G.R. No.

141020 June 12, 2008 1-9 CAN THE COURT OF APPEALS IGNORE THE MANDATE OF
THE HONORABLE SUPREME COURT'S RESOLUTION IN
G.R. 85922, THAT PETITIONS AGAINST PRIVATE
CASINO LABOR ASSOCIATION, petitioner,
RESPONDENTS PCOC AND PSSC SHOULD BE TRIED BY
vs.
THE COMMISSION (NLRC) THRU ITS ARBITRATION
COURT OF APPEALS, PHIL. CASINO OPERATORS CORPORATION
BRANCH?
(PCOC) and PHIL. SPECIAL SERVICES CORPORATION
(PSSC), respondents.
To determine whether the CA acted with grave abuse of discretion
correctable by certiorari, it is necessary to resolve one core issue: whether
DECISION
the Supreme Court, in G.R. No. 85922, mandated that the NLRC assume
jurisdiction over the cases filed against PCOC and PSSC.
PUNO, C.J.:
The resolution of the case at bar hinges on the intended meaning of the
This petition for certiorari1 assails the Decision2 and Resolution3 of the Third Division of the Court when it stated in its 15 March 1989 Resolution
Court of Appeals (CA) in CA-G.R. SP No. 50826. The CA dismissed the in G.R. No. 85922, viz:
petition for certiorari filed by the petitioner against the First Division of the
National Labor Relations Commission (NLRC) and denied petitioner's
x x x Any petitions brought against private companies will have
motion for reconsideration.
to be brought before the appropriate agency or office of the
Department of Labor and Employment.
The series of events which ultimately led to the filing of the petition at bar
started with the consolidated cases4 filed by the petitioner labor union with
Petitioner considers the foregoing statement as a legal mandate
the Arbitration Branch of the NLRC. In an Order5 dated 20 July 1987, the
warranting the remand of the consolidated labor cases to the Arbitration
Labor Arbiter dismissed the consolidated cases for lack of jurisdiction over
Branch of the NLRC for further proceedings against respondents PCOC
the respondents therein, Philippine Amusement and Gaming Corporation
and PSSC.
(PAGCOR) and Philippine Casino Operators Corporation (PCOC).

On appeal to the NLRC, the Commission en banc issued a
Resolution6 dated 15 November 1988, which dismissed the separate
appeals filed by the petitioner on the ground that the NLRC has no
jurisdiction over PAGCOR.
We do not agree.
A court decision must be read as a whole. With regard to interpretation of
judgments, Republic v. De Los Angelesstated:

Petitioner then elevated the case to this Court, via a petition for review on
certiorari,7 entitled Casino Labor Association v. National Labor
Relations Commission, Philippine Amusement & Gaming
Corporation, Philippine Casino Operators Corporation and Philippine
Special Services Corporation and docketed as G.R. No. 85922. In a
Resolution8 dated 23 January 1989, the Third Division of the Court
dismissed the petition for failure of the petitioner to show grave abuse of
discretion on the part of the NLRC.
Petitioner filed a motion for reconsideration, but the same was denied with
finality in a 15 March 1989 Resolution.9The Resolution states, in part:
x x x Any petitions brought against private companies will have
to be brought before the appropriate agency or office of the
Department of Labor and Employment.
Based solely on that statement, petitioner filed a
Manifestation/Motion10 with the NLRC praying that the records of the
consolidated cases be "remanded to the Arbitration Branch for proper
prosecution and/or disposition thereof against private respondents
Philippine Casino Operators Corporation (PCOC) and Philippine Special
Services Corporation (PSSC)."
Acting on the Manifestation/Motion, the NLRC First Division issued an
Order11 dated 30 June 1989, which granted the motion and ordered that
the records of the cases be forwarded to the Arbitration Branch for further
proceedings.
As a general rule, judgments are to be construed like other
written instruments. The determinative factor is the intention of
the court, as gathered from all parts of the judgment itself. In
applying this rule, effect must be given to that which is
unavoidably and necessarily implied in a judgment, as well as to
that which is expressed in the most appropriate language. Such
construction should be given to a judgment as will give force and
effect to every word of it, if possible, and make it as a whole
consistent, effective and reasonable.17
Hence, a close scrutiny of the full text of the 23 January and 15 March
1989 Resolutions in G.R. No. 85922 sheds much needed light. In the first
Resolution, the Third Division of this Court dismissed the petitioner's case
in this wise:
The issue in this case is whether or not the National Labor
Relations Commission has jurisdiction over employee-employer
problems in the Philippine Amusement and Gaming Corporation
(PAGCOR), the Philippine Casino Operators Corporation
(PCOC), and the Philippine Special Services Corporation
(PSSC).
The present Constitution specifically provides in Article IX B,
Section 2(1) that "the civil service embraces all branches,
subdivisions, instrumentalities, and agencies of the Government,
including government-owned or controlled corporations with
original charters." (Emphasis supplied)

There appears to be no question from the petition and its

Respondents PCOC and PSSC filed a motion for reconsideration. In an
annexes that the respondent corporations were created by an
Order12 dated 22 July 1994, the NLRC First Division granted the motion,
original charter, P.D. No. 1869 in relation to P.D. Nos. 1067-A,
set aside the 30 June 1989 Order for having been issued without legal
1067-C, 1399 and 1632.
basis, and denied with finality the petitioner's Manifestation/Motion.
Petitioner's motion for reconsideration was likewise denied in a
Resolution13 dated 28 November 1997. In the recent case of National Service Corporation, et al. v.
Honorable Third Division, National Labor Relations Commission,
et al. (G.R. No. 69870, November 29, 1988), this Court ruled
Petitioner filed a petition for certiorari14 with this Court asserting that the
that subsidiary corporations owned by government corporations
NLRC First Division committed grave abuse of discretion in ignoring the
like the Philippine National Bank but which have been organized
mandate of G.R. No. 85922. Petitioner argued that, with the statement
under the General Corporation Code are not governed by Civil
"(a)ny petitions brought against private companies will have to be brought
Service Law. They fall under the jurisdiction of the Department of
before the appropriate agency or office of the Department of Labor and
Labor and Employment and its various agencies. Conversely, it
Employment," this Court laid down the law of the case and mandated that
follows that government corporations created under an original
petitions against respondents PCOC and PSSC should be brought before
charter fall under the jurisdiction of the Civil Service Commission
the NLRC. By way of resolution,15 this Court referred the case to the CA in
and not the Labor Department.
accordance with the ruling in St. Martin Funeral Homes v. NLRC.16

Moreover, P.D. 1869, Section 18, specifically prohibits formation

On 22 June 1999, the CA rendered its Decision dismissing the petition for
of unions among casino employees and exempts them from the
certiorari. The CA found no grave abuse of discretion on the part of the
coverage of Labor Code provisions. Under the new Constitution,
NLRC First Division when it issued: (a) the 22 July 1994 Order, which set
they may now form unions but subject to the laws passed to
aside its 30 June 1989 Order remanding the case to the Arbitration Branch
regulate unions in offices and corporations governed by the Civil
for further proceedings; and (b) the 28 November 1998 Resolution, which
Service Law.
denied petitioner's motion for reconsideration. Petitioner filed a motion for
reconsideration, which the CA denied in its 6 December 1999 Resolution.
CONSIDERING the failure of the petitioner to show grave abuse
of discretion on the part of the public respondent, the COURT
Hence, the instant petition for certiorari in which the petitioner raises this
RESOLVED to DISMISS the petition.
sole issue:
Thus, in resolving the issue of whether or not the NLRC has jurisdiction Finally, as pointed out by the Office of the Solicitor General, the
over employer-employee relations in PAGCOR, PCOC and PSSC, the subject matter of the pronouncement in question is "any petition"
Third Division made the definitive ruling that "there appears to be no not the petition filed by petitioners. Likewise, the petition must be
question from the petition and its annexes that the respondent one which is brought against "private companies" not against
corporations were created by an original charter." The Court collectively private respondents. Apparently, the abovequoted
referred to all respondent corporations, including PCOC and PSSC, and pronouncement is intended to be a general rule that will govern
held that in accordance with the Constitution and jurisprudence, petitions filed against private companies. It is not intended to be
corporations with original charter "fall under the jurisdiction of the Civil a specific rule that will apply only to the petition filed by herein
Service Commission and not the Labor Department." The Court stated petitioners. Where the law makes no distinctions, one does not
further that P.D. 1869 exempts casino employees from the coverage of distinguish. A fortiori, where the questioned pronouncement
Labor Code provisions and although the employees are empowered by the makes no distinctions, one does not distinguish.
Constitution to form unions, these are "subject to the laws passed to
regulate unions in offices and corporations governed by the Civil Service
We agree with the CA. The statement that "(a)ny petitions brought against
Law." Thus, in dismissing the petition, the ruling of the Third Division was
private companies will have to be brought before the appropriate agency
clear - - - it is the Civil Service Commission, and not the NLRC, that has
or office of the Department of Labor and Employment," upon which
jurisdiction over the employer-employee problems in PAGCOR, PCOC and
petitioner's entire case relies, is of no consequence. It is obiter dictum.
PSSC.

In its memorandum,20 petitioner presents a second issue not otherwise

In its motion for reconsideration, petitioner lamented that its complaint
might be treated as a "pingpong ball" by the Department of Labor and
Employment and the Civil Service Commission. It argued:
x x x the petitioner will now be in a dilemna (sic) for the reason,
that the charter creating PAGCOR expressly exempts it from the
coverage of the Civil Service Laws and therefore the petitioner,
will now be in a quandary whether it will be allowed to prosecute
its case against PAGCOR before the Civil Service Commission
while its own charter expressly exempts it from the coverage of
the Civil Service Law x x x18
The Third Division denied the motion for reconsideration in a Resolution
dated 15 March 1989, which contained the statement upon which the
petitioner's whole case relies. The Court stated:
The petitioner states in its motion for reconsideration that the
PAGCOR charter expressly exempts it from the coverage of the
Civil Service Laws and, consequently, even if it has an original
charter, its disputes with management should be brought to the
Department of Labor and Employment. This argument has no
merit. Assuming that there may be some exemptions from the
coverage of Civil Service Laws insofar as eligibility requirements
and other rules regarding entry into the service are concerned, a
law or charter cannot supersede a provision of the Constitution.
The fear that the petitioner's complaint will be rejected by the
Civil Service Commission is unfounded as the Commission must
act in accordance with its coverage as provided by the
Constitution. Any petitions brought against private
companies will have to be brought before the appropriate
agency or office of the Department of Labor and
Employment.
raised in its petition for certiorari, contending that respondents waived their
rights to controvert petitioner's valid and just claims when they filed a
motion to dismiss the consolidated cases with the labor arbiter on the
ground of lack of jurisdiction. However, in our 20 August 2003 Resolution
requiring the parties to submit their respective memoranda, we specifically
stated that "no new issues may be raised by a party in his/its
Memorandum." Moreover, petitioner, in support of this additional issue,
presents its arguments on the merits of the consolidated labor cases. This
Court is not a trier of facts. In Santiago v. Vasquez, we reiterated:
We discern in the proceedings in this case a propensity on the
part of petitioner, and, for that matter, the same may be said of a
number of litigants who initiate recourses before us, to disregard
the hierarchy of courts in our judicial system by seeking relief
directly from this Court despite the fact that the same is available
in the lower courts in the exercise of their original or concurrent
jurisdiction, or is even mandated by law to be sought therein.
This practice must be stopped, not only because of the
imposition upon the precious time of this Court but also because
of the inevitable and resultant delay, intended or otherwise, in
the adjudication of the case which often has to be remanded or
referred to the lower court as the proper forum under the rules of
procedure, or as better equipped to resolve the issues since this
Court is not a trier of facts. We, therefore, reiterate the judicial
policy that this Court will not entertain direct resort to it unless
the redress desired cannot be obtained in the appropriate courts
or where exceptional and compelling circumstances justify
availment of a remedy within and calling for the exercise of our
primary jurisdiction.21
In this case, the Civil Service Commission is the proper venue for
petitioner to ventilate its claims.

CONSIDERING THE FOREGOING, the COURT RESOLVED to The Court is not oblivious to petitioner's plea for justice after waiting
DENY the motion for reconsideration. This DENIAL is FINAL. numerous years for relief since it first filed its claims with the labor arbiter
(emphasis added) in 1986. However, petitioner is not completely without fault. The 23
January 1989 Resolution in G.R. No. 85922, declaring the lack of
jurisdiction by the NLRC over PAGCOR, PCOC and PSSC, became final
Petitioner contends that the "private companies" referred to therein pertain
and executory on March 27, 1989. The petitioner did not file a second
to respondents PCOC and PSSC, and consequently, this Court has laid
motion for reconsideration nor did it file a motion for clarification of any
down the law of the case in G.R. No. 85922 and has directed that the
statement by the Court which petitioner might have thought was
cases against PCOC and PSSC should be prosecuted before the
ambiguous. Neither did petitioner take the proper course of action, as laid
Department of Labor and Employment or NLRC.
down in G.R. No. 85922, to file its claims before the Civil Service
Commission. Instead, petitioner pursued a protracted course of action
Petitioner's contention is untenable. It is well-settled that to determine the based solely on its erroneous understanding of a single sentence in the
true intent and meaning of a decision, no specific portion thereof should be Court's resolution to a motion for reconsideration.
resorted to, but the same must be considered in its entirety.19 Hence,
petitioner cannot merely view a portion of the 15 March 1989 Resolution in
IN VIEW WHEREOF, the instant petition for certiorari is DISMISSED. The
isolation for the purpose of asserting its position. The 23 January 1989
assailed 22 June 1999 Decision and 6 December 1999 Resolution of the
Resolution already ruled on the NLRC's lack of jurisdiction over all the
Court of Appeals in CA-G.R. SP No. 50826 are AFFIRMED.
respondents in the case - PAGCOR, PCOC and PSSC. The Third Division
neither veered away nor reversed such ruling in its 15 March 1989
Resolution to petitioner's motion for reconsideration. A reading of the two SO ORDERED.
aforementioned resolutions clearly shows that the phrase "private
companies" could not have referred to PCOC and PSSC for that would
substantially alter the Court's ruling that petitioner's labor cases against the LIBAN V. GORDON
respondents are cognizable by the Civil Service Commission, and not by
the NLRC. In its assailed decision, the Court of Appeals ratiocinated: DECISION

CARPIO, J.:
Evidently, the [March 15] Resolution containing the questioned
pronouncement did not give legal mandate to petitioner to file its
Petition with the Department of Labor and Employment or any of The Case
its agencies. On the contrary, the Resolution decided with finality
that petitions brought against the PAGCOR or similar
agencies/instrumentalities of the government must be filed with
the Civil Service Commission which has jurisdiction on the This is a petition to declare Senator Richard J. Gordon (respondent) as having
matter. The questioned pronouncement, to Our mind, was made
only to illustrate the instance when jurisdiction is instead forfeited his seat in the Senate.
conferred on the Department of Labor vis-à-vis the Civil Service
Commission; that is, when the petitions are filed [against] private
companies.
The Facts

Petitioners Dante V. Liban, Reynaldo M. Bernardo, and Salvador M. Viari
(petitioners) filed with this Court a Petition to Declare Richard J. Gordon as
Having Forfeited His Seat in the Senate. Petitioners are officers of the Board of
Directors of the Quezon City Red Cross Chapter while respondent is Chairman of
the Philippine National Red Cross (PNRC) Board of Governors.
During respondents incumbency as a member of the Senate of the Philippines,
[1]
he was elected Chairman of the PNRC during the 23 February 2006 meeting of
the PNRC Board of Governors. Petitioners allege that by accepting the
chairmanship of the PNRC Board of Governors, respondent has ceased to be a
member of the Senate as provided in Section 13, Article VI of the Constitution,
which reads:
SEC. 13. No Senator or Member of the House of
Representatives may hold any other office or employment in
the Government, or any subdivision, agency, or
instrumentality thereof, including government-owned or
controlled corporations or their subsidiaries, during his term
without forfeiting his seat. Neither shall he be appointed to
any office which may have been created or the emoluments
thereof increased during the term for which he was elected.
Petitioners cite Camporedondo v. NLRC,[2] which held that the PNRC is a
government-owned or controlled corporation. Petitioners claim that in accepting
and holding the position of Chairman of the PNRC Board of Governors,
respondent has automatically forfeited his seat in the Senate, pursuant to Flores v.
Drilon,[3] which held that incumbent national legislators lose their elective posts
upon their appointment to another government office.
In his Comment, respondent asserts that petitioners have no standing to file this
petition which appears to be an action for quo warranto, since the petition alleges
that respondent committed an act which, by provision of law, constitutes a ground
for forfeiture of his public office. Petitioners do not claim to be entitled to the
Senate office of respondent. Under Section 5, Rule 66 of the Rules of Civil
Procedure, only a person claiming to be entitled to a public office usurped or
unlawfully held by another may bring an action for quo warranto in his own
name. If the petition is one for quo warranto, it is already barred by prescription
since under Section 11, Rule 66 of the Rules of Civil Procedure, the action should
be commenced within one year after the cause of the public officers forfeiture of
office. In this case, respondent has been working as a Red Cross volunteer for the
past 40 years. Respondent was already Chairman of the PNRC Board of
Governors when he was elected Senator in May 2004, having been elected
Chairman in 2003 and re-elected in 2005.
Respondent contends that even if the present petition is treated as a taxpayers suit,
petitioners cannot be allowed to raise a constitutional question in the absence of
any claim that they suffered some actual damage or threatened injury as a result of
the allegedly illegal act of respondent. Furthermore, taxpayers are allowed to sue
only when there is a claim of illegal disbursement of public funds, or that public
money is being diverted to any improper purpose, or where petitioners seek to
restrain respondent from enforcing an invalid law that results in wastage of public
funds.
Respondent also maintains that if the petition is treated as one for declaratory
relief, this Court would have no jurisdiction since original jurisdiction for
declaratory relief lies with the Regional Trial Court.
Respondent further insists that the PNRC is not a government-owned or controlled
corporation and that the prohibition under Section 13, Article VI of the
Constitution does not apply in the present case since volunteer service to the
PNRC is neither an office nor an employment.
In their Reply, petitioners claim that their petition is neither an action for quo
warranto nor an action for declaratory relief. Petitioners maintain that the present
petition is a taxpayers suit questioning the unlawful disbursement of funds,
considering that respondent has been drawing his salaries and other compensation
as a Senator even if he is no longer entitled to his office. Petitioners point out that
this Court has jurisdiction over this petition since it involves a legal or
constitutional issue which is of transcendental importance.
The Issues
Petitioners raise the following issues:
1. Whether the Philippine National Red Cross (PNRC) is a
government- owned or controlled corporation;
2. Whether Section 13, Article VI of the Philippine
Constitution applies to the case of respondent who is
Chairman of the PNRC and at the same time a Member
of the Senate;
3. Whether respondent should be automatically
removed as a Senator pursuant to Section 13,
Article VI of the Philippine Constitution; and
4. Whether petitioners may legally institute this
petition against respondent.[4]
The substantial issue boils down to whether the office of the PNRC Chairman is a
government office or an office in a government-owned or controlled corporation
for purposes of the prohibition in Section 13, Article VI of the Constitution.
The Courts Ruling
We find the petition without merit.
Petitioners Have No Standing to File this Petition
A careful reading of the petition reveals that it is an action for quo warranto.
Section 1, Rule 66 of the Rules of Court provides:
Section 1. Action by Government against individuals. An
action for the usurpation of a public office, position or
franchise may be commenced by a verified petition
brought in the name of the Republic of the Philippines
against:
(a) A person who usurps, intrudes into, or unlawfully holds
or exercises a public office, position or franchise;
(b) A public officer who does or suffers an act which by provision of law,
constitutes a ground for the forfeiture of his office; or
(c) An association which acts as a corporation within the Philippines without being
legally incorporated or without lawful authority so to act. (Emphasis supplied)
Petitioners allege in their petition that:
 4. Respondent became the Chairman of the PNRC when he
was elected as such during the First Regular Luncheon-
Meeting of the Board of Governors of the PNRC held on
February 23, 2006, the minutes of which is hereto attached
and made integral part hereof as Annex A.
5. Respondent was elected as Chairman of the PNRC Board
of Governors, during his incumbency as a Member of the
House of Senate of the Congress of the Philippines, having
been elected as such during the national elections last May
2004.
6. Since his election as Chairman of the PNRC Board of Governors, which
position he duly accepted, respondent has been exercising the powers and
discharging the functions and duties of said office, despite the fact that he is still a
senator.
7. It is the respectful submission of the petitioner[s] that by accepting the
chairmanship of the Board of Governors of the PNRC, respondent has ceased
to be a Member of the House of Senate as provided in Section 13, Article VI
of the Philippine Constitution, x x x
xxxx
10. It is respectfully submitted that in accepting the position of Chairman of the
Board of Governors of the PNRC on February 23, 2006, respondent has
automatically forfeited his seat in the House of Senate and, therefore, has
long ceased to be a Senator, pursuant to the ruling of this Honorable Court in the
case of FLORES, ET AL. VS. DRILON AND GORDON, G.R. No. 104732, x x x
11. Despite the fact that he is no longer a senator, respondent continues to act as
such and still performs the powers, functions and duties of a senator, contrary to
the constitution, law and jurisprudence.
12. Unless restrained, therefore, respondent will continue to falsely act and
represent himself as a senator or member of the House of Senate, collecting the
salaries, emoluments and other compensations, benefits and privileges
appertaining and due only to the legitimate senators, to the damage, great and
irreparable injury of the Government and the Filipino people. [5] (Emphasis
supplied)
Thus, petitioners are alleging that by accepting the position of Chairman of the
PNRC Board of Governors, respondent has automatically forfeited his seat in the
Senate. In short, petitioners filed an action for usurpation of public office against
respondent, a public officer who allegedly committed an act which constitutes a
ground for the forfeiture of his public office. Clearly, such an action is for quo
warranto, specifically under Section 1(b), Rule 66 of the Rules of Court.
Quo warranto is generally commenced by the Government as the proper party
plaintiff. However, under Section 5, Rule 66 of the Rules of Court, an individual
may commence such an action if he claims to be entitled to the public office
allegedly usurped by another, in which case he can bring the action in his own
name. The person instituting quo warranto proceedings in his own behalf must
claim and be able to show that he is entitled to the office in dispute, otherwise the
action may be dismissed at any stage.[6] In the present case, petitioners do not
claim to be entitled to the Senate office of respondent. Clearly, petitioners have no
standing to file the present petition.
Even if the Court disregards the infirmities of the petition and treats it as a
taxpayers suit, the petition would still fail on the merits.
PNRC is a Private Organization Performing Public Functions
On 22 March 1947, President Manuel A. Roxas signed Republic Act No. 95,
[7]
otherwise known as the PNRC Charter. The PNRC is a non-profit, donor-
funded, voluntary, humanitarian organization, whose mission is to bring timely,
effective, and compassionate humanitarian assistance for the most vulnerable
without consideration of nationality, race, religion, gender, social status, or
political affiliation.[8] The PNRC provides six major services: Blood Services,
Disaster Management, Safety Services, Community Health and Nursing, Social
Services and Voluntary Service.[9]
The Republic of the Philippines, adhering to the Geneva Conventions, established
the PNRC as a voluntary organization for the purpose contemplated in the Geneva
Convention of 27 July 1929.[10] The Whereas clauses of the PNRC Charter read:
WHEREAS, there was developed at Geneva, Switzerland,
on August 22, 1864, a convention by which the nations of
the world were invited to join together in diminishing, so far
lies within their power, the evils inherent in war;
WHEREAS, more than sixty nations of the world have
ratified or adhered to the subsequent revision of said
convention, namely the Convention of Geneva of July 29
[sic], 1929 for the Amelioration of the Condition of the
Wounded and Sick of Armies in the Field (referred to in this
Charter as the Geneva Red Cross Convention);
WHEREAS, the Geneva Red Cross Convention envisages the establishment
in each country of a voluntary organization to assist in caring for the
wounded and sick of the armed forces and to furnish supplies for that
purpose;
WHEREAS, the Republic of the Philippines became an
independent nation on July 4, 1946 and proclaimed its
adherence to the Geneva Red Cross Convention on
February 14, 1947, and by that action indicated its
desire to participate with the nations of the world in
mitigating the suffering caused by war and to establish
in the Philippines a voluntary organization for that
purpose as contemplated by the Geneva Red Cross
Convention;
WHEREAS, there existed in the Philippines since 1917 a
Charter of the American National Red Cross which must be
terminated in view of the independence of the Philippines;
and
WHEREAS, the volunteer organizations established in the
other countries which have ratified or adhered to the Geneva
Red Cross Convention assist in promoting the health and
welfare of their people in peace and in war, and through
their mutual assistance and cooperation directly and through
their international organizations promote better
understanding and sympathy among the peoples of the
world. (Emphasis supplied)
The PNRC is a member National Society of the International Red Cross and Red
Crescent Movement (Movement), which is composed of the International
Committee of the Red Cross (ICRC), the International Federation of Red Cross
and Red Crescent Societies (International Federation), and the National Red Cross
and Red Crescent Societies (National Societies). The Movement is united and
guided by its seven Fundamental Principles:
1. HUMANITY The International Red Cross and Red
Crescent Movement, born of a desire to bring
assistance without discrimination to the wounded on
the battlefield, endeavors, in its international and
national capacity, to prevent and alleviate human
suffering wherever it may be found. Its purpose is to
protect life and health and to ensure respect for the
human being. It promotes mutual understanding,
friendship, cooperation and lasting peace amongst all
peoples.
2. IMPARTIALITY It makes no discrimination as to nationality, race, religious
beliefs, class or political opinions. It endeavors to relieve the suffering of
individuals, being guided solely by their needs, and to give priority to the most
urgent cases of distress.
3. NEUTRALITY In order to continue to enjoy the
confidence of all, the Movement may not take sides
in hostilities or engage at any time in controversies
of a political, racial, religious or ideological nature.
4. INDEPENDENCE The Movement is independent. The
National Societies, while auxiliaries in the
humanitarian services of their governments and
subject to the laws of their respective countries,
must always maintain their autonomy so that they
may be able at all times to act in accordance with
the principles of the Movement.
5. VOLUNTARY SERVICE It is a voluntary relief
movement not prompted in any manner by desire for
gain.
6. UNITY There can be only one Red Cross or one Red Crescent Society in any
one country. It must be open to all. It must carry on its humanitarian work
throughout its territory.
7. UNIVERSALITY The International Red Cross and Red Crescent Movement, in
which all Societies have equal status and share equal responsibilities and duties in
helping each other, is worldwide. (Emphasis supplied)
The Fundamental Principles provide a universal standard of reference for all
members of the Movement. The PNRC, as a member National Society of the
Movement, has the duty to uphold the Fundamental Principles and ideals of the
Movement. In order to be recognized as a National Society, the PNRC has to
be autonomous and must operate in conformity with the Fundamental Principles
of the Movement.[11]
The reason for this autonomy is fundamental. To be accepted by warring
belligerents as neutral workers during international or internal armed conflicts, the
PNRC volunteers must not be seen as belonging to any side of the armed
conflict. In the Philippines where there is a communist insurgency and a Muslim
separatist rebellion, the PNRC cannot be seen as government-owned or controlled,
and neither can the PNRC volunteers be identified as government personnel or as
instruments of government policy. Otherwise, the insurgents or separatists will
treat PNRC volunteers as enemies when the volunteers tend to the wounded in the
battlefield or the displaced civilians in conflict areas.
Thus, the PNRC must not only be, but must also be seen to be, autonomous,
neutral and independent in order to conduct its activities in accordance with the
Fundamental Principles. The PNRC must not appear to be an instrument or agency
that implements government policy; otherwise, it cannot merit the trust of all and
cannot effectively carry out its mission as a National Red Cross Society. [12] It is
imperative that the PNRC must be autonomous, neutral, and independent in
relation to the State.
To ensure and maintain its autonomy, neutrality, and independence, the PNRC
cannot be owned or controlled by the government. Indeed, the Philippine
government does not own the PNRC. The PNRC does not have government assets
and does not receive any appropriation from the Philippine Congress.[13] The
PNRC is financed primarily by contributions from private individuals and private
entities obtained through solicitation campaigns organized by its Board of
Governors, as provided under Section 11 of the PNRC Charter:
SECTION 11. As a national voluntary organization, the
Philippine National Red Cross shall be financed
primarily by contributions obtained through solicitation
campaigns throughout the year which shall be organized
by the Board of Governors and conducted by the
Chapters in their respective jurisdictions. These fund
raising campaigns shall be conducted independently of other
fund drives by other organizations. (Emphasis supplied)
The government does not control the PNRC. Under the PNRC Charter, as
amended, only six of the thirty members of the PNRC Board of Governors are
appointed by the President of the Philippines. Thus, twenty-four members, or
four-fifths (4/5), of the PNRC Board of Governors are not appointed by the
President. Section 6 of the PNRC Charter, as amended, provides:
SECTION 6. The governing powers and authority shall be
vested in a Board of Governors composed of thirty
members, six of whom shall be appointed by the President
of the Philippines, eighteen shall be elected by chapter
delegates in biennial conventions and the remaining six
shall be selected by the twenty-four members of the Board
already chosen. x x x.
Thus, of the twenty-four members of the PNRC Board, eighteen are elected by the
chapter delegates of the PNRC, and six are elected by the twenty-four members
already chosen a select group where the private sector members have three-fourths
majority. Clearly, an overwhelming majority of four-fifths of the PNRC Board
are elected or chosen by the private sector members of the PNRC.
The PNRC Board of Governors, which exercises all corporate powers of the
PNRC, elects the PNRC Chairman and all other officers of the PNRC. The
incumbent Chairman of PNRC, respondent Senator Gordon, was elected, as all
PNRC Chairmen are elected, by a private sector-controlled PNRC Board four-
fifths of whom are private sector members of the PNRC. The PNRC Chairman is
not appointed by the President or by any subordinate government official.
Under Section 16, Article VII of the Constitution, [14] the President appoints all
officials and employees in the Executive branch whose appointments are vested in
the President by the Constitution or by law. The President also appoints those
whose appointments are not otherwise provided by law. Under this Section 16, the
law may also authorize the heads of departments, agencies, commissions, or
boards to appoint officers lower in rank than such heads of departments, agencies,
commissions or boards.[15] In Rufino v. Endriga,[16] the Court explained
appointments under Section 16 in this wise:
Under Section 16, Article VII of the 1987 Constitution, the
President appoints three groups of officers. The first group
refers to the heads of the Executive departments,
ambassadors, other public ministers and consuls, officers of
the armed forces from the rank of colonel or naval captain,
and other officers whose appointments are vested in the
President by the Constitution. The second group refers to
those whom the President may be authorized by law to
appoint. The third group refers to all other officers of the
Government whose appointments are not otherwise
provided by law.
Under the same Section 16, there is a fourth group of lower-ranked officers whose
appointments Congress may by law vest in the heads of departments, agencies,
commissions, or boards. x x x
xxx
In a department in the Executive branch, the head is the Secretary. The law may
not authorize the Undersecretary, acting as such Undersecretary, to appoint lower-
ranked officers in the Executive department. In an agency, the power is vested in
the head of the agency for it would be preposterous to vest it in the agency itself.
In a commission, the head is the chairperson of the commission. In a board, the
head is also the chairperson of the board. In the last three situations, the law may
not also authorize officers other than the heads of the agency, commission, or
board to appoint lower-ranked officers.
xxx
The Constitution authorizes Congress to vest the power to appoint lower-ranked
officers specifically in the heads of the specified offices, and in no other
person. The word heads refers to the chairpersons of the commissions or boards
and not to their members, for several reasons.
The President does not appoint the Chairman of the PNRC. Neither does the head
of any department, agency, commission or board appoint the PNRC
Chairman. Thus, the PNRC Chairman is not an official or employee of the
Executive branch since his appointment does not fall under Section 16, Article VII
of the Constitution. Certainly, the PNRC Chairman is not an official or employee
of the Judiciary or Legislature. This leads us to the obvious conclusion that the
PNRC Chairman is not an official or employee of the Philippine Government. Not
being a government official or employee, the PNRC Chairman, as such, does
not hold a government office or employment.
Under Section 17, Article VII of the Constitution, [17] the President exercises
control over all government offices in the Executive branch. If an office is legally
not under the control of the President, then such office is not part of the
Executive branch. In Rufino v. Endriga,[18] the Court explained the Presidents
power of control over all government offices as follows:
Every government office, entity, or agency must fall under
the Executive, Legislative, or Judicial branches, or must
belong to one of the independent constitutional bodies, or
must be a quasi-judicial body or local government unit.
 Otherwise, such government office, entity, or agency has no
legal and constitutional basis for its existence. Thus, the PNRC is a privately owned, privately funded, and privately run

