’
In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent
portion of which reads as follows:

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

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

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

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

‘Section 8. Zero-rating. - (a) In general. - A zero-rated sale is a taxable transaction for

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

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

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

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

9. Moreover, [respondent] must prove that it has complied with the governing rules with reference
to tax recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as amended,
which are quoted as follows:

‘Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may - x x x.

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

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

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

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

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

Ruling of the Court of Appeals

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

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

Hence, this Petition.9

The Issue

Petitioner raises this sole issue for our consideration:

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

The Court’s Ruling

The Petition is unmeritorious.

Sole Issue:

Entitlement to Tax Refund

Section 102 of the Tax Code11 provides:

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

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

xxxxxxxxx

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

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

xxxxxxxxx

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

xxxxxxxxx

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

"(b) Transactions subject to zero percent (0%) rate. -- The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:]
‘(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

‘(2) Services other than those mentioned in the preceding subparagraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the [BSP];’"

xxxxxxxxx

Zero Rating of "Other" Services

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

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

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

The Credit Card System and Its Components

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

Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in particular,
refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x
x or services x x x on credit;"19and is being used "usually on a revolving basis."20 This means that
the consumer-credit arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services "on a continuing basis as long as the outstanding
balance does not exceed a specified limit."21 The card holder is, therefore, given "the power to
obtain present control of goods or service on a promise to pay for them in the future."22
Business establishments may extend credit sales through the use of the credit card facilities of a
non-bank credit card company to avoid the risk of uncollectible accounts from their customers.
Under this system, the establishments do not deposit in their bank accounts the credit card
drafts23 that arise from the credit sales. Instead, they merely record their receivables from the
credit card company and periodically send the drafts evidencing those receivables to the latter.

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

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

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

Branch and Home Office

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

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

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

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

VAT Requirements for the Supply of Service

The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or
services"42purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main
object is the transaction46itself or, more concretely, the performance of all kinds of
services47 conducted in the course of trade or business in the Philippines.48 These services must be
regularly conducted in this country; undertaken in "pursuit of a commercial or an economic
activity;"49 for a valuable consideration; and not exempt under the Tax Code, other special laws, or
any international agreement.50

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

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

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

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

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

Services Subject to Zero VAT

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

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

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

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

Respondent’s Services Exempt from the Destination Principle

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

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

Performance of Service versus Product Arising from Performance

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

Tax Situs of a Zero-Rated Service

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

Statutory Construction or Interpretation Unnecessary

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

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

No Qualifications Under RR 5-87

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

"SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction for

value-added tax purposes. A sale by a VAT-registered person of goods and/or services taxed at zero
rate shall not result in any output tax. The input tax on his purchases of goods or services related to
such zero-rated sale shall be available as tax credit or refundable in accordance with Section 16 of
these Regulations.

xxxxxxxxx

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

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

xxxxxxxxx

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

RR 7-95 Broad Enough

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

"SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered person,
which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the
input tax on his purchases of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund in accordance with these regulations.

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

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

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

xxxxxxxxx

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

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

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

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

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

Ejusdem Generis
Inapplicable

The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does
not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words,
followed by the general phrase "and other similar services," such words do not constitute a readily
discernible class and are patently not of the same kind.72 Project studies involve investments or
marketing; information services focus on data technology; engineering and architectural designs
require creativity. Aside from calling for the exercise or use of mental faculties or perhaps producing
written technical outputs, no common denominator to the exclusion of all others characterizes
these three services. Nothing sets them apart from other and similar general services that may
involve advertising, computers, consultancy, health care, management, messengerial work -- to
name only a few.

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

Third, and most important, the statutory provision upon which this regulation is based is by itself
not restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax Code is broad; it is
not susceptible of narrow interpretation.741avvphi1.zw+

VAT Ruling Nos. 040-98 and 080-89

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

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

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

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

It is also basic in law that "no x x x rule x x x shall be given retrospective effect 85 unless explicitly
stated."86 No indication of such retroactive application to respondent does the Court find in VAT
Ruling No. 040-98. Neither do the exceptions enumerated in Section 24687 of the Tax Code apply.

Though vested with the power to interpret the provisions of the Tax Code 88 and not bound by
predecessors’ acts or rulings, the BIR commissioner may render a different construction to a
statute89 only if the new interpretation is in congruence with the law. Otherwise, no amount of
interpretation can ever revoke, repeal or modify what the law says.

"Consumed Abroad" Not Required by Legislature

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

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

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

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

"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is
required that the following services be performed in the Philippines.

"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they send the
payment inwardly to the Philippines in foreign currency, and that is, of course,
zero-rated.lawphil.net

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

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

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

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

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

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

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

xxxxxxxxx

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

"Senator Herrera: This provision applies to a VAT-registered person. When he performs services
in the Philippines, that is zero-rated.

"Senator Maceda: That is right."90

Legislative Approval By Reenactment

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

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

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

Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely
freed from the VAT, because the seller is entitled to recover, by way of a refund or as an input tax
credit, the tax that is included in the cost of purchases attributable to the sale or exchange.94 "[T]he
tax paid or withheld is not deducted from the tax base."95 Having been applied for within the
reglementary period,96 respondent’s refund is in order.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes

1 Rollo, pp. 8-23.

2Id., pp. 25-39. Fifth Division. Penned by Justice Josefina Guevara-Salonga, with the concurrence
of Justices Godardo A. Jacinto (Division chair) and Eloy R. Bello Jr. (member, now retired).

3 CA Decision, p. 15; rollo, p. 38.

4 Outer brackets copied verbatim.

5 Ibid.

6 Ibid.

7 CTA Decision, pp. 1-15; rollo, pp. 40-54. Penned by then Presiding Judge (now Presiding Justice)
Ernesto D. Acosta, with the concurrence of then Judges Ramon O. de Veyra and Amancio Q. Saga
(both retired).

8CA Decision pp. 2-7; rollo, pp. 26-31. Boldface characters, underscoring and italics copied
verbatim.

9This case was deemed submitted for decision on July 23, 2003, upon this Court’s receipt of
petitioner’s Memorandum, signed by Solicitor General Alfredo L. Benipayo, Assistant Solicitor
General Fernanda Lampas Peralta and Associate Solicitor Romeo D. Galzote. Respondent’s
Memorandum -- signed by Attys. Rolando V. Medalla Jr., Ramon G. Songco, and Ma. Elizabeth E.
Peralta-Loriega -- was received by this Court on May 16, 2003.

10 Petitioner’s Memorandum, p. 9; temporary rollo, p. 9. Original in upper case.

11 In the case at bar, the applicable Tax Code refers to the National Internal Revenue Code (NIRC)
of 1986 as amended by Executive Order (EO) No. 273 and Republic Act (RA) Nos. 7716 and 8241
dated July 25, 1987, May 5, 1994, and December 20, 1996, respectively.

Today, the Tax Code refers to RA 8424 as amended, otherwise known as the "Tax Reform Act of
1997," which took effect on January 1, 1998 (Commissioner of Internal Revenue v. CA, 385 Phil.
875, 883, March 30, 2000).

12In fact, per VAT Ruling No. 080-89 addressed to Spencer F. Lenhart, vice-president and general
manager of American Express International, Inc. (AEII Philippines), BIR Deputy Commissioner
Eufracio D. Santos wrote that "there is no need to file an application" for zero rating.

13 Garner (ed. in chief), Black’s Law Dictionary (8th ed., 1999), p. 1399.

14 Smith, West’s Law Dictionary (1993), p. 737.

15§99 [now §105] and §102(b)(2) [now §108(B)(2)] of the Tax Code. See footnote 11; and
Deoferio Jr. and Mamalateo, The Value Added Tax in the Philippines (2000), p. 33.

16These are unlike some widely used credit cards, such as Visa and MasterCard, that are issued by
banks. See Meigs and Meigs, Accounting: The Basis for Business Decisions (5th ed., 1982), pp.
355-356.

17This is also known as the "Access Devices Regulation Act of 1998" approved on February 11,
1998.

18For example, "Visa and MasterCard are complex entities in that they are owned by their member
banks, provide network services to their member banks, and provide currency conversion as part of
the network services, but have no contracts with cardholders." Schwartz v. Visa International Corp.,
2003 WL 1870370 (Cal. Superior), p. 50, April 7, 2003, per Sabraw, J.

19 §3(f) of RA 8484.

20 Garner (ed. in chief), supra, p. 396.

21 Ibid.

22 Editorial staff of Prentice-Hall, Inc., Encyclopedic Dictionary of Business Finance (1960), p. 181.

23Credit card drafts are multi-part business forms signed by customers who make purchases using
credit cards. These forms are similar to checks that are drawn upon the funds of credit card
companies rather than upon the personal bank accounts of customers. Meigs and Meigs, supra, p.
355.

24 Id., p. 356.

25 Id., p. 355.

26Consumer credit refers to the credit granted "to an individual to facilitate the purchase of
consumer goods and services." Garner (ed. in chief), supra, p. 396.

Also known as personal credit, it "may be extended by means of a charge account, an installment
sale, or by a personal loan." Editorial staff of Prentice-Hall, Inc., supra, p. 164.

27In general, this term refers to amounts paid on a percentage basis "for the privilege of making
purchases on a deferred payment basis." Smith, supra, p. 314.

Under §3(h) of RA 8484, more specifically, these are amounts "to be paid by the debtor incident to
the extension of credit such as interest or discounts, collection fees, credit investigation fees, and
other service charges."

28 Garner (ed. in chief), supra, p. 199.

29 In general, a home office refers to "the use of a residence for business purposes." Smith, supra,
p. 389.

More specifically, it is the "principal place of business" where the main office is located as appearing
in the corporation’s articles of incorporation. 5th paragraph, §4.107-1 of RR 7-95, dated December
9, 1995.