The CCP does not fall under the Legislative or Judicial branches of government. charitable organization. The PNRC is not a government-owned or controlled
The CCP is also not one of the independent constitutional bodies. Neither is the
CCP a quasi-judicial body nor a local government unit. Thus, the CCP must fall corporation.
under the Executive branch. Under the Revised Administrative Code of 1987, any
agency not placed by law or order creating them under any specific department
falls under the Office of the President. Petitioners anchor their petition on the 1999 case of Camporedondo v. NLRC,
[22]
Since the President exercises control over all the executive departments, bureaus, which ruled that the PNRC is a government-owned or controlled
and offices, the President necessarily exercises control over the CCP which is an
office in the Executive branch. In mandating that the President shall have control corporation. In ruling that the PNRC is a government-owned or controlled
of all executive . . . offices, Section 17, Article VII of the 1987 Constitution does
not exempt any executive office one performing executive functions outside of the corporation, the simple test used was whether the corporation was created by its
independent constitutional bodies from the Presidents power of control. There is
no dispute that the CCP performs executive, and not legislative, judicial, or quasi- own special charter for the exercise of a public function or by incorporation under
judicial functions.
the general corporation law. Since the PNRC was created under a special charter,
The Presidents power of control applies to the acts or decisions of all officers
the Court then ruled that it is a government corporation. However,
in the Executive branch. This is true whether such officers are appointed by
the President or by heads of departments, agencies, commissions, or boards.
the Camporedondo ruling failed to consider the definition of a government-owned
The power of control means the power to revise or reverse the acts or
decisions of a subordinate officer involving the exercise of discretion.
or controlled corporation as provided under Section 2(13) of the Introductory
In short, the President sits at the apex of the Executive branch, and exercises Provisions of the Administrative Code of 1987:
control of all the executive departments, bureaus, and offices. There can be no
instance under the Constitution where an officer of the Executive branch is outside
the control of the President. The Executive branch is unitary since there is only
one President vested with executive power exercising control over the entire
Executive branch. Any office in the Executive branch that is not under the control
of the President is a lost command whose existence is without any legal or SEC. 2. General Terms Defined. x x x
constitutional basis. (Emphasis supplied) (13) Government-owned or controlled corporation refers
to any agency organized as a stock or non-stock
corporation, vested with functions relating to public
needs whether governmental or proprietary in
nature, and owned by the Government directly or
through its instrumentalities either wholly, or where
An overwhelming four-fifths majority of the PNRC Board are private sector
applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital
individuals elected to the PNRC Board by the private sector members of the
stock: Provided, That government-owned or controlled
corporations may be further categorized by the Department
PNRC. The PNRC Board exercises all corporate powers of the PNRC. The PNRC
of the Budget, the Civil Service Commission, and the
is controlled by private sector individuals. Decisions or actions of the PNRC Commission on Audit for purposes of the exercise and
discharge of their respective powers, functions and
Board are not reviewable by the President. The President cannot reverse or responsibilities with respect to such corporations.
(Boldfacing and underscoring supplied)
modify the decisions or actions of the PNRC Board. Neither can the President

reverse or modify the decisions or actions of the PNRC Chairman. It is the

PNRC Board that can review, reverse or modify the decisions or actions of the
A government-owned or controlled corporation must be owned by the
PNRC Chairman. This proves again that the office of the PNRC Chairman is a
government, and in the case of a stock corporation, at least a majority of its capital
private office, not a government office.
Although the State is often represented in the governing bodies of a National stock must be owned by the government. In the case of a non-stock corporation,
Society, this can be justified by the need for proper coordination with the public
authorities, and the government representatives may take part in decision-making by analogy at least a majority of the members must be government officials
within a National Society. However, the freely-elected representatives of a
holding such membership by appointment or designation by the
National Societys active members must remain in a large majority in a National
Societys governing bodies.[19]
government. Under this criterion, and as discussed earlier, the government does

not own or control PNRC.

The PNRC is not government-owned but privately owned. The vast majority of
The PNRC Charter is Violative of the Constitutional Proscription against the
the thousands of PNRC members are private individuals, including students. Creation of Private Corporations by Special Law

Under the PNRC Charter, those who contribute to the annual fund campaign of the
The 1935 Constitution, as amended, was in force when the PNRC was created by
PNRC are entitled to membership in the PNRC for one year. Thus, any one
special charter on 22 March 1947. Section 7, Article XIV of the 1935
between 6 and 65 years of age can be a PNRC member for one year upon
Constitution, as amended, reads:
contributing P35, P100, P300, P500 or P1,000 for the year.[20] Even foreigners,
SEC. 7. The Congress shall not, except
whether residents or not, can be members of the PNRC. Section 5 of the PNRC by general law, provide for the formation, organization, or
regulation of private corporations, unless such corporations
Charter, as amended by Presidential Decree No. 1264,[21] reads: are owned or controlled by the Government or any
subdivision or instrumentality thereof.

SEC. 5. Membership in the Philippine National Red Cross

shall be open to the entire population in the Philippines
The subsequent 1973 and 1987 Constitutions contain similar provisions
regardless of citizenship. Any contribution to the Philippine
prohibiting Congress from creating private corporations except by general
National Red Cross Annual Fund Campaign shall entitle the
law. Section 1 of the PNRC Charter, as amended, creates the PNRC as a body
contributor to membership for one year and said
corporate and politic, thus:
contribution shall be deductible in full for taxation
purposes.
SECTION 1. There is hereby created in the Republic of
the Philippines a body corporate and politic to be the
voluntary organization officially designated to assist the
Republic of the Philippines in discharging the
 obligations set forth in the Geneva Conventions and to
perform such other duties as are inherent upon a
National Red Cross Society. The national headquarters of
this Corporation shall be located in Metropolitan Manila.
(Emphasis supplied)

The other provisions[41] of the PNRC Charter remain valid as they can be
In Feliciano v. Commission on Audit,[23] the Court explained the constitutional
provision prohibiting Congress from creating private corporations in this considered as a recognition by the State that the unincorporated PNRC is the local
wise:
National Society of the International Red Cross and Red Crescent Movement, and
We begin by explaining the general framework under the
thus entitled to the benefits, exemptions and privileges set forth in the PNRC
fundamental law. The Constitution recognizes two classes
of corporations. The first refers to private corporations
Charter. The other provisions of the PNRC Charter implement the Philippine
created under a general law. The second refers to
government-owned or controlled corporations created by Governments treaty obligations under Article 4(5) of the Statutes of the
special charters. Section 16, Article XII of the Constitution
provides: International Red Cross and Red Crescent Movement, which provides that to be
Sec. 16. The Congress shall not, recognized as a National Society, the Society must be duly recognized by the legal
except by general law, provide for
the formation, organization, or government of its country on the basis of the Geneva Conventions and of the
regulation of private corporations.
Government-owned or controlled national legislation as a voluntary aid society, auxiliary to the public authorities in
corporations may be created or
established by special charters in the the humanitarian field.
interest of the common good and
subject to the test of economic
viability. In sum, we hold that the office of the PNRC Chairman is not a government office

The Constitution emphatically prohibits the creation of or an office in a government-owned or controlled corporation for purposes of the
private corporations except by general law applicable to all
citizens. The purpose of this constitutional provision is to prohibition in Section 13, Article VI of the 1987 Constitution. However, since the
ban private corporations created by special charters, which
historically gave certain individuals, families or groups PNRC Charter is void insofar as it creates the PNRC as a private corporation, the
special privileges denied to other citizens.
PNRC should incorporate under the Corporation Code and register with the
In short, Congress cannot enact a law creating a private
corporation with a special charter. Such legislation Securities and Exchange Commission if it wants to be a private corporation.
would be unconstitutional. Private corporations may
exist only under a general law. If the corporation is
private, it must necessarily exist under a general
law. Stated differently, only corporations created under a WHEREFORE, we declare that the office of the Chairman of the Philippine
general law can qualify as private corporations. Under
existing laws, the general law is the Corporation Code, National Red Cross is not a government office or an office in a government-owned
except that the Cooperative Code governs the incorporation
of cooperatives. or controlled corporation for purposes of the prohibition in Section 13, Article VI

of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9,

The Constitution authorizes Congress to create government-
owned or controlled corporations through special charters. 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic
Since private corporations cannot have special charters, it
Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID
follows that Congress can create corporations with special
charters only if such corporations are government-owned or
because they create the PNRC as a private corporation or grant it corporate
controlled.[24] (Emphasis supplied)
powers. SO ORDERED.