30 4th paragraph, §4.107-1 of RR 7-95, dated December 9, 1995.

31 Meigs, Mosich, and Larsen, Modern Advanced Accounting (2nd ed., 1979), p. 145.

"Indeed, accounting operations x x x are inevitable, and have to be effected in the ordinary course
of business, wherever the home office x x x extends its trade to another land through a branch
office x x x." Koppel (Philippines), Inc. v. Yatco, 77 Phil. 496, 512, October 10, 1946, per Hilado, J.

32 Meigs, Mosich, and Larsen, supra, p. 148.

33 "Reciprocal accounts" are account titles found in the books of accounts of a home office and its
branches that may be likened to two sides of the same coin. When one account -- the Investment in
Branch account -- is debited by the home office in its own books for a particular transaction with a
branch, the other account -- the Home Office account -- is credited by the latter, also in its own
books to show how that transaction affected it. Thus, if reciprocal accounts are offset against each
other at the end of the financial reporting period of the entire business enterprise, an
intra-company transfer of assets will show neither an increase nor a decrease in total assets,
precisely because the transferred assets merely changed location from one unit of the same entity
to another; that is, from the home office to any of its branches or vice versa. In this scenario, there
is obviously no change in ownership. See Meigs, Mosich, and Larsen, supra, pp. 144-146, 149-150,
165.

34 Petitioner’s Memorandum, p. 27; temporary rollo, p. 27.

35 For financial accounting purposes, the parent company in Delaware is a single entity composed of
its home office, the various ROCs and respondent.

Though viewed as one, the parent company and respondent are, in law, separate and distinct
juridical entities. Applying Art. 44 of the Civil Code, each is a corporation for private interest or
purpose to which the law grants a juridical personality, separate and distinct from that of each
shareholder. While the former is duly organized and existing under and by virtue of the laws of
Delaware, the latter is registered and operates under Philippine laws.

"The act of one corporation crediting or debiting the other for certain items x x x is perfectly
compatible with the idea of the domestic entity being or acting as a mere branch x x x of the parent
organization. Such operations were called for [anyway] by the exigencies or convenience of the
entire business." Koppel (Philippines), Inc. v. Yatco, supra, pp. 511-512.

36A "transfer price" is "[t]he price charged by one segment of an organization for a product or
service supplied to another segment of the same organization x x x." Garner (ed. in chief), supra, p.
1227.

There are three general methods for determining transfer prices; namely, market-based,
cost-based, and negotiated. The method chosen must lead each sub-unit manager to make optimal
decisions for the organization as a whole, in order to meet the three criteria of goal congruence,
managerial effort, and sub-unit autonomy. Horngren & Foster, Cost Accounting: A Managerial
Emphasis (7th ed., 1991), pp. 855-856 & 860.

37Under a responsibility accounting system in which the plans and actions of each responsibility
center is measured, a manager may be held accountable for sales only (of a revenue center); or for
expenses only (of a cost center); or for both revenues and costs (of a profit center); or for revenues,
costs and investments (of an investment center). Horngren & Foster, id., p. 186.

38 Meigs, Mosich, and Larsen, supra, p. 146.

39Under §100 of the Tax Code, "export sales" as applied to goods "means the sale and shipment or
exportation of goods from the Philippines to a foreign country x x x or foreign currency
denominated sales." "Foreign currency denominated sales" refers to "sales to non-residents of
goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines and
paid for in convertible foreign currency remitted through the banking system in the Philippines."
40 Commissioner of Internal Revenue v. Cebu Toyo Corp., GR No. 149073, February 16, 2005.

41 Deoferio Jr. and Mamalateo, supra, pp. 33 & 67.

42 Smith, supra, p. 892.

43See Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371,
378-379, June 30, 1988.

44An indirect tax "is imposed upon goods [before] reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price." Maceda v. Macaraig Jr., 223 SCRA 217, 235, June
8, 1993, per Nocon, J.; referring to Paras, Taxation Fundamentals (1966), pp.
24-25. See Guzman, Crisis Under Arroyo Rages: People Bear the Brunt, IBON Birdtalk: Economic
and Political Briefing, PSSC Auditorium, PSSC Bldg., Commonwealth Ave., Quezon City, January 13,
2005, p. 14.

45See Tolentino v. Secretary of Finance, 235 SCRA 630, 657, August 25, 1994, and Tolentino v.
Secretary of Finance, 319 Phil. 755, 792 & 797, October 30, 1995.

46 Deoferio Jr. and Mamalateo, supra, pp. 49 & 89.

47 Commissioner of Internal Revenue v. CA, supra, pp. 883-884.

482nd paragraph of §102(a) [now 2nd paragraph of §108(A)] of the Tax Code. See Deoferio Jr. and
Mamalateo, supra, pp. 89-90.

49 Commissioner of Internal Revenue v. CA, supra, p. 884, per Pardo, J.

50 Deoferio Jr. and Mamalateo, supra, pp. 81, 82, 91, 92 & 204.

51 Deoferio Jr. and Mamalateo, id., pp. 43 & 93.

52 Per VAT Ruling No. 040-98, relied upon by petitioner. See Petition, p. 9; rollo, p. 16.

53 Garner (ed. in chief), supra, p. 336.

54 Id., p. 1173.

55 Id., p. 479.

56 Id., p. 1421.

57 §102(b)(2) of the Tax Code.

58 See 5th paragraph of item 1 in the reply portion of VAT Ruling No. 040-98, dated November 23,
1998.

59See Alexander Howden & Co., Ltd. v. The Collector (Now Commissioner) of Internal Revenue ,
121 Phil. 579, 583-584, April 14, 1965.
60"[N]o state may tax anything not within its jurisdiction without violating the due process clause of
the [C]onstitution." Manila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895, 900, January 17,
1936, per Malcolm, J.

61 Deoferio Jr. and Mamalateo, supra, p. 93.

62 Alejandro, The Law on Taxation (1966 rev. ed.), p. 33.

63 Garner (ed. in chief), supra, p. 1503.

64 De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 3.

65 Deoferio Jr. and Mamalateo, supra, pp. 93.

66 Agpalo, Statutory Construction (2nd ed., 1990), p. 45.

67Cebu Portland Cement Co. v. Municipality of Naga, Cebu, 133 Phil. 695, 699, August 22, 1968,
per Fernando, J. (later CJ.).

68Luzon Surety Co., Inc. v. De Garcia, 30 SCRA 111, 116, October 31, 1969, per
Fernando, J. (later CJ.).

69 Contex Corp. v. Commissioner of Internal Revenue, 433 SCRA 376, 387, July 2, 2004.

70Gove (ed. in chief) and the Merriam-Webster editorial staff, Webster’s Third New International
Dictionary of the English Language Unabridged (1976), p. 136.

71 2nd paragraph of §102(a) [now 2nd paragraph of §108(A)] of the Tax Code.

72 See Agpalo, supra, pp. 153-160.

73 Ibid.

74 See Regalado v. Yulo, 61 Phil. 173, 179, February 15, 1935.

75 De Leon, supra, p. 83.

76 See 5th paragraph of item 1 in the reply portion of VAT Ruling No. 040-98, dated November 23,
1998.

77 CA Decision, p. 11; rollo, p. 34.

78 See Hilado v. Collector of Internal Revenue, 100 Phil. 288, 295, October 31, 1956.

79Philippine Bank of Communications v. Commissioner of Internal Revenue , 361 Phil. 916, 929,
January 28, 1999, per Quisumbing, J.

80Ibid, (citing People v. Hernandez, 59 Phil. 272, 276, December 22, 1933, and Molina v. Rafferty,
37 Phil. 545, 555, February 1, 1918.)
81Commissioner of Internal Revenue v. Central Luzon Drug Corp., GR No. 159647, April 15, 2005, p.
26, per Panganiban, J.

82 See Commissioner of Internal Revenue v. CA, 240 SCRA 368, 372, January 20, 1995.

83 See Commissioner of Internal Revenue v. CA, 335 Phil. 219, 226-227, February 6, 1997
(citing Commissioner of Internal Revenue v. Telefunken Semiconductor Philippines, Inc., 319 Phil.
523, 530, October 23, 1995; Bank of America NT & SA v. CA, 234 SCRA 302, 306-307, July 21,
1994; Commissioner of Internal Revenue v. CTA, 195 SCRA 444, 460-461, March 20,
1991; Commissioner of Internal Revenue v. Mega General Merchandising Corp., 166 SCRA 166, 172,
September 30, 1988; Commissioner of Internal Revenue v. Burroughs Ltd., 226 Phil. 236, 240-241,
June 19, 1986; and ABS-CBN Broadcasting Corp. v. CTA, 195 Phil. 33, 41 & 44, October 12, 1981).

84This section has been retained in RA 8424 as amended, with a slight modification: "preceding
section" was changed to "preceding Sections."

85 The Municipality Government of Pagsanjan, Laguna v. Reyes, 98 Phil. 654, 658, March 23, 1956.

86Dueñas v. Santos Subdivision Homeowners Association, 431 SCRA 76, 89, June 4, 2004, per
Quisumbing, J. (quoting Republic v. Sandiganbayan, 355 Phil. 181, 198, July 31, 1998, per
Panganiban, J.). See Home Development Mutual Fund v. COA, GR No. 157001, October 19, 2004,
per Carpio, J.

87 §246 of the Tax Code provides:

"Non-retroactivity of rulings. -- Any revocation, modification, or reversal of x x x the rulings x x

x promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where
the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the [BIR]; (b) where the facts subsequently gathered by the [BIR] are materially
different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith."

88 1st paragraph of §4 of RA 8424, the Tax Code now in effect.