In Feliciano, the Court held that the Local Water Districts are government-owned
or controlled corporations since they exist by virtue of Presidential Decree No.
198, which constitutes their special charter. The seed capital assets of the Local
Water Districts, such as waterworks and sewerage facilities, were public property
which were managed, operated by or under the control of the city, municipality or
province before the assets were transferred to the Local Water Districts. The Local
Water Districts also receive subsidies and loans from the Local Water Utilities
Administration (LWUA). In fact, under the 2009 General Appropriations Act,
[25]
the LWUA has a budget amounting to P400,000,000 for its subsidy
requirements.[26] There is no private capital invested in the Local Water
Districts. The capital assets and operating funds of the Local Water Districts all
come from the government, either through transfer of assets, loans, subsidies or
the income from such assets or funds.
The government also controls the Local Water Districts because the municipal or
city mayor, or the provincial governor, appoints all the board directors of the Local
Water Districts. Furthermore, the board directors and other personnel of the Local
Water Districts are government employees subject to civil service laws and anti-
graft laws. Clearly, the Local Water Districts are considered government-owned or
controlled corporations not only because of their creation by special charter but
also because the government in fact owns and controls the Local Water Districts.
Just like the Local Water Districts, the PNRC was created through a special
charter. However, unlike the Local Water Districts, the elements of
government ownership and control are clearly lacking in the PNRC. Thus,
although the PNRC is created by a special charter, it cannot be considered
a government-owned or controlled corporation in the absence of the essential
elements of ownership and control by the government. In creating the PNRC as a
corporate entity, Congress was in fact creating a private corporation. However, the
constitutional prohibition against the creation of private corporations by special
charters provides no exception even for non-profit or charitable corporations.
Consequently, the PNRC Charter, insofar as it creates the PNRC as a private
corporation and grants it corporate powers, [27] is void for being
unconstitutional. Thus, Sections 1,[28] 2,[29] 3,[30] 4(a),[31] 5,[32] 6,[33] 7,[34] 8,[35] 9,[36] 10,
[37]
11,[38] 12,[39] and 13[40] of the PNRC Charter, as amended,are void.
G.R. No. 178762 June 16, 2010
LUZVIMINDA A. ANG, Petitioner,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
ABAD, J.:
This case is about the dismissal of an employee for offenses committed
during her employment in a government-owned corporation but which
offenses were discovered after the privatized corporation rehired her to
work for it.
The Facts and the Case
In her Position Paper,1 petitioner Luzviminda A. Ang (Ang) claimed that
respondent Philippine National Bank (PNB), then a government-owned
corporation, hired her on December 4, 1967 as a probationary clerk. But
she rose from the ranks, eventually becoming an Assistant Department
Manager I, a position she held when the PNB was privatized on May 26,
1996 and when she, like her co-employees, was deemed automatically
retired. The bank computed Ang’s gratuity benefits, the monetary value of
her leave credits, and the other benefits due her and cleared her of any
accountability.
But the PNB re-employed Ang as Assistant Manager effective on May 27,
1996 and assigned her in its Tuguegarao, Cagayan Branch.2 Less than
four months later, however, or on September 3, 1996 the PNB
administratively charged her with serious misconduct and willful breach of
trust for taking part in a scam, called "kiting operation," where a depositor
used a conduit bank account for depositing several unfunded checks
drawn against the same depositor’s other current accounts and from which
conduit bank account he later withdrew those checks. The PNB alleged
that Ang had allowed this illegal activity from January 2 to April 3, 1996
while she was the Assistant Department Manager I in its Tuguegarao
Branch.3
On September 16, 1996 the PNB heaped other charges against Ang of
serious misconduct and gross violation of the bank’s rules and regulations
as follows:
-- She issued six certificates of deposit between June 5, 1992 up
to January 10, 1996 in amounts exceeding the true deposit
balance of various depositors;
-- She issued two bank commitments dated January 24, 1994
and for providing a credit line in favor of a government contractor
without authority and in violation of SEL Cir. 2-166/91 of July 10,
1996; and
-- She committed tardiness and "under time" from October to
December 1995 and January to March 1996 in violation of Gen.
Cir. 1-61/91 of February 1, 1991.4
In answer to the first charge, Ang claimed that it was not a "kiting
operation," but an accommodation of a very valued client. She admitted
that the checks were not funded and were converted into account
receivables or accommodation loans that the client had settled, including
interests, penalties, and other charges. Consequently, the PNB did not
suffer any loss from those transactions; it even reaped enormous profits
from them.5
On the second charge, Ang claimed that the issuance of the certificates
had been tolerated to accommodate valued clients as a marketing strategy
and prevent their move to other banks. These had been open transactions,
said Ang, which were known to all the officers of the branch. Again, the
PNB did not suffer any loss on account of the issuance of those
certificates. The clients involved maintained their loyalty to the bank.6
On the third charge, Ang claimed that the PNB’s loan commitments in
those cases amounted to mere recommendations since she had no
authority to approve loans. Furthermore, she could not have violated SEL
Cir. 2-166/91 dated July 10, 1996 since this was not yet in effect when she
issued those commitments on January 24, 1994. Besides, the circular
merely prescribed the fees to be collected.7
On the last charge, Ang claimed that she was not covered by the circular
governing office hours because she was a bank officer. Managerial
employees, according to her, worked beyond the usual eight hours and
even worked on Saturdays and Sundays. She added that, since the bank
had already made deductions for tardiness on her pay check, she cannot
anymore be administratively charged for it.8
Ang further pointed out that the causes for her termination took place when
she was yet a government official. The PNB had since ceased to be
government-owned. If she were to be charged for those causes, the
jurisdiction over her case would lie with the Civil Service Commission.
Even then, since she already retired from the government service, the
employment that could be terminated no longer existed.9
Ang added that the causes for her termination had also become academic
after the PNB cleared her of any accountability when she once retired from
employment with it.
Pending administrative investigation, the PNB assigned Ang to its Aparri
Branch on April 3, 1997.10 Its Inspection and Investigation Unit
recommended her dismissal on June 3, 1997 to the Board of Inquiry.11 Ang
alleged that the PNB dismissed her from work on July 25, 1997,
withholding her fringe benefits, gratuity benefits, monetary value of her
leave credits, rights and interests in the provident fund, and other benefits
due her as of May 26, 1996.12 She sought reconsideration, but the bank
denied it.
On January 27, 1998 Ang filed a complaint against the PNB before the
National Labor Relations Commission (NLRC), Regional Arbitration Branch
II, Tuguegarao, Cagayan in NLRC RAB II CN 01-00022-98 for illegal
dismissal, illegal deductions, non-payment of 13th month pay, allowances,
separation pay, and retirement benefits with prayer for payment of moral
and exemplary damages, attorney’s fees, and litigation expenses.
Answering the complaint, the PNB claimed that it observed due process in
terminating Ang, notifying her of the charges and giving her a chance to
defend herself in a formal hearing but she waived this and opted to submit
a position paper. The PNB Board of Inquiry informed her of its decision
before implementing the same. Indeed, she even sought its
reconsideration.13 The PNB pointed out that since it separated petitioner
Ang for a just cause, she was not entitled to termination pay. Further she
ceased to be entitled to the benefits she claimed.14
The PNB also pointed out that although it cleared Ang of any accountability
before her retirement as a civil servant, it premised such clearance from
existing knowledge and records. The PNB had not yet discovered her
frauds and omissions when it issued the clearance. Besides, what the PNB
issued was not really a clearance but a certification that Ang had no
pending administrative case. It issued that certification on August 12, 1996
and filed the first administrative charge against her on September 3,
1996.15
On March 30, 1999 the Labor Arbiter (LA) rendered a Decision,16 finding
the PNB’s dismissal of Ang illegal for failure to show that the dismissal was
for a valid cause and after notice and hearing. Specifically, the PNB failed
to prove any basis for loss of trust. The LA ordered the reinstatement of
petitioner Ang to her former position or its substantial equivalent, without
loss of seniority rights and with full backwages and other benefits or their
money value from the time of her actual dismissal on July 25, 1996 up to
her reinstatement.
Further, the LA ordered the PNB to pay Ang ₱488,567.87 in gratuity pay
plus 1 percent interest per month from the time it fell due until actual
payment, ₱1 million as moral damages, and ₱500,000.00 as exemplary
damages plus 10 percent of the total monetary award as attorney’s fees.
The LA made the monetary value of her fringe benefits and others, not
included in the computed amount, subject to recomputation upon the
finality of the NLRC decision. In case reinstatement was not feasible, Ang
was to have the option to be paid separation pay of at least one month pay
for every year of her 30 years of service in addition to her full backwages
and gratuity benefits.
The PNB appealed the decision to the NLRC but the latter dismissed the
appeal on January 30, 2004.17 Upon motion for reconsideration, however,
or on October 29, 2004 the NLRC reconsidered its finding of lack of due
process, considering Ang’s admission during direct examination that the
PNB informed her of the charges against her and gave her a chance to
present her side with the assistance of a counsel. The NLRC deleted the
award of damages because of absence of bad faith on the part of the PNB
officers but maintained the LA’s finding that the PNB had not proved loss of
trust as a ground for dismissal.
On petition for certiorari with the Court of Appeals (CA), the latter rendered
a decision on January 30, 2007,18finding valid reason to uphold Ang’s
dismissal from the service for willful breach of the trust reposed in her by
the PNB. As to the procedural aspect, the CA found that without doubt the
PNB observed due process in dismissing Ang. She received two
memoranda; first informing her of the charges against her, and second
informing her of the decision to terminate her services. The CA reversed
the NLRC Decision and dismissed Ang’s complaint. She moved for
reconsideration, but this was denied.
The Issues Presented
Petitioner presents the following issues:
1. Whether or not the CA erred in finding that the PNB dismissed
Ang based on the evidence that she betrayed its trust in her as a
bank officer;
2. Whether or not the CA erred in holding that the PNB accorded
Ang due process when it dismissed her from the service; and
3. Whether or not the CA erred in holding that Ang was not
entitled to the benefits that the PNB withheld from her.
The Court’s Ruling
One. Ang claims that her dismissal by PNB, the private corporation, was
illegal since she had committed no offense under its employ. The offense
for which she was removed took place when the government still owned
PNB and she was then a government employee. But while PNB began as
a government corporation, it did not mean that its corporate being ceased
and was subsequently reestablished when it was privatized. It remained
the same corporate entity before, during, and after the change over with no
break in its life as a corporation.
Consequently, the offenses that Ang committed against the bank before its
privatization continued to be offenses against the bank after the
privatization. But, since the PNB was already a private corporation when it
looked into Ang’s offenses, the provisions of the Labor Code governed its
disciplinary action.
Ordinarily, the Court would not inquire into factual issues raised in a
petition for review but, since the findings of the CA clashed with those of
the LA and the NLRC, such inquiry would be justified in this case. As to the
existence of just cause, it is clear to the Court that Ang did not deny the
acts and omissions constituting the offense. The transcript of stenographic
notes taken during her direct examination on April 22, 1998 before the
NLRC Regional Arbitration Branch in Tuguegarao, Cagayan, shows that
her defense consisted in her claim that she accommodated a client’s
unfunded checks and issued false bank certificates with the knowledge
and consent of the branch manager and comptroller.
But such uncorroborated defense is unsatisfactory, revealing a mind that
was willing to disregard bank rules and regulations when other branch
officers concurred. The PNB rightfully separated her from work for willful
breach of the trust that it reposed in her under the Labor Code. Her
defense that the PNB did not suffer any loss is of no moment. The focal
point is that she betrayed the trust of the bank in her fidelity to its interest
and rules.
Two. As to the issue of due process, a review of the transcript of
stenographic notes taken during Ang’s cross-examination on December
17, 1998 before the NLRC Regional Arbitration Branch in Tuguegarao,
Cagayan, reveals that she admitted having received from the PNB a
memorandum of September 15, 1996, containing the administrative
charges against her and a memorandum of June 3, 1997 containing the
decision to terminate her service.19 She likewise admitted that the bank
gave her a chance to present her side and to consult a lawyer.
Three. Ang claims that she is entitled to the monetary value of her leave
credits, gratuity benefits, retirement pay, rights and interests in the
provident fund, and other benefits due her as of May 26, 1996.
The PNB points out, however, that Ang did not seek reconsideration from
the NLRC of its deletion of the LA’s award of accrued compensation and
other benefits to her. And, although she received an unfavorable decision
from the CA, her motion for reconsideration did not raise the matter of
accrued compensation and other benefits. Only before this Court did she
raise them for the first time. But, contrary to the PNB’s position, what the
NLRC decision deleted was only the award of damages. It did not touch
the benefits mentioned. Consequently, when the CA apparently deleted
these as well, Ang has a right to elevate the issue before this
Court.1avvphi1
Although the transformation of the PNB from a government-owned
corporation to a private one did not result in a break in its life as juridical
person, the same idea of continuity cannot be said of its employees.
Section 27 of Presidential Proclamation 50 provided for the automatic
termination of employer-employee relationship upon privatization of a
government-owned and controlled corporation. Further, such privatization
cannot deprive the government employees involved of their accrued
benefits or compensation. Thus:
Sec. 27. Automatic Termination of Employer-Employee Relations. —
Upon the sale or other disposition of the ownership and/or
controlling interest of the government in a corporation held by the
Trust, or all or substantially all of the assets of such corporation, the
employer-employee relations between the government and the
officers and other personnel of such corporations shall terminate by
operation of law. None of such officers or employees shall retain any
vested right to future employment in the privatized or disposed
corporation, and the new owners or controlling interest holders
thereof shall have full and absolute discretion to retain or dismiss
said officers and employees and to hire the replacement or
replacements of any one or all of them as the pleasure and
confidence of such owners or controlling interest holders may
dictate.
Nothing in this section shall, however, be construed to deprive said officers
and employees of their vested entitlements in accrued benefits or the
compensation and other benefits incident to their employment or attaching
to termination under applicable employment contracts, collective
bargaining agreements, and applicable legislation.
Here, when PNB was privatized, Ang’s employment with it as a
government-owned corporation ceased. Indeed, the PNB already
computed the retirement and other benefits to which she was entitled as a
result of the cessation of her employment. Since she had no pending
administrative case on the day she ceased to be a PNB employee and had
been cleared of any accountability,20 all those benefits already accrued to
her on the date of her termination.
Of course, the PNB rehired her immediately but that is another story. In the
eyes of the law, her record as employee of the government-owned PNB
was untarnished at the time of her separation from it. In fact, the PNB
already computed the benefits to which she was entitled and readied their
payment. The GSIS rule that the PNB now relies on applied only to
employees with pending administrative charge at the time of their
retirement. Since Ang had none of that, the cited rule did not apply to her.
The Court sees no reason why she should not receive the benefits which
she earned or which accrued to her as of May 26, 1996.
As for possible benefits accruing to Ang after May 26, 1996, the same
should be deemed governed by the Labor Code since the PNB that rehired
her on May 27, 1996 has become a private corporation. Under the
Omnibus Rules Implementing the Labor Code, Book VI, Rule I, Section 7,
the employee’s separation from work for a just cause does not entitle her
to termination pay. Thus, the PNB may rightfully withhold Ang’s termination
pay that accrued beginning on May 27, 1996 because of her dismissal.
WHEREFORE, the Court AFFIRMS the Court of Appeals decision dated
January 30, 2007 and its resolution dated July 6, 2007 in CA-G.R. SP
88449 in favor of respondent Philippine National Bank but with the
MODIFICATION that it directs the latter to pay petitioner Luzviminda A.
Ang the benefits due her from the bank as of the date of her retirement on
May 26, 1996. SO ORDERED.
G.R. No. 181178 July 26, 2010
AMELIA R. OBUSAN, Petitioner,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
NACHURA, J.:
This petition for review on certiorari1 under Rule 45 of the Rules of Court
seeks to annul and set aside the Decision2dated September 21, 2007 and
the Resolution3 dated January 8, 2008 of the Court of Appeals (CA) in CA-
G.R. SP No. 96918.
The antecedents that spawned this controversy are as follows—
Back in 1979, respondent Philippine National Bank (PNB) hired petitioner
Amelia R. Obusan (Obusan), who eventually became the Manager of the
PNB Medical Office. At that time, PNB was a government-owned or
controlled corporation, whose retirement program for its employees was
administered by the Government Service Insurance System (GSIS),
pursuant to the Revised Government Service Insurance Act of 1977
(Presidential Decree No. 1146).
On May 27, 1996, PNB was privatized. Section 6 of the Revised Charter of
the PNB (Executive Order No. 80, December 3, 1986), with respect to the
effect of privatization of PNB, provides –
Change in Ownership of the Majority of the Voting Equity of the Bank. –
When the ownership of the majority of the issued common voting shares
passes to private investors, the stockholders shall cause the adoption and
registration with the Securities and Exchange Commission of the
appropriate Articles of Incorporation and revised by-laws within three (3)
months from such transfer of ownership. Upon the issuance of the
certificate of incorporation under the provisions of the Corporation Code,
this Charter shall cease to have force and effect, and shall be deemed
repealed. Any special privileges granted to the Bank such as the authority
to act as official government depository, or restrictions imposed upon the
Bank, shall be withdrawn, and the Bank shall thereafter be considered a
privately organized bank subject to the laws and regulations generally
applicable to private banks. The bank shall likewise cease to be a
government owned or controlled corporation subject to the coverage of
service-wide agencies such as the Commission on Audit and the Civil
Service Commission. (Emphasis supplied.)
Consequent to the privatization, all PNB employees, including Obusan,
were deemed retired from the government service. The GSIS, in its
letter4 dated February 3, 1997, confirmed Obusan’s retirement from the
government service, and accordingly paid her retirement gratuity in the net
amount of ₱390,633.76. Thereafter, Obusan continued to be an employee
of PNB.
Later, the PNB Board of Directors, through Resolution No. 30 dated
December 22, 2000, as amended, approved the PNB Regular Retirement
Plan5 (PNB-RRP). Section 1, Article VI of which provides –
Normal Retirement. The normal retirement date of a Member shall be the
day he attains sixty (60) years of age, regardless of length of service or
has rendered thirty (30) years of service, regardless of age, whichever of
the said conditions comes first. A Member who has reached the normal
retirement date shall have to compulsor[il]y retire and shall be entitled to
receive the retirement benefits under the Plan.6
In a Memorandum7 dated February 21, 2001, PNB informed its officers and
employees of the terms and conditions of the PNB-RRP, along with its
implementing guidelines.
Subsequently, the PNB-RRP was registered with the Bureau of Internal
Revenue, per its letter8 dated June 27, 2001. Later, the Philnabank
Employees Association, the union of PNB rank-and-file employees,
recognized the PNB-RRP in the Collective Bargaining Agreement (CBA) it
entered with PNB.9
In a Memorandum10 dated February 11, 2002, PNB informed Obusan that
her last day of employment would be on March 3, 2002, as she would
reach the mandatory retirement age of 60 years on March 4, 2002. In her
counsel’s letter11 dated February 26, 2002, Obusan questioned her
compulsory retirement and even threatened to take legal action against
PNB for illegal dismissal and unfair labor practice in the form of union
busting, Obusan being then the President of the PNB Supervisors and
Officers Association.
In a letter12 dated March 1, 2002, PNB replied to Obusan, explaining that
compulsory retirement under the PNB-RRP is not contrary to law and does
not constitute union busting. Dissatisfied with PNB’s explanation, Obusan
filed before the Labor Arbiter a complaint for illegal dismissal and unfair
labor practice, claiming that PNB could not compulsorily retire her at the
age of 60 years, with her having a vested right to be retired only at 65
years old pursuant to civil service regulations.
On April 25, 2003, the Labor Arbiter rendered a decision,13 dismissing
Obusan’s complaint as he upheld the validity of the PNB-RRP and its
provisions on compulsory retirement upon reaching the age of 60 years.
The Labor Arbiter found –
Complainant posits that she has a vested right to be retired at 65 years
since this was the retirement age at the time she was hired. However,
there is neither jurisprudence nor law which supports this contention.
Undisputed is the fact that, when complainant was hired, PNB was still a
government owned and controlled corporation. Accordingly, the Revised
Government Service Insurance Act [RGSI] of 1977 (Presidential Decree
No. 1146), which established that the compulsory retirement age for
government employees to be 65 years governs the employment of PNB
employees. The PNB then did not have any participation in establishing
the compulsory retirement age but the RGSI Act which is the law itself. But
the same may apply only as long as PNB remains a government owned
and controlled corporation. From the time PNB ceased to be such, it
cannot be said that [the] RGSI Act of 1977 still applies. Thus negating the
claim of complainant to retire at age 65 under the said law.
When PNB ceased to be a government owned or controlled corporation,
the law now applicable to the Bank is the Labor Code which allows PNB to
establish its own retirement plan. As such, PNB is empowered to formulate
its Regular Retirement Plan provided it is within the bounds of the Labor
Code. We find no cogent reason to invalidate the Regular Retirement Plan
as it is in accord with the law.
Indeed, this Office cannot see how complainant can assert that her right to
be retired at the age of 65 years has been "vested" at the time of her hiring
when, in fact, such right can only be vested at the time of her retirement.
Necessarily, complainant can only avail a retirement plan that is in effect at
the time of her retirement. In this case, the retirement plan she insists on
applying is no longer existent and instead it was replaced by the PNB
Regular Retirement Plan which, by its terms, complies with the pertinent
provisions of the Labor Code on retirement plans.14
Obusan then appealed to the National Labor Relations Commission
(NLRC). In a resolution15 dated May 31, 2004, the NLRC dismissed
Obusan’s appeal, and affirmed the assailed decision in toto. Obusan’s
motion for reconsideration of this resolution was later denied in an NLRC
resolution16 dated August 28, 2006. The NLRC held –
Movant invokes the ruling of the Supreme Court in Razon, Jr. v. NLRC
(185 SCRA 44), where the Supreme Court held:
"We believe that upon acceptance of employment, a contractual
relationship was established giving private respondent an enforceable
vested interest in the retirement fund. Verily, the retirement scheme
became an integral part of his employment package and the benefits to be
derived therefrom constituted as it were a continuing consideration for
services rendered, as well as an effective inducement for remaining with
the firm."
It is clear that the contractual relationship established between the
employer and employee upon the latter’s acceptance of employment was
an enforceable vested interest in the retirement fund. The Supreme Court
did not hold that the private respondent has a vested right to his retirement
age. x x x.
x x x A vested right or a vested interest may be held to mean some right or
interest in property that has become fixed or established, and is no longer
open to doubt or controversy. Retirement age is not a property. It cannot
be also fixed or permanent. Laws, contracts, and collective bargaining
agreements may amend or alter the retirement age of an employee.
Complainant may have had a vested right to the retirement funds under
the old retirement plan of the bank, but as held in Razon, this right could
be withheld upon a clear showing of good and compelling reasons. The
privatization of PNB and the consequent severance of its employees from
government service is the reason why complainant lost her right to the
government retirement plan. These are causes which are persuasive and
compelling.17
Undaunted, Obusan filed a petition for certiorari before the CA, ascribing
grave abuse of discretion to the NLRC when it affirmed the decision of the
Labor Arbiter. The CA, however, dismissed the petition in its assailed
Decision dated September 21, 2007, ratiocinating that the PNB-RRP’s
lowering the compulsory retirement age to 60 years is not violative of
Article 287 of the Labor Code of the Philippines, as amended, despite the
issuance of the plan years after Obusan was hired. Obusan’s motion for
reconsideration of this Decision was subsequently denied by the CA in its
Resolution dated January 8, 2008.
Hence, this petition anchored on the argument that PNB cannot unilaterally
lower the compulsory retirement age to 60 years without violating Article
287 of the Labor Code and Obusan’s alleged right to retire at the age of 65
years.
According to Obusan, the PNB-RRP should only apply to employees hired
on and after February 21, 2001, the date of its adoption. She insists that if
the lowering of the compulsory retirement age to 60 years under the PNB-
RRP was the product of an agreement between PNB and its employees,
she would definitely accede to be bound by it. She points out that the
questioned provision on retirement age was a unilateral act of PNB, to
which she did not give her consent. In her Supplement to Petition for
Review on Certiorari,18 Obusan invoked Jaculbe v. Silliman
University,19 where this Court held—
Retirement is the result of a bilateral act of the parties, a voluntary
agreement between the employer and the employee whereby the latter,
after reaching a certain age agrees to sever his or her employment with
the former. In Pantranco North Express, Inc. v. NLRC, to which both the
CA and respondent refer, the imposition of a retirement age below the
compulsory age of 65 was deemed acceptable because this was part of
the CBA between the employer and the employees. The consent of the
employees, as represented by their bargaining unit, to be retired even
before the statutory retirement age of 65 was laid out clearly in black and
white and was therefore in accord with Article 287.
In this case, neither the CA nor the respondent cited any agreement,
collective or otherwise, to justify the latter’s imposition of the early
retirement age in its retirement plan, opting instead to harp on petitioner’s
alleged "voluntary" contributions to the plan, which was simply untrue. The
truth was that petitioner had no choice but to participate in the plan, given
that the only way she could refrain from doing so was to resign or lose her
job. It is axiomatic that employer and employee do not stand on equal
footing, a situation which often causes an employee to act out of need
instead of any genuine acquiescence to the employer. This was clearly just
such an instance.
xxxx
As already stated, an employer is free to impose a retirement age less
than 65 for as long as it has the employee’s consent. Stated conversely,
employees are free to accept the employer’s offer to lower the retirement
age if they feel they can get a better deal with the retirement plan
presented by the employer. Thus, having terminated petitioner solely on
the basis of a provision of a retirement plan which was not freely assented
to by her, respondent was guilty of illegal dismissal.20
Put differently, Obusan posits that the severance of her employment from
PNB constituted illegal dismissal. She claims that the PNB-RRP, which
compulsorily retired her at the age of 60 years without her consent, runs
afoul of her right to security of tenure as guaranteed by the Constitution.
She further argues that since PNB-RRP cannot be made to apply to her,
Article 287 of the Labor Code should prevail, giving her the right to
compulsorily retire at the age of 65 years.
We disagree.
The pertinent law on this matter, Article 287 of the Labor Code, as
amended by Republic Act No. 7641, which took effect on January 7, 1993,
provides –
ART. 287. Retirement. – Any employee may be retired upon reaching the
retirement age established in the collective bargaining agreement or other
applicable employment contract.
In case of retirement, the employee shall be entitled to receive such
retirement benefits as he may have earned under existing laws and any
collective bargaining agreement and other agreements: Provided,
however, That an employee’s retirement benefits under any collective
bargaining agreement and other agreements shall not be less than those
provided herein.
In the absence of a retirement plan or agreement providing for retirement
benefits of employees in the establishment, an employee upon reaching
the age of sixty (60) years or more, but not beyond sixty-five (65) years
which is hereby declared the compulsory retirement age, who has served
at least five (5) years in the said establishment, may retire and shall be
entitled to retirement pay equivalent to at least one-half (1/2) month salary
for every year of service, a fraction of at least six (6) months being
considered as one whole year.
Unless the parties provide for broader inclusions, the term one-half (1/2)
month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the
13th month pay and the cash equivalent of not more than five (5) days of
service incentive leaves.
Undoubtedly, under this provision, the retirement age is primarily
determined by the existing agreement or employment contract. Absent
such an agreement, the retirement age shall be fixed by law. The above-
cited law mandates that the compulsory retirement age is at 65 years,
while the minimum age for optional retirement is set at 60 years. Moreover,
Article 287 of the Labor Code, as amended, applies only to a situation
where (1) there is no CBA or other applicable employment contract
providing for retirement benefits for an employee; or (2) there is a
collective bargaining agreement or other applicable employment contract
providing for retirement benefits for an employee, but it is below the
requirement set by law. The rationale for the first situation is to prevent the
absurd situation where an employee, deserving to receive retirement
benefits, is denied them through the nefarious scheme of employers to
deprive employees of the benefits due them under existing labor laws. The
rationale for the second situation is to prevent private contracts from
derogating from the public law.21
In this case, Obusan was initially hired in 1979 as a government employee,
PNB then being a government-owned and controlled corporation. As such,
she was governed by civil service laws, and the compulsory retirement
age, as imposed by law, was at 65 years. Peculiar to her situation,
however, was that the corporate entity that hired her ceased to be
government-owned and controlled when it was privatized in 1996. As a
result of the privatization of PNB, all of its officers and employees were
deemed retired from the government service. Consequently, many of them,
Obusan included, received their respective retirement gratuities.
It cannot be said that the PNB-RRP is a retirement plan providing
retirement benefits less than what the law requires. In fact, in the
computation of the employees’ retirement pay, the plan factored what
Article 287 requires. Thus the plan provides:
3. For service rendered after privatization, a Member, regardless whether
or not he received GSIS Retirement Gratuity Benefits, shall be entitled to
one hundred twelve (112%) percent of his "Latest Monthly Plan
Salary"22 for every year of service rendered, a fraction of at least six (6)
months being considered as one (1) whole year.
The vesting multiple of one hundred twelve (112%) percent that is applied
to the "Latest Monthly Plan Salary" is derived as the sum of fifteen (15)
days of the "Latest Daily Plan Salary" plus five (5) days of the service
incentive leave (based on Latest Daily Plan Salary) plus one-twelfth (1/12)
of the "Latest Monthly Plan Salary." The Daily Plan Salary used is
computed as "Latest Monthly Plan Salary" multiplied by thirteen (13)
months and divided by two hundred fifty-one (251) days.23
Moreover, the PNB-RRP also considered the effects of PNB’s privatization,
as it also provided for additional benefits to those employees who were not
qualified to receive the GSIS Retirement Gratuity Benefits, viz. –
2. A Member who failed to qualify to receive GSIS Retirement Gratuity
Benefits shall be entitled [to] one Month Basic Salary (as of May 26, 1996)
for every year of service rendered before privatization.24
Retirement plans allowing employers to retire employees who have not yet
reached the compulsory retirement age of 65 years are not per se
repugnant to the constitutional guaranty of security of tenure. By its
express language, the Labor Code permits employers and employees to
fix the applicable retirement age at 60 years or below, provided that the
employees’ retirement benefits under any CBA and other agreements shall
not be less than those provided therein.25 By this yardstick, the PNB-RRP
complies.
However, company retirement plans must not only comply with the
standards set by existing labor laws, but they should also be accepted by
the employees to be commensurate to their faithful service to the employer
within the requisite period.26
To our mind, Obusan’s invocation of Jaculbe on account of her lack of
consent to the PNB-RRP, particularly as regards the provision on
compulsory retirement age, is rather misplaced.
It is true that her membership in the PNB-RRP was made automatic, to wit
–
Section 1. Membership. Membership in the Plan shall be automatic for all
full-time regular and permanent officers and employees of the Bank as of
the effectivity date of the Plan. For employees hired after the effectivity of
this Plan, their membership shall be effective on "Date Entered Bank."27
The records show that the PNB Board of Directors approved the PNB-RRP
on December 22, 2000. On February 21, 2001, PNB informed all of its
officers and employees about it, complete with its terms and conditions
and the guidelines for its implementation. Then, the PNB-RRP was
registered with the BIR and, later, was recognized by the Philnabank
Employees Association in the CBA it entered with PNB.
With the information properly disseminated to all of PNB’s officers and
employees, the PNB-RRP was then opened for scrutiny. The employees
had every opportunity to question the plan if, indeed, it would not be
beneficial to the employees, as compared to what was mandated by Article
287 of the Labor Code. Consequently, the union of PNB’s rank-and-file
employees recognized it as a legally-compliant and reasonable retirement
plan by the act of incorporating it in their CBA with PNB.1avvphi1
With respect to Obusan and the PNB Supervisors and Officers
Association, of which she was the President when she was compulsorily
retired, there is nothing on record to show that they expressed their dissent
to the PNB-RRP. This deafening silence eloquently speaks of their lack of
disagreement with its provisions. It was only at the time that she was to be
compulsorily retired that Obusan questioned the PNB-RRP’s provision on
compulsory retirement age.
Besides, we already had the occasion to strike down the added
requirement that an employer must first consult its employee prior to
retiring him, as this requirement unduly constricts the exercise by
management of its option to retire the said employee. Due process only
requires that notice of the employer’s decision to retire an employee be
given to the employee.28
Finally, it is also worthy to mention that, unlike in Jaculbe, the PNB-RRP is
solely and exclusively funded by PNB,29and no financial burden is imposed
on the employees for their retirement benefits.
All told, we hold that the PNB-RRP is a valid exercise of PNB’s prerogative
to provide a retirement plan for all its employees.
WHEREFORE, the petition is DENIED. The assailed Decision dated
September 21, 2007 and the Resolution dated January 8, 2008 of the
Court of Appeals in CA-G.R. SP No. 96918 are AFFIRMED. No costs.
SO ORDERED.
G.R. No. 179793 July 5, 2010
MAGDALENA HIDALGO, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, for and in behalf of the ARMED
FORCES OF THE PHILIPPINES COMMISSARY AND EXCHANGE
SERVICES (AFPCES), Respondent.
DECISION
VILLARAMA, JR., J.:
Which quasi-judicial agency has jurisdiction to hear and decide complaints
for illegal dismissal against an adjunct government agency engaged in
proprietary function? Should the complaint be lodged before the National
Labor Relations Commission (NLRC) or to the Civil Service Commission
(CSC)? This is the focal issue that needs to be resolved in this petition for
review on certiorari assailing the Decision1 and Resolution2 of the Court of
Appeals in CA-G.R. SP No. 84801 nullifying the Labor Arbiter’s and the
NLRC’s rulings.
Republic of the Philippines has represented respondent Armed Forces of
the Philippines Commissary and Exchange Services (AFPCES) in this
recourse. AFPCES is a unit/facility of the Armed Forces of the Philippines
(AFP) organized pursuant to Letter of Instruction (LOI) No. 31, which was
issued on November 20, 1972 by then President Ferdinand Marcos. Under
LOI No. 31-A, which amended LOI No. 31, an amount of ₱5 million was
set aside from the Philippine Veterans’ Claims Settlement Fund as seed
capital for the AFPCES to be utilized and administered for the operations
and management of all commissary facilities in the military establishments
all over the country. AFPCES was intended to benefit the veterans, their
widows and orphans, and the members of the AFP and their dependents.
In December 1972, the AFP General Headquarters (AFP GHQ) issued
Staff Memorandum No. 5 formally organizing the AFPCES.3
In order to socialize the services of AFPCES, General Order No. 920 was
issued by the AFP GHQ on July 13, 1976 reorganizing the AFPCES as an
AFP-Wide Service Support Unit. General Order No. 920 also provided that
all installation Commissary Exchange Service including their equipment,
records and assets shall be assigned and absorbed by the AFPCES. 4 This,
in effect, centralized the management of the commissary exchange
services to the AFPCES. On February 26, 1987, General Order No. 138
was issued activating the AFPCES as a regular unit under the direct
control of the AFP Chief of Staff.5
Petitioners, on the other hand, numbering 65 in all,6 were hired as regular
employees of AFPCES. Some worked as food handlers in AFPCES’
catering business and served during social functions held within its
premises. Others occupied positions as computer technicians, auditors,
record clerks, cashiers, canvassers, bookkeepers, and
warehousemen.7 Several of them had worked with AFPCES for a number
of years, ranging from 4 to 31 years. Since the start of their employment,
petitioners were enrolled in the Social Security System (SSS), with
respondent AFPCES paying its corresponding employer’s share in their
monthly SSS contribution.8
Between 1999 and 2001, however, AFPCES advised petitioners to
undergo an indefinite leave of absence without pay, allegedly upon a
conditional promise that they would be allowed to return to work as soon
as AFPCES’ tax subsidy is released and upon resumption of its store
operations.9
When AFPCES failed to recall petitioners to their work as allegedly
promised, petitioners filed a complaint for illegal (constructive) dismissal
with damages against AFPCES before the NLRC.10 On July 4, 2002, after
efforts to forge an amicable settlement had failed, Labor Arbiter Salimathar
V. Nambi rendered a decision11 in favor of petitioners by ordering AFPCES
to pay a total of ₱16,007,996.00 as back wages, 13th month pay and
separation pay to petitioners.
AFPCES filed an appeal12 praying, among others, that it be exempted from
posting the required appeal bond. The NLRC, however, denied the plea
and gave AFPCES ten (10) days to post an appeal bond. The NLRC
likewise denied AFPCES’ motion for reconsideration. Meanwhile,
petitioners sought the immediate execution of the Labor Arbiter’s decision.
AFPCES filed a petition before the appellate court docketed as CA-G.R.
SP. No. 84801, and prayed among others, for the issuance of a temporary
restraining order to enjoin the NLRC from dismissing the appeal and
granting execution of the Labor Arbiter’s decision.
On October 22, 2004, the Court of Appeals issued a Resolution denying
AFPCES’ prayer for the issuance of a temporary restraining order for lack
of merit.13
Subsequently, on October 29, 2004, the NLRC dismissed AFPCES’ appeal
following its failure to post the required appeal bond.14 On December 7,
2004, petitioners moved for the execution of the Labor Arbiter’s decision.
On March 17, 2005, the enforcing sheriffs of the NLRC issued a Progress
Report15 indicating that writs of execution and garnishment have been
issued against AFPCES’ funds deposited with the Land Bank of the
Philippines to satisfy the Labor Arbiter’s award. The said report noted that
AFPCES has reinstated petitioners to their former positions although Capt.
Preciliano M. Ruiz, AFPCES’ commander and general manager, gave no
assurance regarding the payment of petitioners’ salaries.16
On April 7, 2005, the Court of Appeals granted AFPCES’ motion to lift the
writ of garnishment and to stay the execution of the Labor Arbiter’s
monetary award. Undaunted, petitioners were able to secure an alias writ
of execution after due hearing before the Labor Arbiter. The issue was
again brought before the Court of Appeals.
On August 31, 2006, the appellate court promulgated the assailed
Decision in CA-G.R. SP No. 84801 granting AFPCES’ petition. The Court
of Appeals, after applying the Supreme Court’s pronouncement in Duty
Free Philippines v. Mojica,17 explained that since AFPCES is a
governmental agency that has no personality separate and distinct from
the AFP, petitioners are considered civil service employees, and that
complaints for illegal dismissal should therefore be lodged not with the
Labor Arbiter but with the CSC.18
Aggrieved, petitioners moved for a reconsideration of the said decision, but
the appellate court denied the same for lack of merit.19
Hence, this petition.
Pivotal to the resolution of this petition is a determination of the
classification of petitioners’ employment status with respondent AFPCES.
AFPCES asserts that since petitioners are government employees,
jurisdiction over their complaints lies not with the NLRC, but with the CSC.
Petitioners, on the other hand, contend that since they do not belong to the
approved plantilla of government personnel, their complaints for illegal
dismissal was properly made before the NLRC.
Let us clarify the matter.
Presidential Decree (PD) No. 807 or the Civil Service Decree of the
Philippines20 declares that the Civil Service Commission shall be the
central personnel agency to set standards and to enforce the laws
governing the discipline of civil servants.21 PD No. 807 categorically
described the scope of the civil service as embracing every branch,
agency, subdivision, and instrumentality of the government, including every
government-owned or controlled corporations whether performing
governmental or proprietary function;22 and construed an agency to mean
any bureau, office, commission, administration, board, committee, institute,
corporation, whether performing governmental or proprietary function, or
any other unit of the National Government, as well as provincial, city or
municipal government, except as otherwise provided.23
Subsequently, Executive Order (EO) No. 18024 defined government
employees as all employees of all branches, subdivisions,
instrumentalities, and agencies of the Government, including government-
owned or controlled corporations with original charters.25 It provided that
the Civil Service and labor laws shall be followed in the resolution of
complaints, grievances and cases involving government employees.26
In Philippine Refining Company v. Court of Appeals,27 we declared that
AFPCES is a government agency that is not immune from suit since it is
engaged in proprietary activities. We find no compelling reason to deviate
from such pronouncement. The historical background of its creation and
establishment indicates that AFPCES is an agency under the direct control
and supervision of the AFP as it was established to take charge of the
operations and management of all commissary facilities in military
establishments all over the country. By clear implication of law, all AFPCES
personnel should therefore be classified as government employees and
any appointment, promotion, discipline and termination of its civilian staff
should be governed by appropriate civil service laws and procedures.
Interestingly, in the course of the proceedings, petitioners did not question
or refute such classification of the AFPCES. They, in fact, averred that
AFPCES is not created by a special law to classify it as a government-
owned or controlled corporation with original charter, but a mere entity of
the AFP. They also admit that AFPCES is without any corporate features
as it is merely an agency performing proprietary functions not only for the
benefit of veterans, their widows and orphans, and the members of the
AFP, but for the public in general.28
Petitioners, however, assert that the pronouncement in Duty Free
Philippines should not be applied in the instant case since the factual
milieu of the said case is different from the case at bar.
We partly agree with petitioners.
Like AFPCES, Duty Free Philippines is also a government agency
engaged in proprietary activities without separate corporate existence.
Unlike Duty Free Philippines, however, AFPCES committed acts which
created an impression upon petitioners that they fall within the coverage of
pertinent labor laws and not the civil service law. First, since the start of
their employment and until their unceremonious indefinite suspension from
work, AFPCES have enrolled petitioners to the SSS, the primary
governmental agency engaged in providing social security benefits to
employees of the private sector, instead of the Government Service
Insurance System (GSIS) as mandated by Commonwealth Act No.
186.29 AFPCES even remitted its corresponding employer’s share to
petitioners’ SSS contributions. Such practice has been continuously
observed by the AFPCES in the span of more than three (3) decades.
Second, the hiring, appointment and discipline of AFPCES employees
never went through the proper procedure as required by pertinent civil
service laws and regulations. In a formal request made by Feliciano M.
Gacis, Jr., Officer-in-Charge of the Office of the Assistant Secretary for
Personnel of the Department of National Defense, inquiring from the CSC
whether petitioners are indeed government employees covered by the Civil
Service Law and CSC regulations, the said Commission issued a
Resolution containing the following findings:
It is explicit that the aforequoted LOI merely set aside a fund in the amount
of five (5) [m]illion [p]esos for the operation of a commissary in all military
establishments in the country for the benefit of veterans, their widows and
orphans, and the members of the Armed Forces of the Philippines. And the
fund and commissary shall be managed by an entity called AFPCES. It
can, thus, be said that the AFPCES is a mere entity in the Armed Forces of
the Philippines that is tasked to manage a commissary in different military
establishments for the benefit of those mentioned in the said LOI. Hence, it
does not necessarily follow that all its civilian employees are considered
government employees covered by and subject to the Civil Service Law
and rules.
Section 2 (1), Article IX B of the 1987 Constitution defines the scope of the
civil service, as follows:
"Sec. 2. (1) The civil service embraces all branches, subdivisions,
instrumentalities, and agencies of the Government, including government-
owned or controlled corporations with original charters."
From the aforequoted constitutional provision, it is clear that only
government-owned or controlled corporations with original charters are
embraced by the civil service. Hence, the question now that needs to be
answered is: Can LOI 31-A be considered as the charter of the AFPCES
such that it can be considered a government-owned or controlled
corporation embraced by the Civil Service Law and rules?
After a careful evaluation and scrutiny of LOI 31-A, the Commission is of
the opinion and so holds that the said LOI could hardly be considered as
the charter of AFPCES. It should be noted that the said LOI does not
specify the composition of AFPCES, its specific functions, its governing
board, its powers and the limitation of the exercise thereof. In short, the
said LOI does not provide the AFPCES corporate features. This being the
case, the AFPCES cannot be considered a government-owned or
controlled corporation with original charter. In fact, the AFPCES does not
exercise corporate powers. Accordingly, its civilian employees cannot be
considered as government employees covered by the Civil Service Law
and rules.
xxxx
Further, there is neither a showing that the positions of civilian employees
of the AFPCES are included in the plantilla of personnel duly approved by
the Department of Budget and Management (DBM) nor said employees
were issued appointments attested by the Commission.
WHEREFORE, the Commission hereby rules that all civilian employees of
the Armed Forces of the Philippines Commissary and Exchange Service
are not government employees covered and embraced by the Civil Service
Law and rules.30
Indeed, petitioners’ employment to the AFPCES should have been made in
conformity with pertinent civil service regulations since AFPCES is a
government agency under the direct control and supervision of the AFP.
However, since this did not happen, petitioners were placed under an
anomalous situation with AFPCES insisting that they are government
employees under the jurisdiction of the CSC, but with the CSC itself
disavowing any jurisdiction over them.1avvphi1
This notwithstanding, since it cannot be denied that petitioners are
government employees, the proper body that has jurisdiction to hear the
case is the CSC. Such fact cannot be negated by the failure of
respondents to follow appropriate civil service rules in the hiring,
appointment, discipline and dismissal of petitioners. Neither can it be
denied by the fact that respondents chose to enroll petitioners in the SSS
instead of the GSIS. Such considerations cannot be used against the CSC
to deprive it of its jurisdiction. It is not the absence or presence of the
required appointment from the CSC, or the membership of an employee in
the SSS or in the GSIS that determine the status of the position of an
employee. We agree with the opinion of the AFP Judge Advocate General
that it is the regulation or the law creating the Service that determines the
position of the employee.31
Petitioners are government personnel since they are employed by an
agency attached to the AFP. Consequently, as correctly observed by the
Court of Appeals, the Labor Arbiter’s decision on their complaint for illegal
dismissal cannot be made to stand since the same was issued without
jurisdiction. Any decision issued without jurisdiction is a total nullity, and
may be struck down at any time.32
However, given petitioners’ peculiar situation, the Court is constrained not
to deny the petition entirely, but instead to refer it to the CSC pro hac vice.
The Court notes that this case has been pending for nearly a decade, but
deciding it on the merits at this juncture, while ideal and more expeditious,
is not possible. The records of the case fail to adequately spell out the
validity of the complaint for illegal dismissal as well as the actual amount of
the claim. In fact, the records even fail to disclose the amount of salary
received by petitioners while they were engaged to work in AFPCES’
facilities. But rather than directing petitioners to re-file and relitigate their
claim before the CSC – a step which will only duplicate much of the
proceedings already accomplished – the Court deems it best, pro hac vice,
toorder the NLRC to forward the entire records of the case directly to the
CSC which is directed to take cognizance of the case. The CSC is directed
to promptly resolve whether petitioners were illegally dismissed from the
service, and whether they are entitled to their monetary claims. Further,
taking into consideration AFPCES’ failure to observe the proper procedure
required by pertinent civil service rules and regulations regarding the
hiring, appointment and placement of petitioners, we likewise caution the
CSC not to use the AFPCES’ inefficiency to prejudice the status of
petitioners’ employment or to deny whatever right they may have under
pertinent civil service laws. To hold otherwise would only be giving
premium to AFPCES’ delinquent attitude towards petitioners in particular,
and to the civil service in general. The AFPCES cannot be made to have
its cake and eat it, too.
WHEREFORE, the petition is PARTLY GRANTED. The Court of Appeals
Decision dated August 31, 2006 in CA-G.R. SP No. 84801 and its
Resolution dated September 18, 2007 are hereby SET ASIDE.
The National Labor Relations Commission (NLRC) is DIRECTED to
forward the records of the case (NLRC-NCR Case No. 03-01533-2001-
NLRC NCR Case No. 032920-02) to the Civil Service Commission (CSC),
which is ordered to promptly proceed with the resolution of the case on the
merits with deliberate dispatch. SO ORDERED.
G.R. No. 191109 July 18, 2012
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE
RECLAMATION AUTHORITY (PRA),Petitioner,
vs.
CITY OF PARANAQUE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, on pure questions of law, assailing the January 8, 2010
Order1 of the Regional Trial Court, Branch 195, Parafiaque City (RTC),
which ruled that petitioner Philippine Reclamation Authority (PRA) is a
government-owned and controlled corporation (GOCC), a taxable entity,
and, therefore, . not exempt from payment of real property taxes. The
pertinent portion of the said order reads:
In view of the finding of this court that petitioner is not exempt from
payment of real property taxes, respondent Parañaque City Treasurer
Liberato M. Carabeo did not act xxx without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or in excess of jurisdiction
in issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to
File and Admit Attached Supplemental Petition is denied and the
supplemental petition attached thereto is not admitted.
The Public Estates Authority (PEA) is a government corporation created by
virtue of Presidential Decree (P.D.) No. 1084 (Creating the Public Estates
Authority, Defining its Powers and Functions, Providing Funds Therefor
and For Other Purposes) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of
lands, and the administration and operation of lands belonging to,
managed and/or operated by, the government with the object of
maximizing their utilization and hastening their development consistent
with public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued
by then President Ferdinand Marcos, PEA was designated as the agency
primarily responsible for integrating, directing and coordinating all
reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued
E.O. No. 380 transforming PEA into PRA, which shall perform all the
powers and functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore
and offshore areas of Manila Bay, including those located in Parañaque
City, and was issued Original Certificates of Title (OCT Nos. 180, 202, 206,
207, 289, 557, and 559) and Transfer Certificates of Title (TCT Nos.
104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M.
Carabeo (Carabeo) issued Warrants of Levy on PRA’s reclaimed
properties (Central Business Park and Barangay San Dionisio) located in
Parañaque City based on the assessment for delinquent real property
taxes made by then Parañaque City Assessor Soledad Medina Cue for tax
years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for
temporary restraining order (TRO) and/or writ of preliminary injunction
against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying
PRA’s petition for the issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to
proceed with the public auction of the subject reclaimed properties on April
7, 2003. In response, Carabeo sent a letter stating that the public auction
could not be deferred because the RTC had already denied PRA’s TRO
application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ
of preliminary injunction for being moot and academic considering that the
auction sale of the subject properties on April 7, 2003 had already been
consummated.
On August 3, 2009, after an exchange of several pleadings and the failure
of both parties to arrive at a compromise agreement, PRA filed a Motion
for Leave to File and Admit Attached Supplemental Petition which sought
to declare as null and void the assessment for real property taxes, the levy
based on the said assessment, the public auction sale conducted on April
7, 2003, and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s
petition. In ruling that PRA was not exempt from payment of real property
taxes, the RTC reasoned out that it was a GOCC under Section 3 of P.D.
No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. In fact, PRA
admitted its corporate personality and that said properties were registered
in its name as shown by the certificates of title. Therefore, as a GOCC,
local tax exemption is withdrawn by virtue of Section 193 of Republic Act
(R.A.) No. 7160 Local Government Code (LGC) which was the prevailing
law in 2001 and 2002 with respect to real property taxation. The RTC also
ruled that the tax exemption claimed by PRA under E.O. No. 654 had
already been expressly repealed by R.A. No. 7160 and that PRA failed to
comply with the procedural requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January
8, 2010 RTC Order based on the following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER
IS LIABLE TO PAY REAL PROPERTY TAX ON THE SUBJECT
RECLAIMED LANDS CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF
THE NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM
PAYMENT OF REAL PROPERTY TAX UNDER SECTIONS 234(A) AND
133(O) OF REPUBLIC ACT 7160 OR THE LOCAL GOVERNMENT CODE
VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT
OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT
RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND,
HENCE, EXEMPT FROM REAL PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory
Provisions of the Administrative Code. Neither is it a GOCC under Section
16, Article XII of the 1987 Constitution because it is not required to meet
the test of economic viability. Instead, PRA is a government instrumentality
vested with corporate powers and performing an essential public service
pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into shares, it
is not authorized to distribute dividends and allotment of surplus and profits
to its stockholders. Therefore, it may not be classified as a stock
corporation because it lacks the second requisite of a stock corporation
which is the distribution of dividends and allotment of surplus and profits to
the stockholders.
It insists that it may not be classified as a non-stock corporation because it
has no members and it is not organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and
like chambers as provided in Section 88 of the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market
place as there was no competing reclamation company operated by the
private sector. Also, while PRA is vested with corporate powers under P.D.
No. 1084, such circumstance does not make it a corporation but merely an
incorporated instrumentality and that the mere fact that an incorporated
instrumentality of the National Government holds title to real property does
not make said instrumentality a GOCC. Section 48, Chapter 12, Book I of
the Administrative Code of 1987 recognizes a scenario where a piece of
land owned by the Republic is titled in the name of a department, agency
or instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National
Government, it is exempt from payment of real property tax except when
the beneficial use of the real property is granted to a taxable person. PRA
claims that based on Section 133(o) of the LGC, local governments cannot
tax the national government which delegate to local governments the
power to tax.
It explains that reclaimed lands are part of the public domain, owned by
the State, thus, exempt from the payment of real estate taxes. Reclaimed
lands retain their inherent potential as areas for public use or public
service. While the subject reclaimed lands are still in its hands, these lands
remain public lands and form part of the public domain. Hence, the
assessment of real property taxes made on said lands, as well as the levy
thereon, and the public sale thereof on April 7, 2003, including the
issuance of the certificates of sale in favor of the respondent Parañaque
City, are invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues that PRA
since its creation consistently represented itself to be a GOCC. PRA’s very
own charter (P.D. No. 1084) declared it to be a GOCC and that it has
entered into several thousands of contracts where it represented itself to
be a GOCC. In fact, PRA admitted in its original and amended petitions
and pre-trial brief filed with the RTC of Parañaque City that it was a GOCC.
Respondent further argues that PRA is a stock corporation with an
authorized capital stock divided into 3 million no par value shares, out of
which 2 million shares have been subscribed and fully paid up. Section
193 of the LGC of 1991 has withdrawn tax exemption privileges granted to
or presently enjoyed by all persons, whether natural or juridical, including
GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real
property tax.
THE COURT’S RULING
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a GOCC as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one
(51) percent of its capital stock: x x x.
On the other hand, Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x
From the above definitions, it is clear that a GOCC must be "organized as
a stock or non-stock corporation" while an instrumentality is vested by law
with corporate powers. Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains part
of the National Government machinery although not integrated with the
department framework.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not necessarily become a corporation. Unless the
government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a GOCC.
Examples are the Mactan International Airport Authority, the Philippine
Ports Authority, the University of the Philippines, and Bangko Sentral ng
Pilipinas. All these government instrumentalities exercise corporate powers
but they are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the Administrative Code.
These government instrumentalities are sometimes loosely called
government corporate entities. They are not, however, GOCCs in the strict
sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government
entities.2
Correlatively, Section 3 of the Corporation Code defines a stock
corporation as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x."
Section 87 thereof defines a non-stock corporation as "one where no part
of its income is distributable as dividends to its members, trustees or
officers." Further, Section 88 provides that non-stock corporations are
"organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers."
Two requisites must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into shares; and
(2) that it is authorized to distribute dividends and allotments of surplus
and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations,
they must have members and must not distribute any part of their income
to said members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor
a non-stock corporation. It cannot be considered as a stock corporation
because although it has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. There is no
provision whatsoever in P.D. No. 1084 or in any of the subsequent
executive issuances pertaining to PRA, particularly, E.O. No. 525,5 E.O.
No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends,
surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does
not have members. A non-stock corporation must have
members.8 Moreover, it was not organized for any of the purposes
mentioned in Section 88 of the Corporation Code. Specifically, it was
created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as
a GOCC. Section 16, Article XII of the 1987 Constitution provides as
follows:
Section 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability.
The fundamental provision above authorizes Congress to create GOCCs
through special charters on two conditions: 1) the GOCC must be
established for the common good; and 2) the GOCC must meet the test of
economic viability. In this case, PRA may have passed the first condition of
common good but failed the second one - economic viability. Undoubtedly,
the purpose behind the creation of PRA was not for economic or
commercial activities. Neither was it created to compete in the market
place considering that there were no other competing reclamation
companies being operated by the private sector. As mentioned earlier,
PRA was created essentially to perform a public service considering that it
was primarily responsible for a coordinated, economical and efficient
reclamation, administration and operation of lands belonging to the
government with the object of maximizing their utilization and hastening
their development consistent with the public interest. Sections 2 and 4 of
P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the State to
provide for a coordinated, economical and efficient reclamation of lands,
and the administration and operation of lands belonging to, managed
and/or operated by the government, with the object of maximizing their
utilization and hastening their development consistent with the public
interest.
Section 4. Purposes. The Authority is hereby created for the following
purposes:
(a) To reclaim land, including foreshore and submerged areas,
by dredging, filling or other means, or to acquire reclaimed land;
(b) To develop, improve, acquire, administer, deal in, subdivide,
dispose, lease and sell any and all kinds of lands, buildings,
estates and other forms of real property, owned, managed,
controlled and/or operated by the government.
(c) To provide for, operate or administer such services as may be
necessary for the efficient, economical and beneficial utilization
of the above properties.
The twin requirement of common good and economic viability was
lengthily discussed in the case of Manila International Airport Authority v.
Court of Appeals,9 the pertinent portion of which reads:
Third, the government-owned or controlled corporations created through
special charters are those that meet the two conditions prescribed in
Section 16, Article XII of the Constitution.
The first condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is that
the government-owned or controlled corporation must meet the test of
economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-
owned or controlled corporations may be created or established by special
charters in the interest of the common good and subject to the test of
economic viability.
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special charters
only if these entities are required to meet the twin conditions of common
good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters
unless they are made to comply with the two conditions of common good
and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being
essentially economic vehicles of the State for the common good —
meaning for economic development purposes — these government-owned
or controlled corporations with special charters are usually organized as
stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers
and performing governmental or public functions need not meet the test of
economic viability. These instrumentalities perform essential public
services for the common good, services that every modern State must
provide its citizens. These instrumentalities need not be economically
viable since the government may even subsidize their entire operations.
These instrumentalities are not the "government-owned or controlled
corporations" referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates
government instrumentalities vested with corporate powers but performing
essential governmental or public functions. Congress has plenary authority
to create government instrumentalities vested with corporate powers
provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special
charters corporations that perform economic or commercial activities, such
entities — known as "government-owned or controlled corporations" —
must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned or
controlled corporations, which derive their incometo meet operating
expenses solely from commercial transactions in competition with the
private sector. The intent of the Constitution is to prevent the creation of
government-owned or controlled corporations that cannot survive on their
own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability,
explained to the Constitutional Commission the purpose of this test, as
follows:
MR. OPLE: Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which this
corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it
makes its claim upon the taxpayers' money through new equity infusions
from the government and what is always invoked is the common good.
That is the reason why this year, out of a budget of P115 billion for the
entire government, about P28 billion of this will go into equity infusions to
support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social
services like health and education, to augment the salaries of grossly
underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together
with the "common good," this becomes a restraint on future enthusiasts for
state capitalism to excuse themselves from the responsibility of meeting
the market test so that they become viable. And so, Madam President, I
reiterate, for the committee's consideration and I am glad that I am joined
in this proposal by Commissioner Foz, the insertion of the standard of
"ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the
common good.1âwphi1
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission.
The significant addition, however, is the phrase "in the interest of the
common good and subject to the test of economic viability." The addition
includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector
can do better. Moreover, economic viability is more than financial viability
but also includes capability to make profit and generate benefits not
quantifiable in financial terms.
Clearly, the test of economic viability does not apply to government entities
vested with corporate powers and performing essential public services.
The State is obligated to render essential public services regardless of the
economic viability of providing such service. The non-economic viability of
rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special
charters, organized essentially for economic or commercial objectives,
must meet the test of economic viability. These are the government-owned
or controlled corporations that are usually organized under their special
charters as stock corporations, like the Land Bank of the Philippines and
the Development Bank of the Philippines. These are the government-
owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall
under the definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3)
of the Introductory Provisions of the Administrative Code or under Section
16, Article XII of the 1987 Constitution. The facts, the evidence on record
and jurisprudence on the issue support the position that PRA was not
organized either as a stock or a non-stock corporation. Neither was it
created by Congress to operate commercially and compete in the private
market. Instead, PRA is a government instrumentality vested with
corporate powers and performing an essential public service pursuant to
Section 2(10) of the Introductory Provisions of the Administrative Code.
Being an incorporated government instrumentality, it is exempt from
payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject
reclaimed lands managed by PRA. On the other hand, Section 234(a) of
the LGC, in relation to its Section 133(o), exempts PRA from paying realty
taxes and protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. [Emphasis
supplied]
It is clear from Section 234 that real property owned by the Republic of the
Philippines (the Republic) is exempt from real property tax unless the
beneficial use thereof has been granted to a taxable person. In this case,
there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either
that PRA leased the subject reclaimed properties to a private taxable
entity.
This exemption should be read in relation to Section 133(o) of the same
Code, which prohibits local governments from imposing "taxes, fees or
charges of any kind on the National Government, its agencies and