89 Hilado v. Collector of Internal Revenue, supra, p. 294.

90Interpellations during the second reading of Committee Report No. 349 on Senate Bill No. 1630 -
VAT Refinements, Record of the Senate, 2nd Regular Session (February 21, 1994 to April 20, 1994),
Vol. IV, No. 65, Monday, March 21, 1994, pp. 536-537. Italics and boldface copied verbatim, but
underscoring ours. See Journal of the Senate, 2nd Regular Session (1993-1994), Vol. III, Monday,
March 21, 1994, p. 70.

91 ABS-CBN Broadcasting Corp. v. CTA, supra, p. 43, per Melencio-Herrera, J. (citing Alexander
Howden & Co., Ltd. v. Collector of Internal Revenue, 121 Phil. 579, 587, April 14, 1965, and Biddle
v. Commissioner of Internal Revenue, 302 U.S., 573, 582, 58 S.Ct. 379, 383, January 10, 1938).
See In re R. Mcculloch Dick, 38 Phil. 41, 77-78, April 16, 1918, per Carson, J. (quoting
Sutherland, Statutory Construction, Vol. II, [2nd ed.], sections 403 and 404).

92Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA 436, 455, November 25, 2003,
per Panganiban, J. (footnoting Alexander Howden & Co., Ltd. v. The Collector [Now Commissioner]
of Internal Revenue, supra, p. 587, per Bengzon, J.P., J.); the latter case citing Laxamana v.
Baltazar, 92 Phil. 32, 34-35, September 19, 1952, and Mead Corporation v. Commissioner of
Internal Revenue, 116 F.2d. 187, 194, November 29, 1940, per Jones, Circuit J.

93Commissioner of Internal Revenue v. CA, supra, pp. 885-886, (citing Commissioner of Internal
Revenue v. CA, 204 SCRA 182, 189-190, November 21, 1991).

94 Commissioner of Internal Revenue v. Cebu Toyo Corp., supra. §110(B) of the Tax Code.

95 Bank of America NT & SA v. CA, supra, p. 307, per Vitug, J.

96"x x x within two (2) years after the close of the taxable quarter x x x," per §106 (now §112) of
the Tax Code.

https://www.lawphil.net/judjuris/juri1956/dec1956/gr_l-10662_1956.html

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-10662 December 14, 1956

ROQUE SENARILLOS, petitioner-appellee,

vs.
EPIFANIO HERMOSISIMA, ET. AL., respondents-appellants.

Antonio Abad Tormis for appellee.

Office of the Solicitor General Ambrosio Padilla and Solicitor Troadio T. Quiazon, Jr. for appellants.

REYES, J.B.L., J.:

Upon petition of Roque Senarillos (appellee before us) and after due hearing, Judge M. M. Mejia of
the Court of First Instance of Cebu (in Case no. R-4001), issued a writ of mandamus to compel the
respondents Municipal Mayor and Council of Sibonga, Cebu, to reinstate petitioner to the position of
Chief of Police of Sibonga, Cebu, declaring null and void his removal from that post, although the
same was approved by the council and confirmed by the Director of Civil Service and the Board of
Civil Service Appeals; and required the respondents Municipal Treasurer of Sibonga and Provincial
Treasurer of Cebu to pay petitioner Senarillos his salary at P840.00 per annum from January 3,
1952, and taxing costs against respondents Municipal Mayor and Council of Sibonga. Respondents
have appealed.
The parties are agreed that Roque Senarillos, being a civil service eligible, was appointed Chief of
Police of Sibonga, Cebu, and served as such until January 2, 1952. On that date, upon charges filed
by one Roque Geraldizo and despite his denials, Senarillos was suspended by the Municipal Mayor
of Sibonga, and investigated by a "police committee" composed of three councilors, created by
Resolution No. 2. Series 1952, of the municipal council. Notwithstanding express protest on the part
of Senarillos that the investigation should not be conducted by a committee, but by full council, as
provided by Republic Act 557. the committee proceeded to try his case, and on April 15, 1952,
rendered an adverse decision, signed later by the municipal council. This decision was appealed to,
and on August 28, 1952, was affirmed by, the Commissioner of civil Service, and later in October,
1954, by the Civil Service Board of Appeals.lawphil.net

In the meantime, upon the expiration of the original period of suspension, Municipal Mayor
Hermosisimo again suspended Senarillos on the strength of Administrative Case No. V-6, which was
never tried; and as the sixty days of the second suspension expired, the Chief of Police was
reinstated on May 25, 1952. However, on July 9, 1952 the Municipal Mayor filed a criminal case for
swindling against Senarillos, and suspended him for the third time. The criminal case was dismissed
on July 24, 1954. Then on April 27, 1955, Senarillos resorted to the Court of First Instance for relief.

That the investigation of police officers under Republic Act No. 557 (as distinguished from section
2272 of the Administrative Code) must be conducted by the council itself, and not by a mere
committee thereof, is now established jurisprudence and no longer open to question since our
decision in Festejo vs. Mayor of Nabua, 96 Phil., 286; 51 Off. Gaz. p. 121, reaffirmed in subsequent
decisions.

The second reason for invalidating the investigation is the fact that the charges were investigated
by a committee of the city council, not by the council itself. While it is true that we had held
in Santos vs. Mendoza, 48 Off. Gaz., No. 11, p. 4801, that such a procedure is valid, the law has
been changed since the above decision. Republic Act No. 557 has eliminated the provision
authorizing investigation by a committee of the council. We held that the change meant that the
investigation should be by the council itself (Festejo vs.Municipal Mayor of Nabua, G.R. No. L-4983,
prom. December 22, 1954). We affirmed this doctrine in the recent case of Covacha vs. Amante,
G.R. Nos. 8790-8797, August 14, 1956, 52 Off. Gaz. No. 11, p. 5109).

Therefore, it is clear that under the present law, the "police committee" constituted by the Municipal
Council of Sibonga had no jurisdiction to investigate the appellee Chief of Police; hence the decision
against him was invalid, even if concurred in by the rest of the councilors, specially since the
petitioner called attention from the beginning to the impropriety and illegality of the committee's
actuations, and of his trial by only some and not all the members of the council. The subsequent
reaffirmation of their decision by the Civil Service authorities could not validate a proceeding that
was illegal and ab initio void.

That the decision of the Municipal Council of Sibonga was issued before the decision in Festejo vs.
Mayor of Nabua was rendered, would be, at the most, proof of good faith on the part of the police
committee, but can not sustain the validity of their action. It is elementary that the interpretation
placed by this Court upon Republic Act 557 constitutes part of the law as of the date it was originally
passed, since this Court's construction merely establishes the contemporaneous legislative intent
that the interpreted law carried into effect.lawphil.net
Respondents also claim that petitioner was guilty of laches, on the strength of Unabia vs. Mayor of
Cebu, 99 Phil., 258 and related decisions. Suffice it to observe that the persistent efforts of the
appellee to secure from the Civil Service authorities a reversal of the unlawful decisions of the
Municipal Council of Sibonga, and the harassment and prosecution to which he was subjected by
the mayor, who suspended petitioner-appellee three times, are more than adequate evidence that
the appellee did not sleep on his rights or abandon his office. His appeal was finally decided by the
Civil Service on October of 1954, and this case was filed less than a year later, in April 1955.

The decision appealed from is affirmed, with the sole modification that the reimbursement of
petitioner-appellee's salary shall not include the pay corresponding to the period from May 26, to
July 8, 1952, since it was stipulated (p. 14) that he was paid for that time. Costs against
respondents, Municipal Mayor and the Council of Sibonga, Cebu. So ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and
Felix, JJ., concur.

https://lawphil.net/judjuris/juri2001/apr2001/gr_141938_2001.html

THIRD DIVISION

G.R. No. 141938 April 2, 2001

TUNG CHIN HUI, petitioner,

vs.
RUFUS B. RODRIGUEZ, Commissioner of Immigration and the BOARD OF
COMMISSIONERS, Bureau of Immigration and Deportation, respondents.

PANGANIBAN, J.:

The writ of habeas corpus cannot be issued in cases in which the Bureau of Immigration has duly
ordered the deportation of undocumented aliens, specifically those found guilty of illegally entering
the Philippines with the use of tampered and previously cancelled passports.1âwphi1.nêt

The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 30, 1999
Decision1 of the Court of Appeals (CA) in CA-GR SP No. 51723. The dispositive portion of the CA
Decision reads as follows:

"WHEREFORE, premises considered, the appeal is hereby GRANTED. The petition for habeas
corpus is hereby DISMISSED. No pronouncement as to costs.

"SO ORDERED."2

The CA reversed the January 7, 1999 Decision3 of the Regional Trial Court (RTC) of Manila, which
disposed as follows:

"WHEREFORE, premises considered, judgment is hereby rendered GRANTING the petition, and as
such, public respondent, Hon. Rufus Rodriguez, Commissioner Bureau of Immigration and
Deportation, is hereby ordered to immediately release the person of petitioner, Tung Chin Hui, from
his official custody, upon receipt of this Decision."4

Also challenged by petitioner is the February 4, 2000 CA Resolution 5 denying his Motion for
Reconsideration.

The Facts

Petitioner, a "Taiwanese national,"6 arrived in this country on November 5, 1998, as a temporary

visitor. A few days later, he was arrested by several policemen, who turned him over to the Bureau
of Immigration and Deportation (BID).

Petitioner was duly charged. In due course, the Bill Board of Commissioners issued a Summary
Deportation Order dated November 25, 1998, finding him guilty of possessing a tampered passport
earlier cancelled by Taiwanese authorities.

On December 11, 1998, petitioner filed before the Regional Trial Court (RTC) of Manila a Petition for
Habeas Corpus on the ground that his detention was illegal. In their Return of Writ, respondents
denied petitioner's claim. In a Decision dated January 7, 1999, the trial court granted his Petition
and ordered his release. In its January 29, 1999 0rder, it denied respondents' Motion for
Reconsideration.