instrumentalities x x x." The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain
owned by the Republic and continue to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an
agency or instrumentality of the national government. This happens when
the title of the real property is transferred to an agency or instrumentality
even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption, unless "the
beneficial use thereof has been granted, for consideration or otherwise, to
a taxable person."10
The rationale behind Section 133(o) has also been explained in the case
of the Manila International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely delegated to
local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule applies
with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running
to the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For
these reasons, provisions granting exemptions to government agencies
may be construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of
public funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of
local governments. The only exception is when the legislature clearly
intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations. There must
be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power
exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax national
government instrumentalities. As this Court held in Basco v. Philippine
Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government
over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a tool for regulation."
(U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the "power to
destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent power
to wield it. [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of
the public domain, owned by the State and, therefore, exempt from
payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
Section 2. All lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development,
and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities,
or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least
60 per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may provided by law. In cases of water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of
waterpower, beneficial use may be the measure and limit of the grant.
Similarly, Article 420 of the Civil Code enumerates properties belonging to
the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth. [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the
foreshore and offshore areas of Manila Bay. As such, these lands remain
public lands and form part of the public domain. In the case of Chavez v.
Public Estates Authority and AMARI Coastal Development
Corporation,12 the Court held that foreshore and submerged areas
irrefutably belonged to the public domain and were inalienable unless
reclaimed, classified as alienable lands open to disposition and further
declared no longer needed for public service. The fact that alienable lands
of the public domain were transferred to the PEA (now PRA) and issued
land patents or certificates of title in PEA’s name did not automatically
make such lands private. This Court also held therein that reclaimed lands
retained their inherent potential as areas for public use or public service.
As the central implementing agency tasked to undertake reclamation
projects nationwide, with authority to sell reclaimed lands, PEA took the
place of DENR as the government agency charged with leasing or selling
reclaimed lands of the public domain. The reclaimed lands being leased or
sold by PEA are not private lands, in the same manner that DENR, when it
disposes of other alienable lands, does not dispose of private lands but
alienable lands of the public domain. Only when qualified private parties
acquire these lands will the lands become private lands. In the hands of
the government agency tasked and authorized to dispose of alienable of
disposable lands of the public domain, these lands are still public, not
private lands.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of
the public domain" as well as "any and all kinds of lands." PEA can hold
both lands of the public domain and private lands. Thus, the mere fact that
alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA's
name does not automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of
the Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of
the Government.-
(1)The President shall have the power to reserve for settlement or public
use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved
land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for
public use. They are properties of public dominion. The ownership of such
lands remains with the State unless they are withdrawn by law or
presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and
submerged areas of Manila Bay are part of the "lands of the public domain,
waters x x x and other natural resources" and consequently "owned by the
State." As such, foreshore and submerged areas "shall not be alienated,"
unless they are classified as "agricultural lands" of the public domain. The
mere reclamation of these areas by PEA does not convert these
inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or
disposable and open to disposition or concession. Moreover, these
reclaimed lands cannot be classified as alienable or disposable if the law
has reserved them for some public or quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not
subject to execution or foreclosure sale.14Thus, the assessment, levy and
foreclosure made on the subject reclaimed lands by respondent, as well as
the issuances of certificates of title in favor of respondent, are without
basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of
the Regional Trial Court, Branch 195, Parañaque City, is REVERSED and
SET ASIDE. All reclaimed properties owned by the Philippine Reclamation
Authority are hereby declared EXEMPT from real estate taxes. All real
estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the subject reclaimed
properties; the assailed auction sale, dated April 7, 2003; and the
Certificates of Sale subsequently issued by the Parañaque City Treasurer
in favor of the City of Parañaque, are all declared VOID.
SO ORDERED.
G.R. No. 167807 December 6, 2011
MANOLITO AGRA, EDMUNDO P. AGUILAR, IMELDA I. AMERICA,
EVELYN R. CONCEPCION, DIOSDADO A. CORSIGA, PERCIVAL G.
CRISOSTOMO, CESAR E. FAELDON, MA. REGINA C. FILOTEO,
ZARINA O. HIPOLITO, JANICE F. MABILOG, ROBERTO MARTINEZ,
JONATHAN MENDROS, NORMAN MIRASOL, EDRICK V. MOZO,
LORENZO A. PENOLIAR, LOURDES QUINTERO, GLORIA GUDELIA
SAMBO, DEMOSTHENES V. ERENO, RHONEIL LIBUNAO, ILUGEN P.
MABANSAG, JOSEPHINE MAGBOO, MADELEINE ANN B. BAUTISTA,
ULYSSES C. BIBON, ANGELINA RAMOS, EDUARDO M. SUMAYOD,
DOMINGO TAMAYO, HERACLEA M. AFABLE, ANNA LISSA
CREENCIA, CHONA O. DELA CRUZ, MERCY NANETTE C. IBOY, JEAN
A. LUPANGO, MARIE DELA O. NA-OBRE, PERLA LUZ OCAMPO,
ROUCHELLEJANE PAYURAN, ABIGAIL E. PORMENTO, THERESITA A.
RIVERA, MILAGROS ROBLES, JOSEPHINE ROSILLO, ARSENIA M.
SACDALAN, PRECILA TUBIO, IRENE H. VIRAY, WILFREDO O.
BUCSIT, BONIFACIO DAVID, ROSARIO P. DIZON, EXEQUIEL EVALE,
JR., RONALD M. MANALO, HENRIETTA A. MARAMOT, FELICISIMO U.
PULA, JONAS F. SALVADOR, ERNESTO SILVANO, JR., ENRICO G.
VELGADO, FEDERICO VILLAR, JR., ARNEL C. ABEN, ABDULMALIK
BACARAMAN, VIRGINIA BORJA, ANTONIO CARANDANG, JR., RINA
RIEL DOLINA, MANOLITO FAJARDO, ARVIN B. GARDUQUE,
CAYETANO JUAREZ, MA. SHERYL LABONETE, HERCONIDA T.
LAZARO, MARITESS MARTINEZ, AURELIO L. MENDOZA, ARNEL M.
NOGOT, GERARDO G. POMOY, DENCIO RAMOS, CORAZON
TAGUDIN, ANAFEL B. TIO, AGATONA S. ZALATAR, MARGIE EULALIA
CALMA, RENEE D. MELLA, ARLIQUIN AMERICA, DEANNA B. AYSON,
GERALDINE J. CALICA, CHESTER FERNANDEZ, LUISA I.
HERNANDEZ, CYNTHIA E. LISONDRA, ALONA S. LLVATA, CLAIRE P.
QUETUA, ROSEMARIE S. QUINTOS, RUTH S. RAMIREZ, LINO
VERMUDO, JR., ROLANDO R. APOLONIO, CELIA I. ACCAD, MA.
ALMA AYOS, PAMELA CASTILLO, ARNOLD DUPA, LAURENCE
FELICIANO, LEANDRO P. LIBRANDO, MARILOU B. LOPEZ, AMELITA
P. LUCERO, ESTERBELLE T. SIBALA, JONA ANDAL, ANDRES RATIO,
MA. THERESA Q. MALLANO, DANILO P. LIGUA, JOY ABOGADO,
VIRGINIA C. STA. ANA, ALBERNARD BAUTISTA, JUBANE DE PEDRO,
PAUL DINDO C. DELA CRUZ, ALEJO B. INCISO, SHERWIN MAÑADA,
JESUS T. OBIDOS, JOEL B. ARELLANO, ALFREDO CABRERA, MARY
LYNN E. GELLOR, JOHN JOSEPH M. MAGTULOY, MICHELLE
MONTEMAYOR, RHINA ANGUE, NORBERTO BAYAGA, JR., JUSTINO
CALVEZ, EDWIN CONCEPCION, ALAN JOSEPH IBE, CESAR
JACINTO, JOSERITA MADRID, IRENE MARTIN, GINA T. QUINDO,
RENATO SUBIJANO, NIELMA E. VERZOSA, ALL NATIONAL
ELECTRIFICATION ADMINISTRATION EMPLOYEES, REPRESENTED
BY REGINA FILOTEO, Petitioners,
vs.
COMMISSION ON AUDIT, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a special civil action via certiorari under Rule 65 in relation to Rule
64 of the 1997 Revised Rules of Civil Procedure from the Decision1 of the
Commission on Audit (COA) No. 2003-134 dated October 9, 2003, which
denied the grant of rice allowance to employees of the National
Electrification Administration (NEA) who were hired after June 30, 1989
(petitioners) and COA’s Resolution2 No. 2005-010 dated February 24,
2005, which likewise denied petitioners’ Motion for Reconsideration.
On July 1, 1989, Republic Act No. 6758 (the Compensation and Position
Classification Act of 1989) took effect, Section 12 of which provides:
Sec. 12. Consolidation of Allowances and Compensation. — All
allowances, except for representation and transportation allowances;
clothing and laundry allowances; subsistence allowance of marine officers
and crew on board government vessels and hospital personnel; hazard
pay; allowances of foreign service personnel stationed abroad; and such
other additional compensation not otherwise specified herein as may be
determined by the DBM, shall be deemed included in the standardized
salary rates herein prescribed. Such other additional compensation,
whether in cash or in kind, being received by incumbents only as of July 1,
1989 not integrated into the standardized salary rates shall continue to be
authorized.
Existing additional compensation of any national government official or
employee paid from local funds of a local government unit shall be
absorbed into the basic salary of said official or employee and shall be
paid by the National Government. (Emphasis ours.)
Pursuant to its authority to implement Republic Act No. 6758 under Section
23 thereof, the Department of Budget and Management (DBM) on October
2, 1989 issued Corporate Compensation Circular No. 10 (DBM-CCC No.
10), otherwise known as the "Implementing Rules and Regulations of R.A.
No. 6758." Paragraph 5.5 of DBM-CCC No. 10 reads:
5.5 The following allowances/fringe benefits authorized to
GOCCs/GFIs pursuant to the aforementioned issuances are not
likewise to be integrated into the basic salary and allowed to be
continued only for incumbents of positions as of June 30, 1989
who are authorized and actually receiving said
allowances/benefits as of said date, at the same terms and
conditions prescribed in said issuances[:]
5.5.1 Rice Subsidy;
5.5.2 Sugar Subsidy;
5.5.3 Death Benefits other than those granted by the
GSIS;
5.5.4 Medical/dental/optical allowances/benefits;
5.5.5 Children’s Allowance;
5.5.6 Special Duty Pay/Allowance;
5.5.7 Meal Subsidy;
5.5.8 Longevity Pay; and
5.5.9 Teller’s Allowance. (Emphasis added.)
A group of NEA employees who were hired after October 31,
19893 claimed that they did not receive meal, rice, and children’s
allowances. Thus, on July 23, 1999, they filed a special civil action for
mandamus against NEA and its Board of Administrators before the
Regional Trial Court (RTC), Branch 88, Quezon City, docketed as SP. Civil
Action No. Q-99-38275, alleging violation of their right to the equal
protection clause under the Constitution.
On December 15, 1999, the RTC rendered its Decision4 in their favor,
disposing of the case in the following manner:
WHEREFORE, foregoing considered, the petition is hereby GRANTED
directing the respondent NEA, its Board of Administrators to forthwith settle
the claims of the petitioners and other employees similarly situated and
extend to them the benefits and allowances to which they are entitled but
which until now they have been deprived of as enumerated under Section
5 of DBM CCC No. 10 and their inclusion in the Provident Funds
Membership, retroactive from the date of their appointments up to the
present or until their separation from the service.5
At the instance of the complainants, the Branch Clerk of Court of RTC
Branch 88, Quezon City, Lily D. Labarda, issued a CERTIFICATION 6 dated
January 24, 2000, which states:
This is to certify that the Decision dated December 16, 19997 of the above-
entitled case which reads the dispositive portion:
xxxx
is now final and executory.
This certification [is] issued upon the request of Ms. Blesilda B. Aguilar for
whatever legal purpose/s it may serve.8
Afterwards, the Presiding Judge of RTC Branch 88, Quezon City issued a
Writ of Execution9 in SP. Civil Action No. Q-99-38275 on February 22,
2000.10 Thereafter, the RTC issued a Notice of Garnishment against the
funds of NEA with Development Bank of the Philippines (DBP) to the
extent of ₱16,581,429.00.11
NEA questioned before the Court of Appeals the Orders of the lower court,
and the case was docketed as CA-G.R. SP No. 62919. On July 4, 2002,
the Court of Appeals rendered a Decision12 declaring null and void the
December 11, 2000 Resolution as well as the January 8, 2001 Order of the
RTC, and ordering the implementation of a writ of execution against the
funds of NEA. Thus, NEA filed a Petition for Review on Certiorari with this
Court, docketed as G.R. No. 154200. Meanwhile, the RTC held in
abeyance the execution of its December 15, 1999 Decision pending
resolution of this Court of the review on certiorari in National Electrification
Administration v. Morales.13
On July 24, 2007, this Court reversed and set aside the Court of Appeals
decision and described the subsequent events relating to the case in this
manner14 :
Meanwhile, in a letter dated June 28, 2000, former DBM Secretary
Benjamin E. Diokno informed NEA Administrator Conrado M. Estrella III of
the denial of the NEA request for a supplemental budget on the ground
that the claims under R.A. No. 6758 which the RTC had ordered to be
settled cannot be paid because Morales, et al. are not "incumbents of
positions as of July 1, 1989 who are actually receiving and enjoying such
benefits."
Moreover, in an Indorsement dated March 23, 2000, the Commission on
Audit (COA) advised NEA against making further payments in settlement
of the claims of Morales, et al. Apparently, COA had already passed upon
claims similar to those of Morales, et al. in its earlier "Decision No. 95-
074" dated January 25, 1995. Portions of the Indorsement read as follows:
This Office concurs with the above view. The court may have exceeded
its jurisdiction when it entertained the petition for the entitlement of
the after-hired employees which had already been passed upon by
this Commission in COA Decision No. 95-074 dated January 25,
1995. There, it was held that: "the adverse action of this Commission
sustaining the disallowance made by the Auditor, NEA, on the payment of
fringe benefits granted to NEA employees hired from July 1, 1989 to
October 31, 1989 is hereby reconsidered. Accordingly, subject
disallowance is lifted."
Thus, employees hired after the extended date of October 31, 1989,
pursuant to the above COA decision cannot defy that decision by
filing a petition for mandamus in the lower court. Presidential Decree
No. 1445 and the 1987 Constitution prescribe that the only mode for
appeal from decisions of this Commission is on certiorari to the
Supreme Court in the manner provided by law and the Rules of
Court. Clearly, the lower court had no jurisdiction when it entertained
the subject case of mandamus. And void decisions of the lower court
can never attain finality, much less be executed. Moreover, COA was
not made a party thereto, hence, it cannot be compelled to allow the
payment of claims on the basis of the questioned decision.
PREMISES CONSIDERED, the auditor of NEA should post-audit the
disbursement vouchers on the bases of this Commission's decision
particularly the above-cited COA Decision No. 94-074 [sic] and existing
rules and regulations, as if there is no decision of the court in the subject
special civil action for mandamus. At the same time, management should
be informed of the intention of this Office to question the validity of the
court decision before the Supreme Court through the Office of the Solicitor
General.
Parenthetically, the records at hand do not indicate when Morales, et
al. were appointed. Even the December [15], 1999 RTC Decision is vague
for it merely states that they were appointed after June 30, 1989, which
could mean that they were appointed either before the cut-off date of
October 31, 1989 or after. Thus, there is not enough basis for this Court to
determine that the foregoing COA Decision No. 95-074 adversely affects
Morales, et al.. Moreover, the records do not show whether COA actually
questioned the December 16, 1999 RTC Decision before this Court. 15
The Court ruled that respondents therein could not proceed against the
funds of NEA "because the December [15], 1999 RTC Decision sought to
be satisfied is not a judgment for a specific sum of money susceptible of
execution by garnishment; it is a special judgment requiring petitioners to
settle the claims of respondents in accordance with existing regulations of
the COA."16 The Court further held as follows:
In its plain text, the December [15], 1999 RTC Decision merely directs
petitioners to "settle the claims of [respondents] and other employees
similarly situated." It does not require petitioners to pay a certain sum of
money to respondents. The judgment is only for the performance of an act
other than the payment of money, implementation of which is governed by
Section 11, Rule 39 of the Rules of Court, which provides:
Section 11. Execution of special judgments. - When a judgment requires
the performance of any act other than those mentioned in the two
preceding sections, a certified copy of the judgment shall be attached to
the writ of execution and shall be served by the officer upon the party
against whom the same is rendered, or upon any other person required
thereby, or by law, to obey the same, and such party or person may be
punished for contempt if he disobeys such judgment.
xxxx
Garnishment is proper only when the judgment to be enforced is one for
payment of a sum of money.
The RTC exceeded the scope of its judgment when, in its February 22,
2000 Writ of Execution, it directed petitioners to "extend to [respondents]
the benefits and allowances to which they are entitled but which until now
they have been deprived of as enumerated under Sec. 5 of DBM CCC No.
10 and x x x to cause their inclusion in the Provident Fund Membership."
Worse, it countenanced the issuance of a notice of garnishment against
the funds of petitioners with DBP to the extent of ₱16,581,429.00 even
when no such amount was awarded in its December 16, 1999 Decision.
However, in its subsequent Orders dated May 17, 2000 and January 8,
2001, the RTC attempted to set matters right by directing the parties to
now await the outcome of the legal processes for the settlement of
respondents’ claims.
That is only right.
Without question, petitioner NEA is a GOCC -- a juridical personality
separate and distinct from the government, with capacity to sue and be
sued. As such GOCC, petitioner NEA cannot evade execution; its funds
may be garnished or levied upon in satisfaction of a judgment rendered
against it. However, before execution may proceed against it, a claim for
payment of the judgment award must first be filed with the COA.
Under Commonwealth Act No. 327, as amended by Section 26 of P.D. No.
1445, it is the COA which has primary jurisdiction to examine, audit and
settle "all debts and claims of any sort" due from or owing the Government
or any of its subdivisions, agencies and instrumentalities, including
government-owned or controlled corporations and their subsidiaries. With
respect to money claims arising from the implementation of R.A. No. 6758,
their allowance or disallowance is for COA to decide, subject only to the
remedy of appeal by petition for certiorari to this Court.
All told, the RTC acted prudently in halting implementation of the writ of
execution to allow the parties recourse to the processes of the COA. It
may be that the tenor of the March 23, 2000 Indorsement issued by COA
already spells doom for respondents’ claims; but it is not for this Court to
preempt the action of the COA on the post-audit to be conducted by it per
its Indorsement dated March 23, 2000.
In fine, it was grave error for the CA to reverse the RTC and direct
immediate implementation of the writ of execution through garnishment of
the funds of petitioners,
WHEREFORE, the petition is GRANTED. The July 4, 2002 Decision of the
Court of Appeals is REVERSED andSET ASIDE. The Resolution dated
December 11, 2000 and Order dated January 8, 2001 of the Regional Trial
Court, Branch 88, Quezon City in Special Civil Action No. Q-99-38275
are REINSTATED.17
Meantime, the Civil Service Commission issued Resolution No. 001295
dated June 1, 200118 and interpreted Section 12 of Republic Act No. 6758
in this manner:
Material to the resolution of this instant request is Section 12 of SSL x x x.
xxxx
The Commission, x x x is of the view that this provision of law does not
imply that such other additional compensation not integrated into the
salary rates shall not be received by employees appointed after July 1,
1989. The word "only" before the phrase "as of July 1, 1989" does not refer
to incumbents but qualifies what additional compensation can be
continued together with the qualifying words "not integrated into the
standardized rates shall continue to be authorized." The correct
interpretation therefore is that, additional compensation being received by
employees not integrated into the standardized rates as of July 1, 1989
shall continue to be authorized and received/enjoyed by said employees,
whether or not said employee was appointed prior to or after July 1, 1989.
A different interpretation will result in the creation of two classes of
employees, i.e., one class receiving less pay than another class for
substantially equal work. Said interpretation will violate Section 2 of the
SSL which provides, thus:
xxxx
Additionally, this interpretation will also violate the constitutional precept
that no person shall be denied the equal protection of law (Section 1,
Article III of the 1987 Constitution). Applying this precept the Supreme
Court declared that "equal protection of the law is against unde favor on an
individual or class (Tiu vs. Court of Appeals, GR No. 127410, January 20,
1999).19
The Office of the Government Corporate Counsel (OGCC), in response to
the request of then NEA Administrator Manuel Luis S. Sanchez, issued on
August 14, 2001 its Opinion No. 157, s. 200120 declaring that the RTC
decision, not having been appealed, had become the law of the case
which must now be applied. The pertinent portion of such opinion reads:
HON. MANUEL LUIS S. SANCHEZ
Administrator
National Electrification Administration
NEA Road, Diliman, Quezon City
Re: Request for legal opinion on the propriety and applicability to NEA
employees hired after July 1, 1989 of OGCC Opinion NO. 086, s. 2001
xxxx
Pursuant to law, subject Decision became final and executory fifteen (15)
days after its rendition, there being no appeal or motion for reconsideration
filed in the interim, as certified to by Atty. Lily D. Labarda, Branch 88,
Quezon City, on January 24, 2000.
The foregoing considered, this Office therefore cannot opine otherwise
save to uphold the supremacy and finality of the aforequoted Decision of
the Court on the matter. Its judgment is now res judicata, hence, the
controlling legal rule, as far as Petitioners NEA employees are concerned,
is that they must be extended the benefits and allowances "to which they
are entitled but which until now they have been deprived of as enumerated
under Section 5 of DBM CCC No. 101 x x x, retroactive from the date of
their appointments up to the present or until their separation from the
service." This is the law of the case which must now be applied. At any
rate, we have stated in OGCC Opinion No. 086, S. 2001 that even
employees hired after July 1, 1989 may receive the subject benefits
provided there is determination by the DBM that the same have not been
actually integrated into their basic salaries.
Hence, your query is therefore answered in the affirmative.21
Pursuant to the above opinion in its favor, the NEA Board of Administrators
issued Resolution No. 29 on August 9, 200122 approving the entitlement to
rice, medical, children, meal, and other related allowances to NEA
employees hired after October 31, 1989,23 and the payment of these
benefits, chargeable to its Personnel Services Savings. This resolution
was the outcome of the meeting of the NEA Board of Administrators on the
same date, and reads:
RESOLUTION NO. 29
xxxx
RESOLVED THEREFORE TO APPROVE, as it hereby approves, the
entitlement to rice, medical, children, meal and other related allowances of
NEA employees hired after October 31, 1989 and payment of these
benefits;
RESOLVED FURTHER TO CONFIRM, as it hereby confirms, the initial
appropriation and payment of One Million Six Hundred Forty Six Thousand
One Hundred Twenty Seven Pesos and Thirty Centavos (P1,646,127.30)
for this purpose chargeable against the Personnel Services Savings.24
Thus, NEA granted the questioned allowances to its employees who were
not receiving these benefits/allowances, including rice allowance
amounting to ₱1,865,811.84 covering the period January to August 2001.25
However, the resident auditor of COA, Carmelita M. Agullana (Agullana),
did not allow the payment of rice allowance for the period January to
August 2001 to NEA employees who were not incumbents as of June 30,
1989, under Notice of Disallowance26 No. 2001-004-101 dated September
6, 2001. Agullana indicated the "Facts and/or Reasons for Disallowance"
as follows:
Payment of Rice Allowance for the period January, 2001 to August, 2001 to
employees who were not incumbents as of June 30, 1989 not allowed
pursuant to RA #6758 as implemented by Corporate Compensation
Circular No. 10 prescribing the Rules and Regulations for the
Implementation of the Revised Compensation and Position Classification
System for Government-Owned and/or Controlled Corporations (GOCCs)
and Financial Institutions (GFIs) specifically Sections 5.4 and 5.5 thereof. x
x x.27
NEA, through then Acting Administrator Francisco G. Silva, and assisted
by counsel, appealed Agullana’s disallowance to the COA on September
27, 2001,28 arguing that the disallowance had no basis in law and in fact,
and that the subject disbursement was anchored on a court decision that
had become final and executory.
The COA denied the appeal from the disallowance in a Decision29 dated
October 9, 2003 (Decision No. 2003-134). The COA stated that:
The Director of x x x Corporate Audit Office II recommended the affirmance
of the subject disallowance contending that Section 12 of Republic Act
(RA) No. 6758 (Salary Standardization Law) x x x remains applicable on
the matter since Department of Budget and Management-Corporate
Compensation Circular No. 10, s. 1989 (DBM-CCC No. 10) was declared
ineffective by the Supreme Court in the case of De Jesus, et al. vs. COA,
et al. (G.R. No. 109023, August 13, 1998) due to its non-publication in the
Official Gazette or in a newspaper of general circulation. She pointed out
that the alleged discriminatory effect and violation of the policy to provide
equal pay for substantially equal work in the above-quoted provision have
been sufficiently considered in Philippine Ports Authority vs. COA, 214
SCRA 653 and later confirmed in Philippine International Trading
Corporation vs. COA, G.R. No. 132593, June 25, 1999, wherein the
Supreme Court ruled that:
"x x x we must mention that this Court has confirmed in Philippine Ports
Authority vs. Commission on Audit the legislative intent to protect
incumbents who are receiving salaries and allowances over and above
those authorized by RA 6758 to continue to receive the same even after
RA 6758 took effect. In reserving the benefit to incumbents, the legislature
has manifested its intent to gradually phase out this privilege without
upsetting the policy of non-diminution of pay and consistent with the rule
that laws should only be applied prospectively in the spirit of fair play."
She also conformed to the OGCC Opinion No. 52, s. 1999 dated March
22, 1999, edifying the implication of the De Jesus Case which enunciated
thusly:
"Notwithstanding the ruling in the De Jesus Case, the applicable law is still
Section 12 of R.A. No. 6758 which allows additional compensation being
received by incumbents as of July 1, 1989 not integrated into the standard
rates to continue. The recent nullification of DBM-CCC No. 10 applies
favorably only to those incumbent employees (hired prior to July 1, 1989)
and does not in any way change the position or situation of those
employees hired after the cut-off date. With the issuance of R.A. 6758,
employees hired after July 1, 1989 must follow the revised and unified
compensation and position classification system in the government, for
which the DBM was directed to establish and administer and which shall
be applied for all government entities.
xxxx
The new hirees having accepted their employment, aware of such a
condition that they are not entitled to additional benefits and allowances,
they would be estopped from complaining."
Moreover, the Director noted that when the rice allowance to the claimants
was granted in the year 2001, the DBM had already published CCC No.
10.
Anent the contention that the subject decision of the RTC has become the
law of the case which must be applied, she stressed that the said doctrine
is one of the policies only and will be disregarded when compelling
circumstances call for a redetermination of the point of law. As cited in
Black’s Law Dictionary, 6th Edition, 1990, "the doctrine is merely a rule of
procedure and does not go to the power of the court, and will not be
adhered to where its application will result in unjust decision."
xxxx
PREMISES CONSIDERED, the instant appeal is hereby DENIED and the
disallowance in the total amount of ₱1,865,811.84 is accordingly affirmed.30
NEA filed a Motion for Reconsideration of the said Decision, but this was
denied in COA Decision No. 2005-01031dated February 24, 2005, the
pertinent portions of which read:
After a careful re-evaluation, this Commission finds herein motion devoid
of merit, the issues raised therein being a mere reiteration of the previous
arguments of the movant in his appeal and which were already considered
and passed upon by this Commission in the assailed decision.
WHEREFORE, there being no new and material evidence adduced as
would warrant a reversal or modification of the decision herein sought to
be reconsidered, the instant motion for reconsideration has to be, as it is
hereby, denied with finality.32
Thus, petitioners came to this Court questioning the COA’s decision and
resolution on the disallowance of their rice subsidy.
Petitioners claim that the COA’s reliance on DBM-CCC No. 10 is totally
misplaced, alleging that this interpretation had been "squarely debunked"
by the Supreme Court in a number of cases, including Cruz v. Commission
on Audit.33 Furthermore, petitioners claim that in a similar case involving
Opinion No. 086, s. 2001 of the OGCC, it wrote: "[It] is our considered
opinion that employees of COA, whether appointed before or after July 1,
1989, are entitled to the benefits enumerated under Section 5.5 of DBM-
CCC No. 10 x x x."34
We quote portions of Opinion No. 086, s. 2001 of the OGCC below:
Please be informed that our Office had previously rendered legal opinions
involving the same issue upon the request of some of our client
corporations similarly situated. In our Opinion No. 55, Series of 2000, we
stated:
"At the outset we would like to clarify that the amount of the standardized
salary vis-à-vis the pre-SSL salary (plus allowance) is not conclusively
determinant of whether or not a certain allowance is deemed integrated
into the former. Section 12 of R.A. 6758 expressly provides:
xxxx
The law is thus clear. The general rule is that all allowances are deemed
included in the standardized rates set forth in R.A. 6758. This is consistent
with the primary intent of the Act to eliminate wage inequities. The law,
however, admits of certain exceptions and as stated in the second
sentence of the aforecited provision, such other additional compensation in
cash or in kind not integrated into the standardized rates being received by
incumbents as of July 1, 1989 shall continue to be authorized. It is our
view, however, that a government agency, in this case NDC, does not have
discretion to determine what allowances received by incumbent employees
prior to SSL are deemed included or integrated in the standardized rates. It
is the DBM which has the mandate and authority under the SSL to
determine what additional compensation shall be integrated and it is
precisely why it issued NCC No. 10."
The foregoing opinion is consistent with our Opinion No. 52, Series of
1999, wherein we opined:
"x x x Nonetheless, as Section 12 of RA 6758 expressly provides that such
additional compensation, whether in cash or in kind, being received by
incumbent employees as of July 1, 1989 not integrated to the standardized
salary rates as may be determined by the DBM shall continue to be
authorized, the question becomes a matter of fact, on whether or not the
aforementioned allowances have been integrated into the salaries of
employees."35 (Emphases in the quoted text.)
Petitioners claim that "the Civil Service Commission, the Office of the
Government Corporate Counsel and the highest court of the land, the
Supreme Court, chose not to distinguish the entitlement of benefits to
those hired before and after October 31, 1989 (or in this case, July [1],
1989)," while "the COA sweepingly does so by just a wave of the
hand."36 To support this claim, petitioners erroneously cite Javier v.
Philippine Ports Authority, CA-G.R. No. 67937, March 12, 2002, as a
decision by this Court, but said decision was rendered by the Court of
Appeals.
Petitioners argue that assuming that they are not entitled to the rice
allowance in question, they should not be required to refund the amounts
received, on grounds of fairness and equity. In connection with this,
petitioners allege as follows:
Prior to December 31, 2003, NEA consists of 720 employees more or less
who received the rice allowance. Upon [the] restructuring of NEA in
December 2003, all NEA employees were legally terminated. Out of 720
employees, only 320 employees are now left with to operate NEA. Most of
the (sic) them are rehired while minority of them are newly hired. Thus, the
refund of P1,865,811.84, shall be shouldered by those who remained as
NEA employees. Secondly, those who received the said rice allowance
accepted it in good faith believing that they are entitled to it as a matter of
law.37
In its Comment38 dated September 21, 2005, COA’s lone argument is that
"[t]he assailed COA decision is not tainted with grave abuse of discretion.
The disallowance of payment for the rice [subsidy] by the COA is in accord
with the law and the rules." COA maintains that the law on the matter,
Section 12 of Republic Act No. 6758, is clear, as its last sentence provides
reservation of certain allowances to incumbents. COA argues in this wise:
The Supreme Court in Philippine Ports Authority vs. Commission on Audit
confirmed the legislative intent to protect incumbents who are receiving
salaries and/or allowances over and above those authorized by R.A. 6758
to continue to receive the same even after the law took effect. In reserving
the benefit to incumbents, the legislature has manifested its intent to
gradually phase out this privilege without upsetting the policy of non-
diminution of pay and consistent with the rule that laws should only be
applied prospectively in the spirit of fairness and justice.
Thus, pursuant to its authority under Section 23 of R.A. No. 6758, the DBM
x x x issued on October 2, 1989, DBM-CCC No. 10. Section 5.5 of DBM-
CCC No. 10 enumerated the various allowances/fringe benefits authorized
to GOCCs/GFIs which are not to be integrated into the basic salary and
allowed to be continued only for incumbents of positions as of June 30,
1989 who are authorized and actually receiving said allowances/benefits
as of said date. Among these was the rice subsidy/allowance.
Hence, in light of the effectivity of DBM-CCC No. 10 on March 16, 1999
following its reissuance (in its entirety on February 15, 1999) and
publication in the Official Gazette on March 1, 1999, the disallowance by
the COA of the rice allowance for the period beginning January 2001 up to
August 2001 is not tainted with grave abuse of discretion but in accord with
the law and the rules.39
Petitioners, in their Reply,40 anchor their petition on their allegation that the
RTC Decision had already become final and executory, could no longer be
disturbed, and must be respected by the parties. To support their claim,
they cite Arcenas v. Court of Appeals41 wherein this Court held:
For, it is a fundamental rule that when a final judgment becomes executory,
it thereby becomes immutable and unalterable. The judgment may no
longer be modified in any respect, even if the modification is meant to
correct what is perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be made by the
court rendering it or by the highest Court of the land. The only recognized
exceptions are the correction of clerical errors or the making of so-
called nunc pro tunc entries which cause no prejudice to any party, and, of
course, where the judgment is void. Any amendment or alteration which
substantially affects a final and executory judgment is null and void for lack
of jurisdiction, including the entire proceedings held for that
purpose.42 (Emphasis ours.)
Petitioners likewise cite Panado v. Court of Appeals43 wherein the Court
held that "[i]t is axiomatic that final and executory judgments can no longer
be attacked by any of the parties or be modified, directly or indirectly, even
by the highest court of the land."44 From the foregoing jurisprudence,
petitioners conclude that the acts of COA in disallowing the claims and
ordering refund of benefits already received clearly constitute grave abuse
of discretion amounting to lack of jurisdiction inasmuch as said acts
frustrated the final and executory decision of the trial court.
The pivotal issues as determined by the COA are:
1. Whether or not the immutability of final decision doctrine must
prevail over the exclusive jurisdiction of [the COA] to audit and
settle disbursements of funds; and
2. Whether or not the NEA employees hired after June 30, 1989
are entitled to rice allowance.45
The COA resolved these issues in this manner:
As to the first issue, the immutability rule applies only when the decision is
promulgated by a court possessed of jurisdiction to hear and decide the
case. Undoubtedly, the petition in the guise of a case for mandamus is a
money claim falling within the original and exclusive jurisdiction of this
Commission. Noting the propensity of the lower courts in taking
cognizance of cases filed by claimants in violation of such primary
jurisdiction, the Supreme Court issued Administrative Circular 10-2000
dated October 23, 2000 enjoining judges of lower courts to exercise
caution in order to prevent "possible circumvention of the rules and
procedures of the Commission on Audit" and reiterating the basic rule that:
"All money claims against the Government must be filed with the
Commission on Audit which shall act upon it within sixty days. Rejection of
the claim will authorize the claimant to elevate the matter to the Supreme
Court on certiorari and in effect sue the State thereby."
Under the doctrine of primary jurisdiction, when an administrative body is
clothed with original and exclusive jurisdiction, courts are utterly without
power and authority to exercise concurrently such jurisdiction. Accordingly,
all the proceedings of the court in violation of that doctrine and all orders
and decisions reached thereby are null and void. It will be noted in the
cited Supreme Court Circular that money claims are cognizable by the
COA and its decision is appealable only to the Supreme Court. The lower
courts have nothing to do with such genus of transactions.
Anent the issue of entitlement to rice allowance by employees hired after
June 30, 1989, this Commission is left with no option but to affirm the
disallowance in the face of the explicit provisions of DBM-CCC No. 10.
After its publication on March 9, 1999 in the Official Gazette, rice
allowance was allowed only for incumbents as of July 1, 1989. Obviously,
there is no violation of the equal protection clause as cited in the PITC
case, supra, because whatever increments the incumbents are enjoying
over those of non-incumbents are transitory, for the same law provides that
such difference shall be deducted from the salary increase the former
should receive under Section 17. Thus, the equalization or standardization
of what the two categories of employees will be receiving in terms of
benefits is ensured.
PREMISES CONSIDERED, the instant appeal is hereby DENIED and the
disallowance in the total amount of ₱1,865,811.84 is accordingly affirmed.46
We agree with the findings of the COA.
In National Electrification Administration v. Morales, the order of
garnishment against the NEA funds to implement the RTC Decision was in
issue, and we said that the COA had exclusive jurisdiction to decide on the
allowance or disallowance of money claims arising from the
implementation of Republic Act No. 6758. We observed therein that "the
RTC acted prudently in halting implementation of the writ of execution to
allow the parties recourse to the processes of the COA."47 In fact, we even
stated there that "it is not for this Court to preempt the action of the COA
on the post-audit to be conducted by it per its Indorsement dated March
23, 2000."48
We find that the COA had ruled in accordance with law and jurisprudence,
and we see no reason to reverse its decision.
Section 5.5 of DBM-CCC No. 10 is clear that rice subsidy is one of the
benefits that will be granted to employees of GOCCs49 or GFIs50 only if
they are "incumbents" as of July 1, 1989. We reproduce the first paragraph
of Section 5.5 below:
5.5 The following allowances/fringe benefits authorized to GOCCs/GFIs
pursuant to the aforementioned issuances are not likewise to be integrated
into the basic salary and allowed to be continued only for incumbents of
positions as of June 30, 1989 who are authorized and actually receiving
said allowances/benefits as of said date, at the same terms and conditions
prescribed in said issuances[:]
5.5.1 Rice Subsidy; x x x.51
We have defined an incumbent as "a person who is in present possession
of an office; one who is legally authorized to discharge the duties of an
office."52 There is no question that petitioners were not incumbents as of
June 30, 1989. We have likewise characterized NEA as a GOCC in
National Electrification Administration v. Morales. Thus, Section 5.5 quoted
above, issued pursuant to the authority given to the DBM under Section 12
of Republic Act No. 6758, was correctly applied by the COA.
We find our pronouncements in Philippine National Bank v. Palma53 to be
applicable and conclusive on this issue now before us:
During these tough economic times, this Court understands, and in fact
sympathizes with, the plight of ordinary government employees. Whenever
legally possible, it has bent over backwards to protect labor and favor it
with additional economic advantages. In the present case, however, the
Salary Standardization Law clearly provides that the claimed benefits shall
continue to be granted only to employees who were "incumbents" as of
July 1, 1989. Hence, much to its regret, the Court has no authority to
reinvent or modify the law to extend those benefits even to employees
hired after that date.1awphil
xxxx
Stare Decisis
The doctrine "stare decisis et non quieta movere (Stand by the decisions
and disturb not what is settled)" is firmly entrenched in our jurisprudence.
Once this Court has laid down a principle of law as applicable to a certain
state of facts, it would adhere to that principle and apply it to all future
cases in which the facts are substantially the same as in the earlier
controversy.
The precise interpretation and application of the assailed provisions of RA
6758, namely those in Section 12, have long been established
in Philippine Ports Authority v. COA. The essential pronouncements in that
case have further been fortified by Manila International Airport Authority v.
COA, Philippine International Trading Corporation v. COA, and Social
Security System v. COA.
This Court has consistently held in those cases that allowances or fringe
benefits, whether or not integrated into the standardized salaries
prescribed by RA 6758, should continue to be enjoyed by employees who
(1) were incumbents and (2) were receiving those benefits as of July 1,
1989.
In Philippine Ports Authority v. COA, the x x x Court said that the intention
of the framers of that law was to phase out certain allowances and
privileges gradually, without upsetting the principle of non-diminution of
pay. The intention of Section 12 to protect incumbents who were
already receiving those allowances on July 1, 1989, when RA 6758 took
effect was emphasized thus:
"An incumbent is a person who is in present possession of an office.
"The consequential outcome, under sections 12 and 17, is that if the
incumbent resigns or is promoted to a higher position, his successor is no
longer entitled to his predecessor’s RATA privilege x x x or to the transition
allowance."
Finally, to explain what July 1, 1989 pertained to, we held in the same case
as follows:
"x x x. The date July 1, 1989 becomes crucial only to determine that as of
said date, the officer was an incumbentand was receiving the RATA, for
purposes of entitling him to its continued grant. x x x."
In Philippine International Trading Corporation v. COA, this Court
confirmed the legislative intention in this wise:
"x x x [T]here was no intention on the part of the legislature to revoke
existing benefits being enjoyed by incumbentsof government positions at
the time of the passage of RA 6758 by virtue of Sections 12 and 17
thereof. x x x."
The Court stressed that in reserving the benefits to incumbents alone, the
legislature’s intention was not only to adhere to the policy of non-
diminution of pay, but also to be consistent with the prospective application
of laws and the spirit of fairness and justice.
xxxx
In consonance with stare decisis, there should be no more misgivings
about the proper application of Section 12. In the present case, the
payment of benefits to employees hired after July 1, 1989, was properly
withheld, because the law clearly mandated that those benefits should be
reserved only to incumbents who were already enjoying them before its
enactment. Withholding them from the others ensured that the
compensation of the incumbents would not be diminished in the course of
the latter’s continued employment with the government
agency.54 (Emphasis ours, citations omitted.)1avvphi1
As petitioners were hired after June 30, 1989, the COA was correct in
disallowing the grant of the benefit to them, as they were clearly not
entitled to it. As quoted above, we have repeatedly held that under Section
12 of Republic Act No. 6758, the only requirements for the continuous
grant of allowances and fringe benefits on top of the standardized salary
rates for employees of GOCCs and GFIs are as follows: (1) the employee
must be an incumbent as of July 1, 1989; and (2) the allowance or benefit
was not consolidated in the standardized salary rate as prescribed by
Republic Act No. 6758.55
We hereby reiterate our ruling in Philippine National Bank v. Palma as
regards Section 12 of Republic Act No. 6758, as follows:
In sum, we rule thus:
1. Under Section 12 of RA 6758, additional compensation
already being received by the employees of petitioner, but not
integrated into the standardized salary rates -- enumerated in
Section 5.5 of DBM-CC[C] No. 10, like "rice subsidy, sugar
subsidy, death benefits other than those granted by the GSIS,"
and so on -- shall continue to be given.
2. However, the continuation of the grant shall be available only
to those "incumbents" already receiving it on July 1, 1989.
3. Thus, in PPA v. COA, this Court held that PPA employees
already receiving the RATA granted by LOI No. 97 should
continue to receive them, provided they were already
"incumbents" on or before July 1, 1989.
4. PITC v. COA held that in enacting RA 6758, Congress was
adhering to the policy of non-diminution of existing pay. Hence, if
a benefit was not yet existing when the law took effect on July 1,
1989, there was nothing to continue and no basis for applying
the policy.
5. Neither would Cruz v. COA be applicable. In those cases, the
COA arbitrarily set a specific date, October 31, 1989; RA 6758
had not made a distinction between those hired before and
those after that date. In the present case, the law itself set July
1, 1989, as the date when employees should be "incumbents,"
because that was when RA 6758 took effect. It was not an
arbitrarily chosen date; there was sufficient reason for setting it
as the cutoff point.56
Notwithstanding our ruling above, however, we take up as another matter
the refund ordered by the COA on the rice subsidy that petitioners had
already received. As regards the refund, we rule in favor of petitioners and
will not require them to return the amounts anymore.
This is because, to begin with, the officials and administrators of NEA
themselves had believed that their employees were entitled to the
allowances, and this was covered by Resolution No. 29 of the NEA Board
of Administrators. The petitioners thus received in good faith the rice
subsidy together with other allowances provided in said Resolution. For
reasons of equity and fairness, therefore, and considering their long wait
for this matter to be resolved with finality, we will no longer require a refund
from these public servants.
Our pronouncements on refund in De Jesus v. Commission on
Audit,57 wherein we cited Blaquera v. Hon. Alcala,58are applicable:
Considering, however, that all the parties here acted in good faith, we
cannot countenance the refund of subject incentive benefits for the year
1992, which amounts the petitioners have already received. Indeed, no
indicia of bad faith can be detected under the attendant facts and
circumstances. The officials and chiefs of offices concerned disbursed
such incentive benefits in the honest belief that the amounts given were
due to the recipients and the latter accepted the same with gratitude,
confident that they richly deserve such benefits.
This ruling in Blaquera applies to the instant case. Petitioners here
received the additional allowances and bonuses in good faith under the
honest belief that LWUA Board Resolution No. 313 authorized such
payment. At the time petitioners received the additional allowances and
bonuses, the Court had not yet decided Baybay Water District. Petitioners
had no knowledge that such payment was without legal basis. Thus, being
in good faith, petitioners need not refund the allowances and bonuses they
received but disallowed by the COA.59 (Emphasis supplied.)
As in the cases above quoted, we cannot countenance the refund of the
rice subsidies given to petitioners by NEA for the period January to August
2001 at this late time, especially since they were given by the government
agency to its employees in good faith.
WHEREFORE, premises considered, the petition is hereby PARTIALLY
GRANTED. COA Decision No. 2003-134 dated October 9, 2003 and COA
Resolution No. 2005-010 dated February 24, 2005 are hereby AFFIRMED
with the CLARIFICATION that the petitioners shall no longer be required to
refund the rice subsidies for the period January to August 2001, which they
had received from NEA but were later disallowed by the COA.
SO ORDERED.
G.R. No. 176343 September 18, 2012
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE
PHILIPPINES, Petitioner,
vs.
MA. ROSARIO S. MANALANG-DEMIGILIO, Respondent.
DECISION
BERSAMIN, J.:
The issuance by the proper disciplining authority of an order of preventive
suspension for 90 days of a civil service officer or employee pending
investigation of her administrative case is authorized provided that a formal
charge is served to her and the charge involves dishonesty, oppression,
grave misconduct, or neglect in the performance of duty, or if there are
reasons to believe that she is guilty of the charge as to warrant her
removal from the service. Proof showing that the respondent officer or
employee may unduly influence the witnesses against her or may tamper
the documentary evidence on file at her office is not a prerequisite before
she may be preventively suspended.
Antecedents
Trade and Investment Development Corporation of the Philippines
(TIDCORP) is a wholly owned government corporation whose primary
purpose is to guarantee foreign loans, in whole or in part, granted to any
domestic entity, enterprise or corporation organized or licensed to engage
in business in the Philippines.1
On May 13, 2003, the Board of Directors of TIDCORP formally charged
Maria Rosario Manalang-Demigillo (Demigillo), then a Senior Vice-
President in TIDCORP, with grave misconduct, conduct prejudicial to the
best interest of the service, insubordination, and gross discourtesy in the
course of official duties. The relevant portions of the formal charge read:
After a thorough study, evaluation, and deliberation, the Board finds merit
to the findings and recommendation of the Investigating Committee on the
existence of a probable cause for Grave Misconduct, Conduct Prejudicial
to the Best Interest of the Service, Insubordination, and Gross Discourtesy
in the Course of Official Duties. However and to avoid any suspicion of
partiality in the conduct of the investigation, the Board hereby refers this
case to the Office of the Government Corporate Counsel to conduct a
formal investigation on the following:
1) The incident during the Credit Committee Meeting on 06 March 2002
where you allegedly engaged yourself in a verbal tussle with Mr. Joel C.
Valdes, President and CEO. Allegedly, you raised your voice, got angry,
shouted at Mr. Valdes and were infuriated by his remarks such as "are we
talking of apples and apples here?", "everybody should focus on the issues
at hand" and "out of the loop";
2) The incident during the Reorganization Meeting on 18 July 2002 where
you appeared to have been rude and arrogant in the way you answered
Mr. Valdes to some questions like "Ano gusto mo? Bibigay ko personally
sa iyo…sasabihan ko personally ikaw?", "You know Joel alam natin sa
isa’t-isa…that…I don’t know how to term it…there is no love lost no?",
"Ang ibig sabihin kung may galit ka…" "Let’s be candid you know…" "What
is the opportunity? Let me see…pakita ko sa’yo lahat ang aking ano…"
and "Anong output tell me?";
3) The incident during the Planning Session on 05 August 2002. Records
show that you reacted to the statement of Mr. Valdes urging everybody to
give support to the Marketing Group in this manner – "But of course, we
would not want to be the whipping boy!" Records also show that in the
same meeting, you used arrogant and threatening remarks to the
President and CEO like "don’t cause division to hide your inefficiency and
gastos! If you push me to the wall, I have goods on you too…", "You want
me to charge you to the Ombudsman?", "May humihingi ng documents sa
akin, sabayan ko na sila", "Now I’m fighting you openly…"and "I am
threatening you";
4) The incident involving your Memorandum to Mr. Valdes dated 19
September 2002, the pertinent portions of which read, as follows:
"I am repulsed and nauseated by the information that yesterday, 18
September 2002 at the OPCOM meeting, you claim to have talked to me
or consulted me about the car you caused to be purchased for the
Corporate Auditor Ms. Maria Bautista.
I have never talked to you about your desire to give Ms. Bautista a car.
This is a brazen lie, a fabrication. Such moral turpitude! How low, how
base, how desperate!
Accordingly, as you have given me no (sic), I am taking you to task for this
and all the illegal acts you have done and are doing against me and
TIDCORP."
It appears that the said Memorandum was circulated even to those who
were not privy to the cause of the issuance of such statement.
5) The incident where you assisted and made it appear to be acting as
counsel of Mr. Vicente C. Uy in the case involving the latter relative to the
conduct of the APEC Capacity Building for Trade and Investment
Insurance Training Program in April 2002;
6) The incident on 13 November 2002 where you allegedly urged and
induced officials and employees at the 3rd floor of TIDCORP to proceed to
the Office of the President and CEO to give support to EVP Jane
Tambanillo who was allegedly then being forced to resign by Mr. Valdes.
This caused not only a commotion but disturbance and disruption of the
office work at both 3rd and 4th floors;
7) The incident on 13 November 2002 where you allegedly shouted at Atty.
Jane Laragan and berated Mr. Valdes in front of officers and employees
whom you gathered as per allegation number 6; and
8) Relative to allegation number 7, your stubborn refusal to obey the order
of Mr. Valdes to go back to work as it was only 9:30 a.m. and instead
challenged him to be the one to bring you down to the 3rd floor instead of
asking the guard to do so.
Pursuant to Section 16, Rule II of the Uniform Rules on Administrative
Cases in the Civil Service and in the spirit of justice, fair play, and due
process, you are hereby given the opportunity to submit additional
evidence to what you have already submitted during the preliminary
investigation, if any to the Board, through the OGCC, within seventy two
(72) hours from receipt of this Memorandum.
In this regard, you are informed of your right to be assisted by a counsel of
your choice and to indicate in your answer whether or not you elect a
formal investigation. Nevertheless, and in accordance with the aforecited
provision of the Uniform Rules on Administrative Cases in the Civil Service,
any requests for clarification, bills of particulars or motion to dismiss which
are obviously designed to delay the administrative proceeding shall not be
entertained. If any of these pleadings are interposed, the same shall be
considered as an answer and shall be evaluated as such.
Finally, and after considering Section 19 of the same Rules, which gives
authority to the disciplining body to issue an order of preventive
suspension, you are hereby preventively suspended for a period of ninety
(90) days from receipt hereof.
Let a copy of this memorandum and the complete records of the case be
forwarded immediately to the Office of the Government Corporate Counsel
(OGCC) for appropriate action.2
TIDCORP referred the charge to the Office of the Government Corporate
Counsel (OGCC) for formal investigation and reception of evidence.
Pending the investigation, TIDCORP placed Demigillo under preventive
suspension for 90 days.3
Demigillo assailed her preventive suspension in the Civil Service
Commission (CSC),4 which issued on January 21, 2004 Resolution No.
040047 declaring her preventive suspension to be "not in order."5 The CSC
stated that under Section 19(2), Rule II, of the Uniform Rules on
Administrative Cases in the Civil Service (Uniform Rules), a civil service
officer like Demigillo might be preventively suspended by the disciplining
authority only if any of the two grounds were present, to wit: (1) there was
a possibility that the civil service employee might unduly influence or
intimidate potential witnesses against him; or (2) there was a possibility
that the civil service employee might tamper the documentary evidence on
file in her office.6 According to the CSC, TIDCORP did not prove with
substantial evidence the existence of any of such grounds, explaining thus:
xxx. As the party claiming affirmative evidence, that is, Demigillo’s
possibility of influencing potential witnesses or tampering with evidence,
TIDCORP is bound to prove the same by substantial evidence. However, it
failed to. TIDCORP claims that its witnesses "refused to issue any sworn
statement during the preliminary investigation in deference to their
immediate superior x x x and that the same witnesses, however, intimated
that they may be compelled to tell the truth if called to testify during the
investigation." On the basis of these statements, it is clear that the
witnesses’ refusal to execute sworn statement is by reason of their
"deference" to Demigillo not on account of her "intimidation or influence."
Further, the fact that said witnesses "will be compelled to tell the truth" is
not because of Demigillo’s continued presence or absence in the office but
because they are bound by their oath to tell the truth during the
investigation. Under these circumstances, it is not difficult to ascertain that
the order of preventive suspension is not necessary.
Anent the potential tampering of documents by Demigillo, the Commission
similarly finds the same remote. There is no showing that the documentary
evidence of the case leveled against her were in her possession or
custody as would otherwise justify the imposition of preventive suspension.
As borne by the evidence on record, the acts complained of against
Demigillo constitute verbal tussles between her and President Valdes
which were all recorded and documented by the TIDCORP. In this
situation, there is no chance of Demigillo’s tampering with documents.
From the foregoing disquisition, the Commission finds that the preventive
suspension of Demigillo for ninety (90) days was improvidently made
because the possibility of exerting/influencing possible witnesses or
tampering with documents, which is the evil sought to be avoided in this
case, does not exist.7
Upon denial of its motion for reconsideration by the CSC,8 TIDCORP
appealed to the Court of Appeals (CA),9submitting the sole issue of:
WHETHER OR NOT THE CSC ERRED IN SO HOLDING THE
PREVENTIVE SUSPENSION OF APPELLANT DEMIGILLO WAS NOT IN
ORDER.10
On November 7, 2006, the CA promulgated its decision affirming the
CSC,11 holding and ruling as follows:
The main issue in this case is whether or not respondent Demigillo was
validly placed under preventive suspension on the ground that she could
possibly influence or intimidate potential witnesses or tamper the evidence
on record in her office, thus, affecting the investigation of the case against
her.
Petitioner argues that the preventive suspension imposed against
respondent Demigillo is valid as it is in accordance with the CSC rules and
regulations and Section 51, Chapter 6, Title I (A), Book V of Executive
Order No. 292 which states that "the proper disciplining authority may
preventively suspend any subordinate officer or employee under his
authority pending an investigation, if the charge against such officer or
employee involves dishonesty, oppression or grave misconduct, or neglect
in the performance of duty, or if there are reasons to believe that the
respondent is guilty of charges which would warrant his removal from the
service", hence, the CSC erred in holding the same not in order. Further,
petitioner contends that since the provision of the Administrative Code of
1987 on preventive suspension does not set any condition on its
imposition, the provision in the Uniform Rules on Administrative Cases in
the Civil Service promulgated by the CSC should be stricken out as it is
not found in the law itself.
We are not persuaded.
We agree with the CSC Resolution No. 040047 which cited Section 19
(paragraph 2), Rule II, Uniform Rules on Administrative Cases in the Civil
Service as basis in ruling against the order of preventive suspension
against herein respondent. The pertinent portion of the provision reads, as
follows:
An order of preventive suspension may be issued to temporarily remove
the respondent from the scene of his misfeasance or malfeasance and to
preclude the possibility of exerting undue influence or pressure on the
witnesses against him or tampering of documentary evidence on file with
his Office.
Based on the aforequoted provision, any of the two grounds: (1) to
preclude the possibility of exerting undue influence or pressure on the
witnesses against him; or (2) tampering of documentary evidence on file
with his office, can be validly invoked by the disciplining authority to justify
the imposition of the preventive suspension. As correctly pointed out by
respondent in her motion for leave to file and admit attached comment,
and comment to amended petition for review, under Section 19 (paragraph
2), Rule II, of the Uniform Rules of Administrative Cases in the Civil
Service (URACCS), preventive suspension is warranted in order to
preclude the respondent from exerting "undue influence" on the witnesses
against her. But in this case, TIDCORP failed to prove the possibility of
respondent exerting undue influence on the witnesses, but instead CSC
found TIDCORP to have admitted unequivocally that it is because of the
witnesses’ deference or respect for respondent that they did not execute
sworn statements. Indeed, the esteem or respect given is not undue
influence; it even negates any wrongdoing on the part of respondent.
Indeed, the alleged incidents being harped about by TIDCORP do not in
any way prove undue influence of respondent on the witnesses. The
incidents involved mere verbal tussles between Mr. Joel Valdes, TIDCORP
President and CEO, respondent Demigillo and Jane Larangon, who had
already executed her affidavit even before respondent’s preventive
suspension. In brief, TIDCORP failed to prove undue influence as there is
nothing in those incidents showing the commission or coercion or
compulsion upon one to do what is against his will.
We agree with the findings of the CSC that respondent’s possibility to exert
undue influence or pressure on the witnesses against her is remote. The
purpose of preventive suspension is to avoid the possibility on the part of
the person charged of a certain offense, to exert influence or undue
pressure on the potential witnesses against her. In Gloria vs. Court of
Appeals, the High Court said that preventive suspension pending
investigation is a measure intended to enable the disciplining authority to
investigate charges against respondent by preventing the latter from
intimidating or in any way influencing witnesses against him. And as
correctly pointed out by the CSC, the possibility of exerting influence or
pressure on the potential witnesses does not exist in this case because the
complainant or the person who stands to be a witness for the government
is influential, so to speak, as he holds the highest position in TIDCORP. It
is really difficult to imagine that a person who occupies the highest position
in an organization could be influenced or intimidated by his subordinate.
The president of the organization has greater degree of control in the
organization, and to claim that he could be intimated or influenced by his
subordinate is baseless and unbelievable. Considering that Valdes was
President of TIDCROP and a primary witness against respondent who is
his mere subordinate, we find no valid ground for petitioner to impose
preventive suspension against respondent.
Moreover, as correctly pointed out by the CSC in its resolution, as the
party claiming affirmative relief, TIDCORP is bound to prove the basis
thereof, i.e. respondent’s possibility of influencing potential witnesses or
tampering with the evidence, by substantial evidence, which it failed to do.
There is no showing that the documentary evidence against respondent
are in her possession or custody. The acts complained of against
respondent arose out of the verbal tussles between her and President
Valdes which were all recorded and documented by TIDCORP. In this
situation, there is no chance for respondent’s tampering with the
documents.
As regards the argument that since the provision of the Administrative
Code of 1987 on preventive suspension does not set any condition on its
imposition, the provision in the Uniform Rules on Administrative Cases in
the Civil Service promulgated by the CSC should be stricken out as it is
not found in the law itself, we rule in the negative.
We agree with respondent that the aforequoted argument of petitioner is
misplaced and unfounded. Section 12 (2), Chapter 3, Tile I (A) of Book V
of the Revised Administrative Code, provides that among the powers and
functions of the Civil Service Commission is to prescribe, amend and
enforce rules and regulations for carrying into effect the provisions of the
Civil Service Law and other pertinent laws. It is on the basis of this grant of
power to the CSC that CSC Resolution No. 991936, otherwise known as
the Uniform Rules on Administrative Cases in the Civil Service was
promulgated.
Indeed, the rule-making power of the administrative body is intended to
enable it to implement the policy of the law and to provide for the more
effective enforcement of its provisions. Through the exercise of this power
of subordinate legislation, it is possible for the administrative body to
transmit "the active power of the state from its source to the point of
application," that is, apply the law and so fulfill the mandate of the
legislature. It is an elementary rule in administrative law that administrative
regulations and policies enacted by administrative bodies to interpret the
law which they are entrusted to enforce, have the force of law, are entitled
to great respect, and have in their favor a presumption of legality.
Furthermore, Section 10 of Rule 43 of the 1997 Rules of Civil Procedure,
provides that the findings of fact of the court or agency concerned, when
supported by substantial evidence, shall be binding on the Court of
Appeals. Indeed, jurisprudence is replete with the rule that findings of fact
of quasi-judicial agencies which have acquired expertise because their
jurisdiction is confined to specific matters are generally accorded not only
respect, but at times even finality if such findings are supported by
substantial evidence.
WHEREFORE, the instant petition is DENIED. The assailed Resolutions
dated January 21, 2004 and June 7, 2004, issued by the Civil Service
Commission, are AFFIRMED.
SO ORDERED.12
Hence, TIDCORP has appealed to the Court.13
Issue
The sole issue concerns the validity of TIDCORP’s 90-day preventive
suspension of Demigillo.
Ruling
We grant the petition, and hold that the 90-day preventive suspension
order issued against Demigillo was valid.
The Revised Administrative Code of 1987 (RAC) embodies the major
structural, functional and procedural principles and rules of governance of
government agencies and constitutional bodies like the CSC. Section 1,
Chapter 1, Subtitle A, Title I, Book V, of the RAC states that the CSC is the
central personnel agency of the government. Section 51 and Section 52,
Chapter 6, Subtitle A, Title I, Book V of the RAC respectively contain the
rule on preventive suspension of a civil service officer or employee
pending investigation, and the duration of the preventive suspension, viz:
Section 51. Preventive Suspension. – The proper disciplining authority
may preventively suspend any subordinate officer or employee under his
authority pending an investigation, if the charge against such officer or
employee involves dishonesty, oppression or grave misconduct, or neglect
in the performance of duty, or if there are reasons to believe that the
respondent is guilty of charges which would warrant his removal from the
service.
Section 52. Lifting of Preventive Suspension Pending Administrative
Investigation. – When the administrative case against the officer or
employee under preventive suspension is not finally decided by the
disciplining authority within the period of ninety (90) days after the date of
suspension of the respondent who is not a presidential appointee, the
respondent shall be automatically reinstated in the service: Provided, That
when the delay in the disposition of the case is due to the fault, negligence
or petition of the respondent, the period of delay shall not be counted in
computing the period of suspension herein provided.
Under Section 51, supra, the imposition of preventive suspension by the
proper disciplining authority is authorized provided the charge involves
dishonesty, oppression, or grave misconduct, or neglect in the
performance of duty, or if there are reasons to believe that the respondent
is guilty of charges which would warrant his removal from the service.
Section 51 nowhere states or implies that before a preventive suspension
may issue there must be proof that the subordinate may unduly influence
the witnesses against him or may tamper the documentary evidence on file
in her office.
In Gloria v. Court of Appeals,14 several public school teachers were
preventively suspended for 90 days while being investigated for the charge
of grave misconduct, among others. Citing Section 51 of the RAC, the
Court sustained the imposition of the 90-day preventive suspension
pending investigation of the charges, saying:
The preventive suspension of civil service employees charged with
dishonesty, oppression or grave misconduct, or neglect of duty is
authorized by the Civil Service Law. It cannot, therefore, be considered
"unjustified," even if later the charges are dismissed so as to justify the
payment of salaries to the employee concerned. It is one of those
sacrifices which holding a public office requires for the public good xxx.15
Pursuant to its rule-making authority, the CSC promulgated the Uniform
Rules on August 31, 1999. Section 19 and Section 20 of Rule II of the
Uniform Rules defined the guidelines in the issuance of an order of
preventive suspension and the duration of the suspension, to wit:
Section 19. Preventive Suspension. – Upon petition of the complainant or
motu proprio, the proper disciplining authority may issue an order of
preventive suspension upon service of the Formal Charge, or immediately
thereafter to any subordinate officer or employee under his authority
pending an investigation, if the charge involves:
Preventing the subordinate officer or employee from influencing the
witnesses and tampering the documentary evidence under her custody are
mere purposes for which an order of preventive suspension may issue as
reflected under paragraph 2 of Section 19, supra. This is apparent in the
phrase "for the same purpose" found in paragraph 3 of Section 19. A
"purpose" cannot be considered and understood as a "condition." A
purpose means "reason for which something is done or exists," while a
condition refers to a "necessary requirement for something else to
happen;" or is a "restriction, qualification."16 The two terms have different
meanings and implications, and one cannot substitute for the other.
In Gloria v. Court of Appeals,17 we stated that preventive suspension
pending investigation "is a measure intended to enable the disciplining
authority to investigate charges against respondent by preventing the latter
from intimidating or in any way influencing witnesses against him." As
such, preventing the subordinate officer or employee from intimidating the
witnesses during investigation or from tampering the documentary
evidence in her office is a purpose, not a condition, for imposing preventive
suspension, as shown in the use of the word "intended."
Relevantly, CSC Resolution No. 030502, which was issued on May 5,
2003 for the proper enforcement of preventive suspension pending
investigation, provides in part as follows:
WHEREAS, Sections 51 and 52, Chapter 6, Subtitle A, Title I, Book V of
the Administrative Code of 1987, set out the controlling standards on the
imposition of preventive suspension, as follows:
xxxx
WHEREAS, in order to effectuate the afore-quoted provisions of law, the
Civil Service Commission, as the central personnel agency of the
government empowered, inter alia, with the promulgation, amendment and
enforcement of rules and regulations intended to carry out into effect the
provisions of the Civil Service Law and other pertinent laws, adopted
Sections 19, 20, and 21 of the Uniform Rules on Administrative Cases in
the Civil Service (CSC Memorandum Circular No. 19, s. 1999), to wit:
xxxx