Respondents, who received the trial court's January 29, 1999 Order on February 11, 1999, then
filed a Notice of Appeal on February 16, 1999. In an Order dated February 18, 1999, the RTC
rejected petitioner's Opposition and granted due course to the Notice of Appeal.

Subsequently, the appellate court rendered its July 30, 1999 Decision, which as earlier mentioned
reversed the trial court.

Meanwhile, during the pendency of the proceedings before the CA, petitioner filed a Petition for
Certiorari7 before this Court, docketed as GR No.137571, contending that the RTC should have
rejected the appeal for allegedly being filed late-beyond the 48-hour period provided under the
pre-1997 Rules of Court. In its September 21, 2000 Decision which became final on October 31,
2000,8 this Court denied the Petition.

Ruling of the Court of Appeals

The appellate court held that petitioner was not entitled to the writ of habeas corpus, because the
BID Board of Commissioners had found him guilty of violating Section 37 (a) of the Philippine
Immigration Act of 1940, as amended. Citing documents from the Taiwan Economic and Cultural
Offices (TECO), the CA found that petitioner's passport had been cancelled by the Republic of China
on the ground that its holder was not the real Tung Chin Hui, but a fugitive from justice who had
tampered the passport. The CA also held that the TECO documents, being public in nature, need
not be testified to by the persons who had issued them.

Hence, this Petition.9

The Issues

In his Memorandum, petitioner submits the following issues for the consideration of this Court:10

"A. PRINCIPAL ISSUES:

(1) Is the reglementary period within which to appeal in habeas corpus cases forty-eight hours from
notice of the Decision appealed from? (as petitioner contends); or is it 15 days similar to other cases
from notice of the Decision? (as contended by the respondents);

(2) Was the appeal taken by the respondents from the Order of the Regional Trial Court of Manila,
Branch 26, denying respondents' Motion for Reconsideration, proper? (as postulated by the
respondents) or improper and not allowable being violative of Sec. 1 (a), Rule 41, of the 1997 Rules
of Civil Procedure? (as comprehended by the petitioner)

A. SECONDARY ISSUES:

(1) Should the Court of Appeals give weight to findings of fact arrived at by the Regional Trial Court
of Manila, Branch 26, based on the evidence presented or adduced during the trial of the case, in
keeping with established precedents?

(2) May the Honorable Court of Appeals consider extraneous facts brought out by the respondents
in their memorandum but are not supported by the evidence presented, identified and admitted by
the trial court during the hearing of the case?

(3) Did the Court of Appeals acquire jurisdiction over the case when the appeal was filed out of time
and the Order appealed from is not appealable?"

In the main, this Court will resolve the propriety of issuing a writ of habeas corpus. As a preliminary
matter, the Court will also consider the propriety of the appeal before the CA.

Court' s Ruling

The Petition is not meritorious.

Preliminary Matter:

Propriety of the Appeal

Petitioner contends that the appeal from the trial court to the CA was improper for two reasons: (1)
it was filed beyond the reglementary 48-hour period provided under the pre-1997 Rules of Court;
and (2) it assailed not a judgment but a resolution denying a motion for reconsideration, contrary to
Section 111 of Rule 41.12

This Court already rejected the same arguments in its earlier Decision in GR No. 137571, 13 which
debunked petitioner's challenge to the propriety of the appeal. Pertinent portions of that Decision
are reproduced below:

"Clearly then, the reglementary period for filing an appeal in a habeas corpus case is now similar to
that in ordinary civil actions and is governed by Section 3, Rule 41 of the 1997 Rules, which
provides:

'SEC. 3. Period of ordinary appeal. - The appeal shall be taken within fifteen (15) days from notice
of the judgment or final order appealed from. Where a record on appeal is required the appellant
shall file a notice of appeal and a record on appeal within thirty (30) days from notice of the
judgment or final order.

The period of appeal shall be interrupted by a timely motion for new trial or reconsideration. No
motion for extension of time to file a motion for new trial or reconsideration shall be allowed.'

In this light, the appeal was seasonably filed within the 15-day reglementary period.

xxx xxx xxx

We agree with respondents. In referring to the trial court's 'judgment,' respondents were dearly
appealing the January 7, 1999 Decision. Had they thought otherwise, they would have referred to
the 'Order.' Indeed, 'judgment' is normally synonymous with 'decision.'

Furthermore, the wrong date of the appealed judgment may be attributed merely to inadvertence.
Such error should not, by itself, deprive respondents of their right to appeal. x x x."

Main Issue:

Propriety of the Writ of Habeas Corpus

Habeas corpus is a writ directed to a person detaining another, commanding the former to produce
the body of the latter at a designated time and place.14 Section 1, Rule 102 of the Rules of Court
provides that "the writ of habeas corpus shall extend to all cases of illegal confinement or detention
by which any person is deprived of his liberty, or by which the rightful custody of any person is
withheld from the person entitled thereto." The objective of the writ is to determine whether the
confinement or detention is valid or lawful.13 If it is, the writ cannot be issued.

In the present case, petitioner's confinement is in accord with Section 37 (a) of the Philippine
Immigration Act of 1940, as amended, which reads as follows:

"Section 37. (a) The following aliens shall be arrested upon the warrant of the Commissioner of
Immigration or of another officer designated by him for the purpose and deported upon the warrant
of the Commissioner of Immigration after a determination by the Board of Commissioners of the
existence of the ground for deportation as charged against the alien:
xxx xxx xxx

(7) Any alien who remains in the Philippines in violation of any limitation or condition under which
he was admitted as a non-immigrant;

xxx xxx xxx

One such condition for the admission of aliens is found in Section 10 of the same law, which
requires them to "present for admission into the Philippines unexpired passports or official
documents in the nature of passports issued by the governments of the countries to which they owe
allegiance or other travel documents showing their origins and identity as prescribed by regulations,
x x x."

Herein petitioner was properly charged before the Bureau of Immigration for illegally entering the
Philippines with the use of a passport issued to another person and cancelled by the Taiwanese
government in 1995. The Charge Sheet reads as follows:

"CHARGE SHEET

The undersigned Special Prosecutor charges for deportation CHEN KUAN-YUAN @ TUNG, CHIN-HUI
@ DONG TUNG, Taiwanese national for violation of Section 37 (a) (7) of the Philippine Immigration
Act of 1940, as amended, committed as follows:

'that on November 21, 1998. respondent was turned over by the Western Police District to
immigration authorities and upon investigation, it was found out that respondent [was] an
undocumented alien it appearing that respondent [was] in possession of a tampered Taiwanese
passport which was cancelled by Taiwanese Ministry of Foreign Affairs on July 19, 1995, in violation
of Sec. 37 (a) (7) of the Philippine Immigration Act of 1940, as amended.'"

Subsequently, on November 25, 1998, the BID Board of Commissioners issued the Summary
Deportation Order, which is reproduced in full as follows:

SUMMARY DEPORTATION ORDER

Records show that on November 21, 1998 respondent was turned over by the WESTERN POLICE
DISTRICT to immigration authorities and upon investigation, it was found out that respondent [was]
an undocumented alien, it appearing that he [was] in possession of a tampered Taiwanese Passport
which was cancelled by the Taiwanese Ministry of Foreign Affairs on July 10, 1995.

Accordingly, on November 25, 1998, deportation charges were filed against respondent with the
Board of Commissioners for violation of Sec. 37 (a) (7) of the Philippine Immigration Act of 1940 as
amended.

After a careful examination of the records, we determine that respondent has violated the
above-cited provision.

WHEREFORE, premises considered, the Board of Commissioners hereby orders that summary
deportation of respondent, CHEN KUAN-YUAN @ TUNG CHIN-HUI @ DONG TUNG to his country of
origin subject to the submission of the usual clearances.
Include his name in the Blacklist upon implementation of this Order.

The Chief of the Civil Security Unit is hereby directed to implement this Order within three (3) days
from receipt hereof.

Give respondent a copy of this Order.

SO ORDERED."

Echoing the holding of the RTC, herein petitioner argues that no evidence was presented to prove
that he was an "undocumented alien"; that is, that he tampered with a passport that had already
been cancelled by the Taiwanese government. He further contends that he was in fact allowed to
enter the Philippines seventeen times from 1995 to 1998, notwithstanding the alleged cancellation
of his passport in 1995.16

These contentions are not meritorious. The Return of the Writ submitted by respondents before the
trial court clearly shows that petitioner had lawfully been charged and ordered deported for being
an undocumented alien. Section 13, Rule 102 of the Ru1es of Court specifically provides that "the
return [of the writ] shall be considered prima facie evidence of the cause of the restraint; x x x."

Moreover, attached to the Return of the Writ were copies of official letters of the Taiwan Economic
and Cultural Offices. These documents show that petitioner, whose real name is Chen Kuan-Yuan,
was using a passport that had already been cancelled by the Taiwanese government in 1995 and
previously issued to a man named Tung Chin Hui. The two letters are reproduced in full hereunder:

"November 24, 1998

Honorable Rufus B. Rodriguez

Commissioner
Bureau of Immigration
Magallanes Drive, Intramuros
Manila

Attention: Chief, Intelligence Division

Sir:

In behalf of the Bureau of Immigration of the Republic of China, I would like to inform your good
office that Taiwanese fugitive MR. CHEN, KUAN-YUAN (D.O.B. 0ctober 12, 1956) tampered
Republic of China passport number M 9534820, issued to MR. TUNG, CHIN-HUI (D.O.B. November
28, 1956). The said passport was cancelled by the Republic of China Ministry of Foreign Affairs on
July 19t 1995.

Very truly yours,

KUO, KUANG-KWO
Senior Assistant
Encl. Fingerprint of Mr. Tung, Chin-Hui"

November 19, 1998

Honorable Rufus B. Rodriguez

Commissioner
Bureau of Immigration
Magellanes Drive, Intramuros
Manila

Attention: Chief. Intelligence Division

Sir:

In behalf of the Bureau of Immigration of the Republic of China, I have the honor to seek your kind
assistance to deport MR. CHEN, KUAN-YUAN (D.O.B. 12 October 1956). Mr. Chen was sentenced to
8 years and 2 months imprisonment for drug trafficking and violation of controlling guns,
ammunition and knives law. Mr. Chen was arrested by the Western Police District Command last
November 16, 1998 through the request of the Republic of China international Police. According to
the travel record of the said fugitive he has no record of leaving Taiwan.

Your immediate action and assistance in this matter will be highly appreciated.

Very truly yours,

KUO, KUANG-KWO
Senior Assistant"

The above-quoted official letters demonstrate the speciousness of petitioner's contention that his
passport could not have been cancelled in 1995, inasmuch as he was allowed to enter the country
as late as 1998. The letters show that the Philippine government was informed about the
cancellation only in 1998.

Furthermore, the foregoing letters of the official representative of the Taiwanese government belie
petitioner's submission that there was no evidence to prove the findings of the CA and the Board of
Commissioners.17 Verily, these documents constitute sufficient justification for his deportation. As
the Court held in the landmark case Forbes v. Chuoco Tiaco,18 "[t]he mere fact that a citizen or
subject is out of the territory of his country does not relieve him from that allegiance which he owes
to his government, and his government may under certain conditions, properly and legally request
his return."19

Alleged Lack of Notice

We likewise reject petitioner's reliance on the ruling of the trial court that "[w]hile it may be true
that there is a Summary Deportation Order against the petitioner allegedly for being [an]
undocumented alien, having used a passport which had already been cancelled, there is no showing
that he was informed about it."20

Other than petitioner's bare allegations, however, we find no sufficient basis to overturn the
presumption that the Bureau of Immigration conducted its proceedings in accordance with law.21

In any event, when petitioner filed the Petition for Habeas Corpus before the RTC, he was afforded
ample opportunity to air his side and to assail the legal and factual bases of the Board of
Commissioners' Summary Deportation Order. Moreover, he could have raised the same points in
the proceedings before the CA and even before this Court. Indeed, an alien has the burden of proof
to show that he entered the Philippines lawfully.22Petitioner has not discharged this burden. He has
not controverted - either before the RTC, the CA or this Court - the Board of Commissioners' ruling
that he was in fact Chen Kuan-Yuan, who was "sentenced to 8 years and 2 months imprisonment
for drug trafficking and violation of controlling guns, ammunition and knives law and was holding a
passport cancelled by the Republic of China in 1995.

Just as unmeritorious is petitioner's contention that "at the time of his detention, there was no
deportation charge filed against him."23 Assuming arguendo that his arrest was illegal, supervening
events bar his subsequent release.24In this case, when the Petition for Habeas Corpus was filed,
petitioner had already been charged and ordered deported by the Board of Commissioners.

In sum, we hold that petitioner's confinement was not illegal; hence, there is no justification for the
issuance of a writ of habeas corpus. Moreover, he has not shown any cogent reason to warrant the
nullification of the Board of Commissioners' Summary Deportation Order.

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against
petitioner.1âwphi1.nêt

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

Footnote

1 Rollo, pp. 19-29. Penned by Justice M. Umali with the concurrence of Justice Quirino D. Abad
Santos Jr. (Division chairman) and Romeo S. Callejo Sr.

2 CA Decision, p. 11; rollo, p. 29.

3 Written by Judge Guillermo L. Loja Sr.

4 Rollo, pp. 70 and 116.

5 Rollo, pp. 61-63.

6 Petition, p. 1; rollo, p. 3.

7Entitled Tung Chin Hui v. Rufus Rodriguez and BID Board of Commissioners and docketed as GR
No. 137571.
8 Entry of Judgment; rollo (GR No. 137571), p. 175.

9The case was deemed submitted for resolution October 4, 2000, upon receipt by this Court of
petitioner's Memorandum signed by Atty. Marciano J. Cagatan. Filed earlier was respondents'
Memorandum, signed by Solicitor General Ricardo P. Galvez, Assistant Solicitor General Magdangal
M. de Leon and Solicitor Renan E. Ramos

10 Petitioner's Memorandum, pp. 4-5; rollo, pp. 117-118.

11It provides that "[n]o appeal may be taken from: (a) an order denying a motion for new trial or
reconsideration; x x x."

12 Petitioner's Memorandum, pp. 5-7; rollo, pp. 118-120.

13 Tung Chin Hui v. Rodriguez, GR No. 137571, September 21, 2000, per Panganiban, J. Citations
omitted.

14 Ilusorio v. CA, GR No. 139808, May 12, 2000; citing Moran, Comments on the Rules of Court, Vol.
III, 1997 ed., p. 780.

15See Sombong v. CA, 252 SCRA 663, January 31, 1996; Ordonez v. Vinanao, 239 SCRA 114,
December 8, 1994.

16 Petitioner's Memorandum, pp. 8-9; rollo, pp. 121-122.

17Indeed, Section 13 of Rule 102 provides as follows. "If it appears that the prisoner is in custody
under a warrant of commitment in pursuance of law, the return shall be considered prima facie
evidence of the cause restraint; x x x."

18 16 Phil. 534, 571-572 [1910], per Johnson, J.

19Under Law Instruction No. 31 issued on June 8, 1988, by Hon. Miriam Defensor Santiago, then
Commissioner of Immigration, "if the foreign embassy cancels the passport of the alien, he loses
the privilege to enter or remain in the country. The automatic loss of the privilege obviates
deportation proceedings under the Immigration Act, Section 37; or the Administrative Code,
Section 69." In such case, "the Board of Commissioners may issue a summary judgment of
deportation, which is immediately executory." See also Office Memorandum Order No. 34 dated
August 21, 1989, issued by Acting Immigration Commissioner Bienvenido P. Alano Jr.

20 Petitioner's Memorandum, p. 7; rollo, p. 120.

21 Section 3 (m), Rule 131, Rules of Court.

22 Section 37 (d), Philippine Immigration Act of 1940, as amended.

23 Petitioner's Memorandum, p. 9; rollo, p. 122.

24See Velasco v. CA, 245 SCRA 677, July 7, 1995; Paredes v. Sandiganbayan, 193 SCRA 464,
January 28, 1991; Cruz v. Montoya, 62 SCRA 543, February 25, 1975; Matsum v. Director of Prisons,
77 Phil. 1050 [1947].
https://lawphil.net/judjuris/juri2007/aug2007/gr_171815_2007.html

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 171815 August 7, 2007

CEMCO HOLDINGS, INC., Petitioner,

vs.
NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.

DECISION

CHICO-NAZARIO, J.:

This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24
October 2005 Decision1 and the 6 March 2006 Resolution2 of the Court of Appeals in CA-G.R. SP No.
88758 which affirmed the judgment3 dated 14 February 2005 of the Securities and Exchange
Commission (SEC) finding that the acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the
shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas Cement Corporation (ACC)
in Union Cement Holdings Corporation (UCHC) was covered by the Mandatory Offer Rule under
Section 19 of Republic Act No. 8799, otherwise known as the Securities Regulation Code.

The Facts

Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders – UCHC,
a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%.
Majority of UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the
other hand, owned 9% of UCHC stocks.

In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it
and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to
21.31% and ACC’s stocks in UCHC equivalent to 29.69%.

In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of
petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC, petitioner’s total beneficial
ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the
shares of UCC, to wit4 :

Particulars Percentage
Existing shares of Cemco in
9%
UCHC

Acquisition by Cemco of BCI’s

51%
and ACC’s shares in UCHC

Total stocks of Cemco in UCHC 60%

Percentage of UCHC ownership in

60%
UCC

Indirect ownership of Cemco in

36%
UCC

Direct ownership of Cemco in

17%
UCC

Total ownership of Cemco in UCC 53%

As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as
to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities
Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC.

In a letter dated 16 July 2004, Director Justina Callangan of the SEC’s Corporate Finance
Department responded to the query of the PSE that while it was the stance of the department that
the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en
banc.

Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en
banc had resolved that the Cemco transaction was not covered by the tender offer rule.

On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company
of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter
to comply with the rule on mandatory tender offer. Cemco, however, refused.

On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and
Cemco, as buyer.

On 12 August 2004, the transaction was consummated and closed.

On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a
complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase
agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC
shares. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were then
required by the SEC to file their respective comment on the complaint. In their comments, they
were uniform in arguing that the tender offer rule applied only to a direct acquisition of the shares
of the listed company and did not extend to an indirect acquisition arising from the purchase of the
shares of a holding company of the listed firm.
In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent by reversing and
setting aside its 27 July 2004 Resolution and directed petitioner Cemco to make a tender offer for
UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in
accordance with Section 9(E), Rule 19 of the Securities Regulation Code.

Petitioner filed a petition with the Court of Appeals challenging the SEC’s jurisdiction to take
cognizance of respondent’s complaint and its authority to require Cemco to make a tender offer for
UCC shares, and arguing that the tender offer rule does not apply, or that the SEC’s
re-interpretation of the rule could not be made to retroactively apply to Cemco’s purchase of UCHC
shares.

The Court of Appeals rendered a decision affirming the ruling of the SEC. It ruled that the SEC has
jurisdiction to render the questioned decision and, in any event, Cemco was barred by estoppel
from questioning the SEC’s jurisdiction. It, likewise, held that the tender offer requirement under
the Securities Regulation Code and its Implementing Rules applies to Cemco’s purchase of UCHC
stocks. The decretal portion of the said Decision reads:

IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and the preliminary
injunction issued by the Court LIFTED.5

Cemco filed a motion for reconsideration which was denied by the Court of Appeals.

Hence, the instant petition.