a. dishonesty;
4. The imposition of preventive suspension shall be confined to the well-
defined instances set forth under the pertinent provisions of the
b. oppression; Administrative Code of 1987 and the Local Government Code of 1991.
Both of these laws decree that recourse may be had to preventive
suspension where the formal charge involves any of the following
c. grave misconduct;
administrative offenses, or under the circumstances specified in paragraph
(e) herein:
d. neglect in the performance of duty; or
a. Dishonesty;
e. if there are reasons to believe that the respondent is guilty of
charges which would warrant his removal from the service.
b. Oppression;

An order of preventive suspension may be issued to temporarily remove

c. Grave Misconduct;
the respondent from the scene of his misfeasance or malfeasance and to
preclude the possibility of exerting undue influence or pressure on the
witnesses against him or tampering of documentary evidence on file with d. Neglect in the performance of duty; or
his Office.
e. If there are reasons to believe that the respondent is guilty of
In lieu of preventive suspension, for the same purpose, the proper the charge/s, which would warrant his removal from the service.
disciplining authority or head of office may reassign respondent to other
unit of the agency during the formal hearings.
xxxx

Section 20. Duration of Preventive Suspension. – When the administrative

a. A declaration by a competent authority that an order of preventive
case against an officer or employee under preventive suspension is not
suspension is null and void on its face entitles the respondent official or
finally decided by the disciplining authority within the period of ninety (90)
employee to immediate reinstatement and payment of back salaries
days after the date of his preventive suspension, unless otherwise
corresponding to the period of the unlawful preventive suspension.
provided by special law, he shall be automatically reinstated in the service;
provided that, when the delay in the disposition of the case is due to the
fault, negligence or petition of the respondent, the period of delay should The phrase "null and void on its face" in relation to a preventive
not be included in the counting of the 90 calendar days period of suspension order imports any of the following circumstances:
preventive suspension. Provided further that should the respondent be on
Maternity/Paternity leave, said preventive suspension shall be deferred or
i) The order was issued by one who is not authorized by law;
interrupted until such time that said leave has been fully enjoyed.

It is clear from Section 19, supra, that before an order of preventive
suspension pending an investigation may validly issue, only two
prerequisites need be shown, namely: (1) that the proper disciplining
authority has served a formal charge to the affected officer or employee;
and (2) that the charge involves either dishonesty, oppression, grave
misconduct, neglect in the performance of duty, or if there are reasons to
believe that the respondent is guilty of the charges which would warrant
her removal from the service. Proof showing that the subordinate officer or
employee may unduly influence the witnesses against her or may tamper
the documentary evidence on file in her office is not among the
prerequisites.
ii) The order was not premised on any of the grounds or causes warranted
by law;
iii) The order of suspension was without a formal charge; or
iv) While lawful in the sense that it is based on the enumerated grounds,
the duration of the imposed preventive suspension has exceeded the
prescribed periods, in which case the payment of back salaries shall
correspond to the excess period only.
CSC Resolution No. 030502 apparently reiterates the rule stated in
Section 19 of the Uniform Rules, supra, that for a preventive suspension to
issue, there must be a formal charge and the charge involves the offenses 191-
enumerated therein. The resolution considers an order of preventive 2001 30.85
00139
suspension as null and void if the order was not premised on any of the
mentioned grounds, or if the order was issued without a formal charge. As A7-
in the case of Section 19, the resolution does not include as a condition for 1992- 59,129,520.0 37,044,644.2 96,174,
183-
issuing an order of preventive suspension that there must be proof 2001 0 8 164.28
05409
adduced showing that the subordinate officer or employee may unduly
influence the witnesses against her or tamper the documentary evidence A7-
1992- 20,619,720.0 12,918,254.5 33,537,
in her custody. 183-
2001 0 8 974.58
05410
Consequently, the CSC and the CA erred in making the purpose of A7-
preventive suspension a condition for its issuance.1âwphi1 Although, as a 1992- 12,862,
183- 7,908,240.00 4,954,512.36
rule, we defer to the interpretation by administrative agencies like the CSC 2001 752.36
05413
of their own rules, especially if the interpretation is affirmed by the CA, we
withhold deference if the interpretation is palpably erroneous,18 like in this A7-
instance. 1992- 18,441,981.2 11,553,901.1 29,995,
183-
2001 0 3 882.33
05412
We hold that TIDCORP’s issuance against Demigillo of the order for her
A7-
90-day preventive suspension pending the investigation was valid and 1992- 109,946,736. 68,881,630.1 178,828
183-
lawful. 2001 00 3 ,366.13
05411

WHEREFORE, we GRANT the petition for review on certiorari; SET A7-

1992- 12,101,
ASIDE the decision of the Court of Appeals promulgated on November 7, 183- 7,440,000.00 4,661,160.00
2001 160.00
2006, and DECLARE AS VALID the order for the preventive suspension 05245
for 90 days of MA. ROSARIO S. MANALANG-DEMIGILIO pending her
₱1,016,
investigation for grave misconduct. ₱642,747,72 ₱373,466,11
GRAND TOTAL 213,836
6.20 0.13
.33
The respondent shall pay the costs of suit. SO ORDERED.

On 24 August 2001, the City of Pasay, through its City Treasurer, issued
G.R. No. 163072 April 2, 2009 notices of levy and warrants of levy for the NAIA Pasay properties. MIAA
received the notices and warrants of levy on 28 August 2001. Thereafter,
MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, the City Mayor of Pasay threatened to sell at public auction the NAIA
vs. Pasay properties if the delinquent real property taxes remain unpaid.
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY
MAYOR OF PASAY, CITY TREASURER OF PASAY, and CITY On 29 October 2001, MIAA filed with the Court of Appeals a petition for
ASSESSOR OF PASAY, Respondents. prohibition and injunction with prayer for preliminary injunction or
temporary restraining order. The petition sought to enjoin the City of Pasay
DECISION from imposing real property taxes on, levying against, and auctioning for
public sale the NAIA Pasay properties.

CARPIO, J.:
1 2
This is a petition for review on certiorari of the Decision dated 30 October
2002 and the Resolution dated 19 March 2004 of the Court of Appeals in
CA-G.R. SP No. 67416.
The Facts
Petitioner Manila International Airport Authority (MIAA) operates and
administers the Ninoy Aquino International Airport (NAIA) Complex under
Executive Order No. 903 (EO 903),3 otherwise known as the Revised
Charter of the Manila International Airport Authority. EO 903 was issued on
21 July 1983 by then President Ferdinand E. Marcos. Under Sections
34 and 225 of EO 903, approximately 600 hectares of land, including the
runways, the airport tower, and other airport buildings, were transferred to
MIAA. The NAIA Complex is located along the border between Pasay City
and Parañaque City.
On 28 August 2001, MIAA received Final Notices of Real Property Tax
Delinquency from the City of Pasay for the taxable years 1992 to 2001.
MIAA’s real property tax delinquency for its real properties located in NAIA
Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is
tabulated as follows:
On 30 October 2002, the Court of Appeals dismissed the petition and
upheld the power of the City of Pasay to impose and collect realty taxes on
the NAIA Pasay properties. MIAA filed a motion for reconsideration, which
the Court of Appeals denied. Hence, this petition.
The Court of Appeals’ Ruling
The Court of Appeals held that Sections 193 and 234 of Republic Act No.
7160 or the Local Government Code, which took effect on 1 January 1992,
withdrew the exemption from payment of real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered
under Republic Act No. 6938, non-stock and non-profit hospitals and
educational institutions. Since MIAA is a government-owned corporation, it
follows that its tax exemption under Section 21 of EO 903 has been
withdrawn upon the effectivity of the Local Government Code.
The Issue
The issue raised in this petition is whether the NAIA Pasay properties of
MIAA are exempt from real property tax.
The Court’s Ruling