In its memorandum, petitioner Cemco raises the following issues:

I.

ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFE’S COMPLAINT
AND THAT THE SEC’S RE-INTERPRETATION OF THE TENDER OFFER RULE IS CORRECT,
WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCO’S
PREJUDICE.

II.

WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE BETWEEN THE
PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A TENDER OFFER FOR
UCC SHARES.

III.

WHETHER OR NOT CEMCO’S PURCHASE OF UCHC SHARES IS SUBJECT TO THE TENDER OFFER
REQUIREMENT.

IV.

WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN INCOMPLETE

JUDGMENT WHICH PRODUCED NO EFFECT.6

Simply stated, the following are the issues:

1. Whether or not the SEC has jurisdiction over respondent’s complaint and to require Cemco to
make a tender offer for respondent’s UCC shares.

2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in
a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-listed
company, through its purchase of the shares in UCHC, a non-listed company.

3. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemco’s
transaction which was consummated under the authority of the SEC’s prior resolution.

On the first issue, petitioner Cemco contends that while the SEC can take cognizance of
respondent’s complaint on the alleged violation by petitioner Cemco of the mandatory tender offer
requirement under Section 19 of Republic Act No. 8799, the same statute does not vest the SEC
with jurisdiction to adjudicate and determine the rights and obligations of the parties since, under
the same statute, the SEC’s authority is purely administrative. Having been vested with purely
administrative authority, the SEC can only impose administrative sanctions such as the imposition
of administrative fines, the suspension or revocation of registrations with the SEC, and the like.
Petitioner stresses that there is nothing in the statute which authorizes the SEC to issue orders
granting affirmative reliefs. Since the SEC’s order commanding it to make a tender offer is an
affirmative relief fixing the respective rights and obligations of parties, such order is void.

Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress, the
SEC cannot, by mere administrative regulation, confer on itself that jurisdiction.

Petitioner’s stance fails to persuade.

In taking cognizance of respondent’s complaint against petitioner and eventually rendering a

judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule
19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to
wit:

13. Violation

If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company
at threshold amounts without the required tender offer, the Commission, upon complaint, may
nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to
the imposition of other sanctions under the Code.

The foregoing rule emanates from the SEC’s power and authority to regulate, investigate or
supervise the activities of persons to ensure compliance with the Securities Regulation Code, more
specifically the provision on mandatory tender offer under Section 19 thereof.7

Another provision of the statute, which provides the basis of Rule 19(13) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz:

[T]he Commission shall have, among others, the following powers and functions:

xxxx
(n) Exercise such other powers as may be provided by law as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express powers granted the
Commission to achieve the objectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied
from the express powers of the Commission or which is incidental to, or reasonably necessary to
carry out, the performance of the administrative duties entrusted to it. As a regulatory agency, it
has the incidental power to conduct hearings and render decisions fixing the rights and obligations
of the parties. In fact, to deprive the SEC of this power would render the agency inutile, because it
would become powerless to regulate and implement the law. As correctly held by the Court of
Appeals:

We are nonetheless convinced that the SEC has the competence to render the particular decision it
made in this case. A definite inference may be drawn from the provisions of the SRC that the SEC
has the authority not only to investigate complaints of violations of the tender offer rule, but to
adjudicate certain rights and obligations of the contending parties and grant appropriate reliefs in
the exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows a general grant
of adjudicative powers to the SEC which may be implied from or are necessary or incidental to the
carrying out of its express powers to achieve the objectives and purposes of the SRC. We must bear
in mind in interpreting the powers and functions of the SEC that the law has made the SEC primarily
a regulatory body with the incidental power to conduct administrative hearings and make decisions.
A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers, and if
the case involves violations or conflicts in connection with the performance of its regulatory
functions, it will have the duty and authority to resolve the dispute for the best interests of the
public.8

For sure, the SEC has the authority to promulgate rules and regulations, subject to the limitation
that the same are consistent with the declared policy of the Code. Among them is the protection of
the investors and the minimization, if not total elimination, of fraudulent and manipulative devises.
Thus, Subsection 5.1(g) of the law provides:

Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders.

Also, Section 72 of the Securities Regulation Code reads:

72.1. x x x To effect the provisions and purposes of this Code, the Commission may issue, amend,
and rescind such rules and regulations and orders necessary or appropriate, x x x.

72.2. The Commission shall promulgate rules and regulations providing for reporting, disclosure
and the prevention of fraudulent, deceptive or manipulative practices in connection with the
purchase by an issuer, by tender offer or otherwise, of and equity security of a class issued by it
that satisfies the requirements of Subsection 17.2. Such rules and regulations may require such
issuer to provide holders of equity securities of such dates with such information relating to the
reasons for such purchase, the source of funds, the number of shares to be purchased, the price to
be paid for such securities, the method of purchase and such additional information as the
Commission deems necessary or appropriate in the public interest or for the protection of investors,
or which the Commission deems to be material to a determination by holders whether such security
should be sold.
The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition
of the complexity and the constantly-fluctuating nature of the market and the impossibility of
foreseeing all the possible contingencies that cannot be addressed in advance. As enunciated in
Victorias Milling Co., Inc. v. Social Security Commission9 :

Rules and regulations when promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a statute, and compliance
therewith may be enforced by a penal sanction provided in the law. This is so because statutes are
usually couched in general terms, after expressing the policy, purposes, objectives, remedies and
sanctions intended by the legislature. The details and the manner of carrying out the law are often
times left to the administrative agency entrusted with its enforcement. In this sense, it has been
said that rules and regulations are the product of a delegated power to create new or additional
legal provisions that have the effect of law.

Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out
that petitioner had participated in all the proceedings before the SEC and had prayed for affirmative
relief. In fact, petitioner defended the jurisdiction of the SEC in its Comment dated 15 September
2004, filed with the SEC wherein it asserted:

This Honorable Commission is a highly specialized body created for the purpose of administering,
overseeing, and managing the corporate industry, share investment and securities market in the
Philippines. By the very nature of its functions, it dedicated to the study and administration of the
corporate and securities laws and has necessarily developed an expertise on the subject. Based on
said functions, the Honorable Commission is necessarily tasked to issue rulings with respect to
matters involving corporate matters and share acquisitions. Verily when this Honorable Commission
rendered the Ruling that " … the acquisition of Cemco Holdings of the majority shares of Union
Cement Holdings, Inc., a substantial stockholder of a listed company, Union Cement Corporation, is
not covered by the mandatory tender offer requirement of the SRC Rule 19," it was well within its
powers and expertise to do so. Such ruling shall be respected, unless there has been an abuse or
improvident exercise of authority.10

Petitioner did not question the jurisdiction of the SEC when it rendered an opinion favorable to it,
such as the 27 July 2004 Resolution, where the SEC opined that the Cemco transaction was not
covered by the mandatory tender offer rule. It was only when the case was before the Court of
Appeals and after the SEC rendered an unfavorable judgment against it that petitioner challenged
the SEC’s competence. As articulated in Ceroferr Realty Corporation v. Court of Appeals11 :

While the lack of jurisdiction of a court may be raised at any stage of an action, nevertheless, the
party raising such question may be estopped if he has actively taken part in the very proceedings
which he questions and he only objects to the court’s jurisdiction because the judgment or the
order subsequently rendered is adverse to him.

On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct
acquisition of shares in the public company.

This contention is not meritorious.

Tender offer is a publicly announced intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company.12 A public company is defined as a
corporation which is listed on an exchange, or a corporation with assets exceeding ₱50,000,000.00
and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such
company.13 Stated differently, a tender offer is an offer by the acquiring person to stockholders of a
public company for them to tender their shares therein on the terms specified in the offer.14 Tender
offer is in place to protect minority shareholders against any scheme that dilutes the share value of
their investments. It gives the minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as those of the
majority shareholders.15

Under Section 19 of Republic Act No. 8799, it is stated:

Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at
least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class
of any equity security of a corporation with assets of at least Fifty million pesos (₱50,000,000.00)
and having two hundred (200) or more stockholders with at least one hundred (100) shares each or
who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12)
months shall make a tender offer to stockholders by filing with the Commission a declaration to that
effect; and furnish the issuer, a statement containing such of the information required in Section 17
of this Code as the Commission may prescribe. Such person or group of persons shall publish all
requests or invitations for tender, or materials making a tender offer or requesting or inviting letters
of such a security. Copies of any additional material soliciting or requesting such tender offers
subsequent to the initial solicitation or request shall contain such information as the Commission
may prescribe, and shall be filed with the Commission and sent to the issuer not later than the time
copies of such materials are first published or sent or given to security holders.

Under existing SEC Rules,16 the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to thirty-five percent (35%). It is further provided therein that mandatory
tender offer is still applicable even if the acquisition is less than 35% when the purchase would
result in ownership of over 51% of the total outstanding equity securities of the public company.17

The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC
shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender
offer rule.

This interpretation given by the SEC and the Court of Appeals must be sustained.

The rule in this jurisdiction is that the construction given to a statute by an administrative agency
charged with the interpretation and application of that statute is entitled to great weight by the
courts, unless such construction is clearly shown to be in sharp contrast with the governing law or
statute.18 The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies for
addressing and satisfying those needs; it also relates to accumulation of experience and growth of
specialized capabilities by the administrative agency charged with implementing a particular
statute.19

The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender
offer rule covers not only direct acquisition but also indirect acquisition or "any type of acquisition."
This is clear from the discussions of the Bicameral Conference Committee on the Securities Act of
2000, on 17 July 2000.
SEN. S. OSMEÑA. Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of
course, he will pay a premium for the first 67%. Control yan, eh. Eh, kawawa yung mga maiiwan,
ang 33% because the value of the stock market could go down, could go down after that, because
there will (p. 41) be no more market. Wala nang gustong bumenta. Wala nang… I mean maraming
gustong bumenta, walang gustong bumili kung hindi yung majority owner. And they will not buy.
They already have 67%. They already have control. And this protects the minority. And we have
had a case in Cebu wherein Ayala A who already owned 40% of Ayala B made an offer for another
40% of Ayala B without offering the 20%. Kawawa naman yung nakahawak ngayon ng 20%. Ang
baba ng share sa market. But we did not have a law protecting them at that time.

CHAIRMAN ROCO. So what is it that you want to achieve?

SEN. S. OSMEÑA. That if a certain group achieves a certain amount of ownership in a corporation,
yeah, he is obligated to buy anybody who wants to sell.

CHAIRMAN ROCO. Pro-rata lang. (p. 42).

xxxx

REP. TEODORO. As long as it reaches 30, ayan na. Any type of acquisition just as long as it will
result in 30… (p.50)… reaches 30, ayan na. Any type of acquisition just as long as it will result in 30,
general tender, pro-rata.20(Emphasis supplied.)

Petitioner counters that the legislator’s reference to "any type of acquisition" during the
deliberations on the Securities Regulation Code does not indicate that congress meant to include
the "indirect" acquisition of shares of a public corporation to be covered by the tender offer rule.
Petitioner also avers that it did not directly acquire the shares in UCC and the incidental benefit of
having acquired the control of the said public company must not be taken against it.

These arguments are not convincing. The legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company and for the purpose of protecting
the minority stockholders of a listed corporation. Whatever may be the method by which control of
a public company is obtained, either through the direct purchase of its stocks or through an indirect
means, mandatory tender offer applies. As appropriately held by the Court of Appeals:

The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as
a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to
construe ownership acquisition to mean both direct and indirect. What is decisive is the
determination of the power of control. The legislative intent behind the tender offer rule makes
clear that the type of activity intended to be regulated is the acquisition of control of the listed
company through the purchase of shares. Control may [be] effected through a direct and indirect
acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur.
The bottomline of the law is to give the shareholder of the listed company the opportunity to decide
whether or not to sell in connection with a transfer of control. x x x.21

As to the third issue, petitioner stresses that the ruling on mandatory tender offer rule by the SEC
and the Court of Appeals should not have retroactive effect or be made to apply to its purchase of
the UCHC shares as it relied in good faith on the letter dated 27 July 2004 of the SEC which opined
that the proposed acquisition of the UCHC shares was not covered by the mandatory offer rule.
The argument is not persuasive.

The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed
as passing merits or giving approval to the questioned transaction. As aptly pointed out by the
respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter
prepared by Director Callanga. There was no public hearing where interested parties could have
been heard. Hence, it was not issued upon a definite and concrete controversy affecting the legal
relations of parties thereby making it a judgment conclusive on all the parties. Said letter was
merely advisory. Jurisprudence has it that an advisory opinion of an agency may be stricken down if
it deviates from the provision of the statute.22 Since the letter dated 27 July 2004 runs counter to
the Securities Regulation Code, the same may be disregarded as what the SEC has done in its
decision dated 14 February 2005.

Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be
utilized to determine the rights of the parties. What is to be applied in the present case is the
subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the
letter dated 27 July 2004. In Serrano v. National Labor Relations Commission,23 an argument was
raised similar to the case under consideration. Private respondent therein argued that the new
doctrine pronounced by the Court should only be applied prospectively. Said postulation was
ignored by the Court when it ruled:

While a judicial interpretation becomes a part of the law as of the date that law was originally
passed, this is subject to the qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal thereof, the new doctrine should be
applied prospectively and should not apply to parties who relied on the old doctrine and acted in
good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then,
if there is no recognition of what had transpired prior to such adjudication.

It is apparent that private respondent misconceived the import of the ruling. The decision in
Columbia Pictures does not mean that if a new rule is laid down in a case, it should not be applied in
that case but that said rule should apply prospectively to cases arising afterwards. Private
respondent’s view of the principle of prospective application of new judicial doctrines would turn the
judicial function into a mere academic exercise with the result that the doctrine laid down would be
no more than a dictum and would deprive the holding in the case of any force.

Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case, the Court
did not defer application of the rule laid down imposing a fine on the employer for failure to give
notice in a case of dismissal for cause. To the contrary, the new rule was applied right then and
there. x x x.

Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is "incomplete and
produces no effect."

This contention is baseless.

The decretal portion of the SEC decision states:

In view of the foregoing, the letter of the Commission, signed by Director Justina F. Callangan,
dated July 27, 2004, addressed to the Philippine Stock Exchange is hereby REVERSED and SET
ASIDE. Respondent Cemco is hereby directed to make a tender offer for UCC shares to complainant
and other holders of UCC shares similar to the class held by respondent UCHC, at the highest price
it paid for the beneficial ownership in respondent UCC, strictly in accordance with SRC Rule 19,
Section 9(E).24

A reading of the above ruling of the SEC reveals that the same is complete. It orders the conduct of
a mandatory tender offer pursuant to the procedure provided for under Rule 19(E) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code for the highest price paid for
the beneficial ownership of UCC shares. The price, on the basis of the SEC decision, is determinable.
Moreover, the implementing rules and regulations of the Code are sufficient to inform and guide the
parties on how to proceed with the mandatory tender offer.

WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6
March 2006, respectively, affirming the Decision dated 14 February 2005 of the Securities and
Exchange Commission En Banc, are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it
is hereby certified that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice
Footnotes

1Penned by Associate Justice Mario L. Guariña III with Associate Justices Rebecca De
Guia-Salvador and Arturo G. Tayag, concurring. Rollo, pp. 68-79.

2 Id. at 119.

3 Id. at 254-264.

4 Id. at 71-72.

5 Id. at 78.

6 Id. at 576-578.

7 Section 5, Subsection 5.1. (d) of the Securities Regulation Code provides:

[T]he Commission shall have, among others, the following powers and functions:

xxxx

(d) Regulate, investigate or supervise the activities of persons to ensure compliance.

8 Rollo, p. 75.

9 114 Phil. 555, 558 (1962).

10 Rollo, pp. 182-183.

11 426 Phil. 522, 530 (2002).

12 The Philippine Securities Regulation Code (Annotated), Rafael A. Morales (2005 Ed.), p. 153.

13 Id.

14 Id.

15Securities Regulation Code (Republic Act No. 8799) Annotated with Implementing Rules and
Regulations, Lucila M. Decasa (First Edition, 2004) p. 64.

16Rule 19(2) of the Amended Implementing Rules and Regulations of the Securities Regulation
Code dated 30 December 2003 states:

2. Mandatory tender offers

A. Any person or group of persons acting in concert, who intends to acquire thirty-five percent
(35%) or more of equity shares in a public company shall disclose such intention and
contemporaneously make a tender offer for the percent sought to all holders of such class, subject
to paragraph (9)(E) of this Rule.
In the event that the tender offer is oversubscribed, the aggregate amount of securities to be
acquired at the close of such tender offer shall be proportionately distributed across both selling
shareholder with whom the acquirer may have been in private negotiations and minority
shareholders.

B. Any person or group of persons acting in concert, who intends to acquire thirty-five percent
(35%) or more of equity shares in a public company in one or more transactions within a period of
twelve (12) months, shall be required to make a tender offer to all holders of such class for the
number of shares so acquired within the said period.

C. If any acquisition of even less than thirty-five percent (35%) would result in ownership of over
fifty-one percent (51%) of the total outstanding equity securities of a public company, the acquirer
shall be required to make a tender offer under this Rule for all the outstanding equity securities to
all remaining stockholders of the said company at a price supported by a fairness opinion provided
by an independent financial advisor or equivalent third party. The acquirer in such a tender offer
shall be required to accept any and all securities thus tendered.

17 Id.

18Nestle Philippines, Inc. v. Court of Appeals, G.R. No. 86738, 13 November 1991, 203 SCRA 504,
510.

19 Id. at 510-511.

20 Rollo, pp. 256-257.

21 Id. at 76-77.

22San Juan de Dios Hospital Employees Association-AFW v. National Labor Relations Commission,
346 Phil. 1003, 1010 (1997).

23 387 Phil. 345, 357 (2000).

24 Rollo, p. 263.

C. LIMITATIONS ON POWER TO CONSTRUE

https://www.lawphil.net/judjuris/juri2004/jan2004/gr_155344_2004.html
 FIRST DIVISION

G.R. No. 155344 January 20, 2004

ROLANDO N. CANET, Petitioner,

vs.
MAYOR JULIETA A. DECENA, Respondent.

DECISION

YNARES-SANTIAGO, J.:

On July 27, 1998, the Sangguniang Bayan of Bula, Camarines Sur, passed Resolution No. 049,
Series of 1998,1authorizing petitioner Rolando N. Canet to establish, operate and maintain a cockpit
in Sitio, Cabaya, San Roque, Bula, Camarines Sur.

Subsequently, the Sangguniang Bayan passed Ordinance No. 001, Series of 1999, entitled "An
Ordinance Regulating the Operation of Cockpits and Other Related Game-Fowl Activities in the
Municipality of Bula, Camarines Sur and Providing Penalties for any Violation to (sic) the Provisions
Thereof."2 Upon transmittal to respondent Mayor Julieta A. Decena of the said municipality, it was
noted that the Ordinance does not contain rules and regulations on cockfighting and other related
game fowl activities and a separability clause. The Ordinance was returned to the Sangguniang
Bayan. In Resolution No. 078, Series of 1999, Sangguniang Bayan resolved to withdraw, set aside
and shelf indefinitely Ordinance No. 001, Series of 1999.3

Meanwhile, petitioner, relying on Resolution No. 049, Series of 1998, of the Sangguniang
Bayan, filed an application for a mayor’s permit to operate, establish and maintain a cockpit in Sitio
Cabuya, San Roque, Bula, Camarines Sur. Respondent Mayor Julieta Decena denied the application
on the ground, among others, that under the Local Government Code of 1991, the authority to give
licenses for the establishment, operation and maintenance of cockpits as well as the regulation of
cockfighting and commercial breeding of gamecocks is vested in the Sangguniang Bayan.4

Therefore, she cannot issue the said permit inasmuch as there was no ordinance passed by the
Sangguniang Bayan authorizing the same.

On July 26, 1999, petitioner filed a complaint5 against respondent Mayor with the Regional Trial
Court of Pili, Camarines Sur, Branch XXXI, which was docketed as Special Civil Action No. P-84-99,
for Mandamus and Damages with Application for Preliminary Mandatory Injunction. Respondent
moved for the dismissal of the complaint.

A Resolution was issued by the trial court on January 27, 2000, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby denied. Let a writ of
preliminary mandatory injunction issue upon the posting of an injunction bond by the plaintiff in the
amount of FIFTY THOUSAND PESOS (P50,000.00) executed to defendant to stand for all the
damages which she may sustain if it should be finally found that plaintiff is not entitled thereto, said
mandatory injunction ordering and commanding herein defendant, incumbent Mayor of the
Municipality of Bula, Camarines Sur to approve and issue forthwith the Mayor’s Permit and to accept
the fees therefor for plaintiff to establish, maintain and operate a cockpit in Cabaya, San Roque,
Bula, Camarines Sur. Upon finality of this resolution, let the main case be set for further
proceedings.

SO ORDERED.6

The writ of preliminary mandatory injunction was issued on February 1, 2000.7

Respondent filed a petition for certiorari and prohibition with the Court of Appeals, docketed as
CA-G.R. SP No. 57797.8 On April 3, 2000, the Court of Appeals issued a temporary restraining
order,9 directing petitioner and the presiding judge to temporarily cease and desist from enforcing
the writ of preliminary mandatory injunction issued on February 1, 2000 in Special Civil Action No.
P-84-99.

On June 3, 2002, the Court of Appeals rendered the assailed Decision, the dispositive portion of
which reads:

WHEREFORE, the petition is granted and the questioned January 27, 2000 Resolution and February
1, 2000 writ of preliminary mandatory injunction issued by respondent Judge are ANNULLED AND
SET ASIDE while the writ of preliminary injunction heretofore issued by this Court on July 10, 2000
is made permanent. No costs.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied for lack of merit in a Resolution
dated August 2002.11

Hence, this petition for review.

The core issue in this petition is whether or not respondent, in her capacity as Municipal Mayor, can
be compelled to issue the necessary business permit to petitioner absent a municipal ordinance
which would empower her to do so.

The pertinent provision of law in contention is Section 447 (a) (3) (v) of the Local Government Code
of 1991 (Republic Act No. 7160), which reads:

SEC. 447. Powers, Functions and Compensation. (a) The Sangguniang Bayan as the legislative body
of the municipality shall enact ordinances, approve resolutions and appropriate funds for the
general welfare of the municipality and its inhabitants pursuant to Section 16 of this Code and in the
proper exercise of the corporate powers of the municipality as provided for under Section 22, and
shall:

xxx xxx xxx

(3) Subject to the provisions of Book II of this Code, grant franchises, enact ordinances levying
taxes, fees and charges upon such conditions and for such purposes intended to promote the
general welfare of the inhabitants of the municipality, and pursuant to this legislative authority
shall:

xxx xxx xxx

(v) Any law to the contrary notwithstanding, authorize and license the establishment, operation and
maintenance of cockpits and regulate cockfighting and commercial breeding of gamecocks:
Provided, That existing rights should not be prejudiced.

Petitioner admits that there is no ordinance in Bula, Camarines Sur which authorizes the grant of a
mayor’s permit to operate and maintain a cockfighting arena. However, he invokes Resolution No.
049, S. 1998, wherein the Sangguniang Bayan authorized him to operate a cockpit. Furthermore,
he cites Municipal Tax Ordinances Nos. 01, S. 1989, and 05, S. 1993, which generally provide for
the issuance of a mayor’s permit for the operation of businesses.

Municipal Tax Ordinances Nos. 01, S. 1989 and 05, S. 1993 contain general provisions for the
issuance of business permits but do not contain specific provisions prescribing the reasonable fees
to be paid in the operation of cockpits and other game fowl activities.

It was Ordinance No. 001, S. 1999 which provided for the collection of application filing fees, ocular
inspection fees, mayor’s permit fees, filing fees for the institution of complaints, entrance fees and
special derby assessments for the operation of cockpits.12 This Ordinance, however, was withdrawn
by the Sangguniang Bayan.

Hence, there being in effect no ordinance allowing the operation of a cockpit, Resolution No. 049, S.
1998, authorizing petitioner to establish, operate and maintain a cockpit in Bula, Camarines Sur
cannot be implemented. Suffice it to state in this regard that to compel respondent to issue the
mayor’s permit would not only be a violation of the explicit provisions of Section 447 of the Local
Government Code of 1991, but would also be an undue encroachment on respondent’s
administrative prerogatives.

Along the same vein, to read into the ordinances relied upon by petitioner objects which were
neither specifically mentioned nor enumerated would be to run afoul of the dictum that where a
statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or
construction, be extended to other matters.13 In other words, it is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all others,
as expressed in the oft-repeated maxim expression unius est exlusio alterius.14 Elsewise stated,
expressium facit cessare tacitum – what is expressed puts an end to what is implied.15 The rule
proceeds from the premise that the legislative body would not have made specific enumerations in
a statute, if it had the intention not to restrict its meaning and confine its terms to those expressly
mentioned.

Even on the assumption that there is in fact a legislative gap caused by such an omission, neither
could the Court presume otherwise and supply the details thereof, because a legislative lacuna
cannot be filled by judicial fiat.16Indeed, courts may not, in the guise of interpretation, enlarge the
scope of a statute and include therein situations not provided nor intended by the lawmakers. An
omission at the time of the enactment, whether careless or calculated, cannot be judicially supplied
however after later wisdom may recommend the inclusion.17 Courts are not authorized to insert
into the law what they think should be in it or to supply what they think the legislature would have
supplied if its attention has been called to the omission.18 1âwphi1

Courts should not, by construction, revise even the most arbitrary and unfair action of the
legislature, nor rewrite the law to conform with what they think should be the law.19 Nor may they
interpret into the law a requirement which the law does not prescribe. 20 Where a statute contains
no limitations in its operation or scope, courts should not engraft any. 21 And where a provision of
law expressly limits its application to certain transactions, it cannot be extended to other
transactions by interpretation.22 To do any of such things would be to do violence to the language
of the law and to invade the legislative sphere.23

It should, furthermore, be borne in mind that cockfighting although authorized by law is still a form
of gambling. Gambling is essentially antagonistic to the aims of enhancing national productivity and
self-reliance.24 As has been previously said, a statute which authorizes a gambling activity or
business should be strictly construed, and every reasonable doubt resolved so as to limit rather
than expand the powers and rights claimed by franchise holders under its authority.25

WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack of merit. The
Decision of the Court of Appeals dated June 3, 2002 in CA-G.R. SP No. 57797 is AFFIRMED in toto.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur,

Footnotes

1 Record, p. 43.

2 Id., pp. 45-50.

3 Id., p. 53.

4 Id., pp. 54-57.

5 Id., pp. 58-62.

6 Id., pp. 94-103, at 102-103.

7 Id., p. 104.

8 Entitled Mayor Juliet A. Decena v. Hon. Martin P. Badong, Jr. and Rolando N. Canet.

9 Record, pp. 441-442.

10Rollo, pp. 10-24, penned by Associate Justice Salvador J. Valdez, Jr., concurred in by Associate
Justices Mercedes Gozo-Dadole and Amelita G. Tolentino.

11 Id., pp. 25-29.

12 Rollo, p. 52.

13 Hongkong & Shanghai Bank v. Peters, 16 Phil. 824 [1910].

14City Government of San Pablo, Laguna v. Reyes, G.R. No. 127708, 305 SCRA 353 [1999]; citing
Commissioner of Customs v. CTA, G.R. Nos. 48886-88, 224 SCRA 665 [1993].

15 Santiago v. Guingona, G.R. No. 134577, 298 SCRA 756 [1998].

16 Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue,

G.R. No. 119786, 295 SCRA 721 [1998], Davao Gulf Lumber Corporation v. Commissioner of
Internal Revenue, G.R. No. 117359, 293 SCRA 76 [1998].

17 Morales v. Subido, G.R. No. L-29658, 26 SCRA 150 [1968].

18 People v. Garcia, 85 Phil. 657 [1950].

19Vera v. Avelino, 77 Phil. 192 [1946]; Baking v. Director of Prisons, G.R. No. L-30364, 28 SCRA
850 [1969]; Ichong v. Hernandez, 101 Phil. 1156 [1957].

20 Palanca v. City of Manila, 41 Phil. 125 [1920].

21 Hongkong & Shanghai Bank v. Peters, 16 Phil. 284 [1910].

22 Palanca v. City of Manila, supra; Hongkong & Shanghai Bank v. Peters, supra.

23 Republic Flour Mills v. Commissioner of Customs, G.R. No. L-28463, 39 SCRA 269 [1971]; Crisolo
v. Macadaeg, 94 Phil. 862 [1954].

24 Lim v. Pacquing, G.R. No. 115044, 240 SCRA 649 [1995].

25Manila Jockey Club, Inc. v. CA, G.R. No. 103533, 300 SCRA 181, 198 [1998], citing 38 Am Jur 2d
Gambling § 18; Aicardi v. Alabama, 19 Wall (US) 632, 22 L ed 215; West Indies, Inc. v. First
National Bank, 67 Nev 13, 214 P2d 144.