TAX
DECL TAXAB The petition is meritorious.
A- LE TAX DUE PENALTY TOTAL
RATI YEAR In ruling that MIAA is not exempt from paying real property tax, the Court
ON of Appeals cited Sections 193 and 234 of the Local Government Code
which read:
A7-
1997- 243,522,855. 123,351,728. 366,874
183-
2001 00 18 ,583.18
08346 SECTION 193. Withdrawal of Tax Exemption Privileges. – Unless
otherwise provided in this Code, tax exemptions or incentives granted to,
A7- or presently enjoyed by all persons, whether natural or juridical, including
1992- 113,582,466. 71,159,414.9 184,741
183- government-owned or controlled corporations, except local water districts,
2001 00 8 ,880.98
05224 cooperatives duly registered under R.A. No. 6938, non-stock and non-
profit hospitals and educational institutions, are hereby withdrawn upon the
A7- effectivity of this Code.
1992- 54,454,800.0 34,115,932.2 88,570,
191-
2001 0 0 732.20
00843
SECTION 234. Exemptions from Real Property Tax. – The following are
A7- exempted from payment of the real property tax:
1992- 2,656,0
191- 1,632,960.00 1,023,049.44
2001 09.44
00140
(a) Real property owned by the Republic of the Philippines or
A7- 1992- 6,068,448.00 3,801,882.85 9,870,3 any of its political subdivisions except when the beneficial use
 thereof has been granted, for consideration or otherwise to a
taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings and improvements actually, directly, and
exclusively used for religious, charitable or educational
purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government owned
or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environment protection.
Except as provided herein, any exemption from payment of real property
tax previously granted to, or presently enjoyed by, all persons, whether
natural or juridical, including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.
The Court of Appeals held that as a government-owned corporation,
MIAA’s tax exemption under Section 21 of EO 903 has already been
withdrawn upon the effectivity of the Local Government Code in 1992.
In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA
case), this Court already resolved the issue of whether the airport lands
and buildings of MIAA are exempt from tax under existing laws. The 2006
MIAA case originated from a petition for prohibition and injunction which
MIAA filed with the Court of Appeals, seeking to restrain the City of
Parañaque from imposing real property tax on, levying against, and
auctioning for public sale the airport lands and buildings located in
Parañaque City. The only difference between the 2006 MIAA case and this
case is that the 2006 MIAA case involved airport lands and buildings
located in Parañaque City while this case involved airport lands and
buildings located in Pasay City. The 2006 MIAA case and this case raised
the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well
as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:
To summarize, MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative
Code because it is not organized as a stock or non-stock corporation.
Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not
required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. As a government instrumentality, MIAA is not
subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a)
does not apply to MIAA because MIAA is not a taxable entity under the
Local Government Code. Such exception applies only if the beneficial use
of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. Article 420 of the Civil
Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth.
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public
use, and at the very least intended for public service. Whether intended for
public use or public service, the Airport Lands and Buildings are properties
of public dominion. As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.7 (Emphasis in the
original)
The definition of "instrumentality" under Section 2(10) of the Introductory
Provisions of the Administrative Code of 1987 uses the phrase "includes x
x x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or
controlled corporation." Obviously, the term government "instrumentality"
is broader than the term "government-owned or controlled corporation."
Section 2(10) provides:
SEC. 2. General Terms Defined.– x x x
(10) Instrumentality refers to any agency of the national Government, not
integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.
The term "government-owned or controlled corporation" has a separate
definition under Section 2(13)8 of the Introductory Provisions of the
Administrative Code of 1987:
SEC. 2. General Terms Defined.– x x x
(13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: Provided, That
government-owned or controlled corporations may further be categorized
by the department of Budget, the Civil Service Commission, and the
Commission on Audit for the purpose of the exercise and discharge of their
respective powers, functions and responsibilities with respect to such
corporations.
The fact that two terms have separate definitions means that while a
government "instrumentality" may include a "government-owned or
controlled corporation," there may be a government "instrumentality" that
will not qualify as a "government-owned or controlled corporation."
A close scrutiny of the definition of "government-owned or controlled
corporation" in Section 2(13) will show that MIAA would not fall under such
definition. MIAA is a government "instrumentality" that does not
qualify as a "government-owned or controlled corporation." As
explained in the 2006 MIAA case:
A government-owned or controlled corporation must be "organized as a
stock or non-stock corporation." MIAA is not organized as a stock or non-
stock corporation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting
shares. x x x
Section 3 of the Corporation Code defines a stock corporation as one
whose "capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x." MIAA has capital
but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.
xxx
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as
"one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations
are "organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or controlled corporation. What then is the
legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers. x x x
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains
a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of
eminent domain, police authority and the levying of fees and charges. At
the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."9
Thus, MIAA is not a government-owned or controlled corporation but a
government instrumentality which is exempt from any kind of tax from the
local governments. Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated in Section 133 of
the Local Government Code.10 Under Section 133(o)11 of the Local
Government Code, local government units have no power to tax
instrumentalities of the national government like the MIAA. Hence, MIAA is
not liable to pay real property tax for the NAIA Pasay properties.
Furthermore, the airport lands and buildings of MIAA are properties of
public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real
property tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are
subject to real property tax by the City of Pasay.
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision
dated 30 October 2002 and the Resolution dated 19 March 2004 of the
Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport
Authority EXEMPT from real property tax imposed by the City of Pasay.
We declare VOID all the real property tax assessments, including the final
notices of real property tax delinquencies, issued by the City of Pasay on
the NAIA Pasay properties of the Manila International Airport Authority,
except for the portions that the Manila International Airport Authority has
leased to private parties.
No costs. SO ORDERED.
G.R. No. 171182 August 23, 2012
UNIVERSITY OF THE PHILIPPINES, JOSE V. ABUEVA, RAUL P. DE
GUZMAN, RUBEN P. ASPIRAS, EMMANUEL P. BELLO, WILFREDO P.
DAVID, CASIANO S. ABRIGO, and JOSEFINA R.
LICUANAN,Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as Presiding Judge of the
Regional Trial Court of Quezon City, Branch 80, STERN BUILDERS,
INC., and SERVILLANO DELA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
Trial judges should not immediately issue writs of execution or
garnishment against the Government or any of its subdivisions, agencies
and instrumentalities to enforce money judgments.1 They should bear in
mind that the primary jurisdiction to examine, audit and settle all claims of
any sort due from the Government or any of its subdivisions, agencies and
instrumentalities pertains to the Commission on Audit (COA) pursuant to
Presidential Decree No. 1445 (Government Auditing Code of the
Philippines).
The Case
On appeal by the University of the Philippines and its then incumbent
officials (collectively, the UP) is the decision promulgated on September
16, 2005,2 whereby the Court of Appeals (CA) upheld the order of the
Regional Trial Court (RTC), Branch 80, in Quezon City that directed the
garnishment of public funds amounting to ₱ 16,370,191.74 belonging to
the UP to satisfy the writ of execution issued to enforce the already final
and executory judgment against the UP.
Antecedents
On August 30, 1990, the UP, through its then President Jose V. Abueva,
entered into a General Construction Agreement with respondent Stern
Builders Corporation (Stern Builders), represented by its President and
General Manager Servillano dela Cruz, for the construction of the
extension building and the renovation of the College of Arts and Sciences
Building in the campus of the University of the Philippines in Los Baños
(UPLB).3
In the course of the implementation of the contract, Stern Builders
submitted three progress billings corresponding to the work accomplished,
but the UP paid only two of the billings. The third billing worth ₱
273,729.47 was not paid due to its disallowance by the Commission on
Audit (COA). Despite the lifting of the disallowance, the UP failed to pay
the billing, prompting Stern Builders and dela Cruz to sue the UP and its
co-respondent officials to collect the unpaid billing and to recover various
damages. The suit, entitled Stern Builders Corporation and Servillano R.
Dela Cruz v. University of the Philippines Systems, Jose V. Abueva, Raul
P. de Guzman, Ruben P. Aspiras, Emmanuel P. Bello, Wilfredo P. David,
Casiano S. Abrigo, and Josefina R. Licuanan, was docketed as Civil Case
No. Q-93-14971 of the Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC rendered its decision in favor of
the plaintiffs,5 viz:
Wherefore, in the light of the foregoing, judgment is hereby rendered in
favor of the plaintiff and against the defendants ordering the latter to pay
plaintiff, jointly and severally, the following, to wit:
1. ₱ 503,462.74 amount of the third billing, additional
accomplished work and retention money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per appearance as attorney’s
fees; and
5. Costs of suit.
SO ORDERED.
Following the RTC’s denial of its motion for reconsideration on May 7,
2002,6 the UP filed a notice of appeal on June 3, 2002.7 Stern Builders and
dela Cruz opposed the notice of appeal on the ground of its filing being
belated, and moved for the execution of the decision. The UP countered
that the notice of appeal was filed within the reglementary period because
the UP’s Office of Legal Affairs (OLS) in Diliman, Quezon City received the
order of denial only on May 31, 2002. On September 26, 2002, the RTC
denied due course to the notice of appeal for having been filed out of time
and granted the private respondents’ motion for execution.8
The RTC issued the writ of execution on October 4, 2002,9 and the sheriff
of the RTC served the writ of execution and notice of demand upon the UP,
through its counsel, on October 9, 2002.10 The UP filed an urgent motion to
reconsider the order dated September 26, 2002, to quash the writ of
execution dated October 4, 2002, and to restrain the
proceedings.11 However, the RTC denied the urgent motion on April 1,
2003.12
On June 24, 2003, the UP assailed the denial of due course to its appeal
through a petition for certiorari in the Court of Appeals (CA), docketed as
CA-G.R. No. 77395.13
On February 24, 2004, the CA dismissed the petition for certiorari upon
finding that the UP’s notice of appeal had been filed late,14 stating:
Records clearly show that petitioners received a copy of the Decision
dated November 28, 2001 and January 7, 2002, thus, they had until
January 22, 2002 within which to file their appeal. On January 16, 2002 or
after the lapse of nine (9) days, petitioners through their counsel Atty.
Nolasco filed a Motion for Reconsideration of the aforesaid decision,
hence, pursuant to the rules, petitioners still had six (6) remaining days to
file their appeal. As admitted by the petitioners in their petition (Rollo, p.
25), Atty. Nolasco received a copy of the Order denying their motion for
reconsideration on May 17, 2002, thus, petitioners still has until May 23,
2002 (the remaining six (6) days) within which to file their appeal.
Obviously, petitioners were not able to file their Notice of Appeal on May
23, 2002 as it was only filed on June 3, 2002.
In view of the said circumstances, We are of the belief and so holds that
the Notice of Appeal filed by the petitioners was really filed out of time, the
same having been filed seventeen (17) days late of the reglementary
period. By reason of which, the decision dated November 28, 2001 had
already become final and executory. "Settled is the rule that the perfection
of an appeal in the manner and within the period permitted by law is not
only mandatory but jurisdictional, and failure to perfect that appeal renders
the challenged judgment final and executory. This is not an empty
procedural rule but is grounded on fundamental considerations of public
policy and sound practice." (Ram’s Studio and Photographic Equipment,
Inc. vs. Court of Appeals, 346 SCRA 691, 696). Indeed, Atty. Nolasco
received the order of denial of the Motion for Reconsideration on May 17,
2002 but filed a Notice of Appeal only on June 3, 3003. As such, the
decision of the lower court ipso facto became final when no appeal was
perfected after the lapse of the reglementary period. This procedural
caveat cannot be trifled with, not even by the High Court.15
The UP sought a reconsideration, but the CA denied the UP’s motion for
reconsideration on April 19, 2004.16
On May 11, 2004, the UP appealed to the Court by petition for review
on certiorari (G.R. No. 163501).
On June 23, 2004, the Court denied the petition for review.17 The UP
moved for the reconsideration of the denial of its petition for review on
August 29, 2004,18 but the Court denied the motion on October 6,
2004.19 The denial became final and executory on November 12, 2004.20
In the meanwhile that the UP was exhausting the available remedies to
overturn the denial of due course to the appeal and the issuance of the writ
of execution, Stern Builders and dela Cruz filed in the RTC their motions
for execution despite their previous motion having already been granted
and despite the writ of execution having already issued. On June 11, 2003,
the RTC granted another motion for execution filed on May 9, 2003
(although the RTC had already issued the writ of execution on October 4,
2002).21
On June 23, 2003 and July 25, 2003, respectively, the sheriff served
notices of garnishment on the UP’s depository banks, namely: Land Bank
of the Philippines (Buendia Branch) and the Development Bank of the
Philippines (DBP), Commonwealth Branch.22 The UP assailed the
garnishment through an urgent motion to quash the notices of
garnishment;23 and a motion to quash the writ of execution dated May 9,
2003.24
On their part, Stern Builders and dela Cruz filed their ex parte motion for
issuance of a release order.25
On October 14, 2003, the RTC denied the UP’s urgent motion to quash,
and granted Stern Builders and dela Cruz’s ex parte motion for issuance of
a release order.26
The UP moved for the reconsideration of the order of October 14, 2003,
but the RTC denied the motion on November 7, 2003.27
On January 12, 2004, Stern Builders and dela Cruz again sought the
release of the garnished funds.28 Despite the UP’s opposition,29 the RTC
granted the motion to release the garnished funds on March 16, 2004.30 On
April 20, 2004, however, the RTC held in abeyance the enforcement of the
writs of execution issued on October 4, 2002 and June 3, 2003 and all the
ensuing notices of garnishment, citing Section 4, Rule 52, Rules of Court,
which provided that the pendency of a timely motion for reconsideration
stayed the execution of the judgment.31
On December 21, 2004, the RTC, through respondent Judge Agustin S.
Dizon, authorized the release of the garnished funds of the UP, 32 to wit:
WHEREFORE, premises considered, there being no more legal
impediment for the release of the garnished amount in satisfaction of the
judgment award in the instant case, let the amount garnished be
immediately released by the Development Bank of the Philippines,
Commonwealth Branch, Quezon City in favor of the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the order of December 21,
2004 directing DBP to release the garnished funds.33
On January 6, 2005, Stern Builders and dela Cruz moved to cite DBP in
direct contempt of court for its non-compliance with the order of release. 34
Thereupon, on January 10, 2005, the UP brought a petition for certiorari in
the CA to challenge the jurisdiction of the RTC in issuing the order of
December 21, 2004 (CA-G.R. CV No. 88125).35 Aside from raising the
denial of due process, the UP averred that the RTC committed grave
abuse of discretion amounting to lack or excess of jurisdiction in ruling that
there was no longer any legal impediment to the release of the garnished
funds. The UP argued that government funds and properties could not be
seized by virtue of writs of execution or garnishment, as held in
Department of Agriculture v. National Labor Relations Commission,36 and
citing Section 84 of Presidential Decree No. 1445 to the effect that
"revenue funds shall not be paid out of any public treasury or depository
except in pursuance of an appropriation law or other specific statutory
authority;" and that the order of garnishment clashed with the ruling in
University of the Philippines Board of Regents v. Ligot-Telan37 to the effect
that the funds belonging to the UP were public funds.
On January 19, 2005, the CA issued a temporary restraining order (TRO)
upon application by the UP.38
On March 22, 2005, Stern Builders and dela Cruz filed in the RTC their
amended motion for sheriff’s assistance to implement the release order
dated December 21, 2004, stating that the 60-day period of the TRO of the
CA had already lapsed.39 The UP opposed the amended motion and
countered that the implementation of the release order be suspended.40
On May 3, 2005, the RTC granted the amended motion for sheriff’s
assistance and directed the sheriff to proceed to the DBP to receive the
check in satisfaction of the judgment.41
The UP sought the reconsideration of the order of May 3, 2005.42
On May 16, 2005, DBP filed a motion to consign the check representing
the judgment award and to dismiss the motion to cite its officials in
contempt of court.43
On May 23, 2005, the UP presented a motion to withhold the release of the
payment of the judgment award.44
On July 8, 2005, the RTC resolved all the pending matters,45 noting that the
DBP had already delivered to the sheriff Manager’s Check No. 811941 for
₱ 16,370,191.74 representing the garnished funds payable to the order of
Stern Builders and dela Cruz as its compliance with the RTC’s order dated
December 21, 2004.46 However, the RTC directed in the same order that
Stern Builders and dela Cruz should not encash the check or withdraw its
amount pending the final resolution of the UP’s petition for certiorari, to
wit:47
To enable the money represented in the check in question (No.
00008119411) to earn interest during the pendency of the defendant
University of the Philippines application for a writ of injunction with the
Court of Appeals the same may now be deposited by the plaintiff at the
garnishee Bank (Development Bank of the Philippines), the disposition of
the amount represented therein being subject to the final outcome of the
case of the University of the Philippines et al., vs. Hon. Agustin S. Dizon et
al., (CA G.R. 88125) before the Court of Appeals.
Let it be stated herein that the plaintiff is not authorized to encash and
withdraw the amount represented in the check in question and enjoy the
same in the fashion of an owner during the pendency of the case between
the parties before the Court of Appeals which may or may not be resolved
in plaintiff’s favor.
With the end in view of seeing to it that the check in question is deposited
by the plaintiff at the Development Bank of the Philippines (garnishee
bank), Branch Sheriff Herlan Velasco is directed to accompany and/or
escort the plaintiff in making the deposit of the check in question.
SO ORDERED.
On September 16, 2005, the CA promulgated its assailed decision
dismissing the UP’s petition for certiorari, ruling that the UP had been
given ample opportunity to contest the motion to direct the DBP to deposit
the check in the name of Stern Builders and dela Cruz; and that the
garnished funds could be the proper subject of garnishment because they
had been already earmarked for the project, with the UP holding the funds
only in a fiduciary capacity,48 viz:
Petitioners next argue that the UP funds may not be seized for execution
or garnishment to satisfy the judgment award. Citing Department of
Agriculture vs. NLRC, University of the Philippines Board of Regents vs.
Hon. Ligot-Telan, petitioners contend that UP deposits at Land Bank and
the Development Bank of the Philippines, being government funds, may
not be released absent an appropriations bill from Congress.
The argument is specious. UP entered into a contract with private
respondents for the expansion and renovation of the Arts and Sciences
Building of its campus in Los Baños, Laguna. Decidedly, there was already
an appropriations earmarked for the said project. The said funds are
retained by UP, in a fiduciary capacity, pending completion of the
construction project.
We agree with the trial Court [sic] observation on this score:
"4. Executive Order No. 109 (Directing all National Government
Agencies to Revert Certain Accounts Payable to the Cumulative
Result of Operations of the National Government and for Other
Purposes) Section 9. Reversion of Accounts Payable, provides
that, all 1995 and prior years documented accounts payable and
all undocumented accounts regardless of the year they were
incurred shall be reverted to the Cumulative Result of
Operations of the National Government (CROU). This shall
apply to accounts payable of all funds, except fiduciary funds, as
long as the purpose for which the funds were created have not
been accomplished and accounts payable under foreign
assisted projects for the duration of the said project. In this
regard, the Department of Budget and Management issued
Joint-Circular No. 99-6 4.0 (4.3) Procedural Guidelines which
 provides that all accounts payable that reverted to the CROU
may be considered for payment upon determination thru
administrative process, of the existence, validity and legality of
the claim. Thus, the allegation of the defendants that considering
no appropriation for the payment of any amount awarded to
plaintiffs appellee the funds of defendant-appellants may not be
seized pursuant to a writ of execution issued by the regular court
is misplaced. Surely when the defendants and the plaintiff
entered into the General Construction of Agreement there is an
amount already allocated by the latter for the said project which
is no longer subject of future appropriation."49
After the CA denied their motion for reconsideration on December 23,
2005, the petitioners appealed by petition for review.
Matters Arising During the Pendency of the Petition
On January 30, 2006, Judge Dizon of the RTC (Branch 80) denied Stern
Builders and dela Cruz’s motion to withdraw the deposit, in consideration
of the UP’s intention to appeal to the CA,50 stating:
Since it appears that the defendants are intending to file a petition for
review of the Court of Appeals resolution in CA-G.R. No. 88125 within the
reglementary period of fifteen (15) days from receipt of resolution, the
Court agrees with the defendants stand that the granting of plaintiffs’
subject motion is premature.
Let it be stated that what the Court meant by its Order dated July 8, 2005
which states in part that the "disposition of the amount represented therein
being subject to the final outcome of the case of the University of the
Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125
before the Court of Appeals) is that the judgment or resolution of said court
has to be final and executory, for if the same will still be elevated to the
Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.51
However, on January 22, 2007, the UP filed an Urgent Application for A
Temporary Restraining Order and/or A Writ of Preliminary
Injunction,52 averring that on January 3, 2007, Judge Maria Theresa dela
Torre-Yadao (who had meanwhile replaced Judge Dizon upon the latter’s
appointment to the CA) had issued another order allowing Stern Builders
and dela Cruz to withdraw the deposit,53 to wit:
It bears stressing that defendants’ liability for the payment of the judgment
obligation has become indubitable due to the final and executory nature of
the Decision dated November 28, 2001. Insofar as the payment of the [sic]
judgment obligation is concerned, the Court believes that there is nothing
more the defendant can do to escape liability. It is observed that there is
nothing more the defendant can do to escape liability. It is observed that
defendant U.P. System had already exhausted all its legal remedies to
overturn, set aside or modify the decision (dated November 28,
2001( rendered against it. The way the Court sees it, defendant U.P.
System’s petition before the Supreme Court concerns only with the
manner by which said judgment award should be satisfied. It has nothing
to do with the legality or propriety thereof, although it prays for the deletion
of [sic] reduction of the award of moral damages.
It must be emphasized that this Court’s finding, i.e., that there was
sufficient appropriation earmarked for the project, was upheld by the Court
of Appeals in its decision dated September 16, 2005. Being a finding of
fact, the Supreme Court will, ordinarily, not disturb the same was said
Court is not a trier of fact. Such being the case, defendants’ arguments
that there was no sufficient appropriation for the payment of the judgment
obligation must fail.
While it is true that the former Presiding Judge of this Court in its Order
dated January 30, 2006 had stated that:
Let it be stated that what the Court meant by its Order dated July 8, 2005
which states in part that the "disposition of the amount represented therein
being subject to the final outcome of the case of the University of the
Philippines, et. al., vs. Hon. Agustin S. Dizon et al., (CA G.R. No. 88125
before the Court of Appeals) is that the judgment or resolution of said court
has to be final and executory, for if the same will still be elevated to the
Supreme Court, it will not attain finality yet until the highest court has
rendered its own final judgment or resolution.
it should be noted that neither the Court of Appeals nor the Supreme Court
issued a preliminary injunction enjoining the release or withdrawal of the
garnished amount. In fact, in its present petition for review before the
Supreme Court, U.P. System has not prayed for the issuance of a writ of
preliminary injunction. Thus, the Court doubts whether such writ is
forthcoming.
The Court honestly believes that if defendants’ petition assailing the Order
of this Court dated December 31, 2004 granting the motion for the release
of the garnished amount was meritorious, the Court of Appeals would have
issued a writ of injunction enjoining the same. Instead, said appellate court
not only refused to issue a wit of preliminary injunction prayed for by U.P.
System but denied the petition, as well.54
The UP contended that Judge Yadao thereby effectively reversed the
January 30, 2006 order of Judge Dizon disallowing the withdrawal of the
garnished amount until after the decision in the case would have become
final and executory.
Although the Court issued a TRO on January 24, 2007 to enjoin Judge
Yadao and all persons acting pursuant to her authority from enforcing her
order of January 3, 2007,55 it appears that on January 16, 2007, or prior to
the issuance of the TRO, she had already directed the DBP to forthwith
release the garnished amount to Stern Builders and dela Cruz; 56 and that
DBP had forthwith complied with the order on January 17, 2007 upon the
sheriff’s service of the order of Judge Yadao.57
These intervening developments impelled the UP to file in this Court a
supplemental petition on January 26, 2007,58alleging that the RTC (Judge
Yadao) gravely erred in ordering the immediate release of the garnished
amount despite the pendency of the petition for review in this Court.
The UP filed a second supplemental petition59 after the RTC (Judge Yadao)
denied the UP’s motion for the redeposit of the withdrawn amount on April
10, 2007,60 to wit:
This resolves defendant U.P. System’s Urgent Motion to Redeposit
Judgment Award praying that plaintiffs be directed to redeposit the
judgment award to DBP pursuant to the Temporary Restraining Order
issued by the Supreme Court. Plaintiffs opposed the motion and countered
that the Temporary Restraining Order issued by the Supreme Court has
become moot and academic considering that the act sought to be
restrained by it has already been performed. They also alleged that the
redeposit of the judgment award was no longer feasible as they have
already spent the same.
It bears stressing, if only to set the record straight, that this Court did not –
in its Order dated January 3, 2007 (the implementation of which was
restrained by the Supreme Court in its Resolution dated January 24, 2002)
– direct that that garnished amount "be deposited with the garnishee bank
(Development Bank of the Philippines)". In the first place, there was no
need to order DBP to make such deposit, as the garnished amount was
already deposited in the account of plaintiffs with the DBP as early as May
13, 2005. What the Court granted in its Order dated January 3, 2007 was
plaintiff’s motion to allow the release of said deposit. It must be recalled
that the Court found plaintiff’s motion meritorious and, at that time, there
was no restraining order or preliminary injunction from either the Court of
Appeals or the Supreme Court which could have enjoined the release of
plaintiffs’ deposit. The Court also took into account the following factors:
a) the Decision in this case had long been final and executory
after it was rendered on November 28, 2001;
b) the propriety of the dismissal of U.P. System’s appeal was
upheld by the Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. System’s deposit with DBP was garnished
pursuant to a lawful writ of execution issued by the Court; and
e) the garnished amount had already been turned over to the
plaintiffs and deposited in their account with DBP.
The garnished amount, as discussed in the Order dated January 16, 2007,
was already owned by the plaintiffs, having been delivered to them by the
Deputy Sheriff of this Court pursuant to par. (c), Section 9, Rule 39 of the
1997 Rules of Civil Procedure. Moreover, the judgment obligation has
already been fully satisfied as per Report of the Deputy Sheriff.
Anent the Temporary Restraining Order issued by the Supreme Court, the
same has become functus oficio, having been issued after the garnished
amount had been released to the plaintiffs. The judgment debt was
released to the plaintiffs on January 17, 2007, while the Temporary
Restraining Order issued by the Supreme Court was received by this Court
on February 2, 2007. At the time of the issuance of the Restraining Order,
the act sought to be restrained had already been done, thereby rendering
the said Order ineffectual.
After a careful and thorough study of the arguments advanced by the
parties, the Court is of the considered opinion that there is no legal basis to
grant defendant U.P. System’s motion to redeposit the judgment amount.
Granting said motion is not only contrary to law, but it will also render this
Court’s final executory judgment nugatory. Litigation must end and
terminate sometime and somewhere, and it is essential to an effective
administration of justice that once a judgment has become final the issue
or cause involved therein should be laid to rest. This doctrine of finality of
judgment is grounded on fundamental considerations of public policy and
sound practice. In fact, nothing is more settled in law than that once a
judgment attains finality it thereby becomes immutable and unalterable. It
may no longer be modified in any respect, even if the modification is meant
to correct what is perceived to be an erroneous conclusion of fact or law,
and regardless of whether the modification is attempted to be made by the
court rendering it or by the highest court of the land.
WHEREFORE, premises considered, finding defendant U.P. System’s
Urgent Motion to Redeposit Judgment Award devoid of merit, the same is
hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I live miserably because of the wrongful actuations of the UP; and that the
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN
DISMISSING THE PETITION, ALLOWING IN EFFECT THE
GARNISHMENT OF UP FUNDS, WHEN IT RULED THAT FUNDS HAVE
ALREADY BEEN EARMARKED FOR THE CONSTRUCTION PROJECT;
AND THUS, THERE IS NO NEED FOR FURTHER APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN ALLOWING
GARNISHMENT OF A STATE UNIVERSITY’S FUNDS IN VIOLATION OF
ARTICLE XIV, SECTION 5(5) OF THE CONSTITUTION.
III
IN THE ALTERNATIVE, THE UNIVERSITY INVOKES EQUITY AND THE
REVIEW POWERS OF THIS HONORABLE COURT TO MODIFY, IF NOT
TOTALLY DELETE THE AWARD OF ₱ 10 MILLION AS MORAL
DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING
THE IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS
ORDER DATED 3 JANUARY 2007 ON THE GROUND OF EQUITY AND
JUDICIAL COURTESY.
V national university67 "dedicated to the search for truth and knowledge as
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN ORDERING
THE IMMEDIATE RELEASE OF THE JUDGMENT AWARD IN ITS
ORDER DATED 16 JANUARY 2007 ON THE GROUND THAT
PETITIONER UNIVERSITY STILL HAS A PENDING MOTION FOR
RECONSIDERATION OF THE ORDER DATED 3 JANUARY 2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE ERROR IN NOT
ORDERING THE REDEPOSIT OF THE GARNISHED AMOUNT TO THE
DBP IN VIOLATION OF THE CLEAR LANGUAGE OF THE SUPREME
COURT RESOLUTION DATED 24 JANUARY 2007.
The UP argues that the amount earmarked for the construction project had
been purposely set aside only for the aborted project and did not include
incidental matters like the awards of actual damages, moral damages and
attorney’s fees. In support of its argument, the UP cited Article 12.2 of the
General Construction Agreement, which stipulated that no deductions
would be allowed for the payment of claims, damages, losses and
expenses, including attorney’s fees, in case of any litigation arising out of
the performance of the work. The UP insists that the CA decision was
inconsistent with the rulings in Commissioner of Public Highways v. San
Diego61 and Department of Agriculture v. NLRC62 to the effect that
government funds and properties could not be seized under writs of
execution or garnishment to satisfy judgment awards.
Furthermore, the UP contends that the CA contravened Section 5, Article
XIV of the Constitution by allowing the garnishment of UP funds, because
the garnishment resulted in a substantial reduction of the UP’s limited
budget allocated for the remuneration, job satisfaction and fulfillment of the
best available teachers; that Judge Yadao should have exhibited judicial
courtesy towards the Court due to the pendency of the UP’s petition for
review; and that she should have also desisted from declaring that the
TRO issued by this Court had become functus officio.
Lastly, the UP states that the awards of actual damages of ₱ 5,716,729.00
and moral damages of ₱ 10 million should be reduced, if not entirely
deleted, due to its being unconscionable, inequitable and detrimental to
public service.
In contrast, Stern Builders and dela Cruz aver that the petition for review
was fatally defective for its failure to mention the other cases upon the
same issues pending between the parties (i.e., CA-G.R. No. 77395 and
G.R No. 163501); that the UP was evidently resorting to forum shopping,
and to delaying the satisfaction of the final judgment by the filing of its
petition for review; that the ruling in Commissioner of Public Works v. San
Diego had no application because there was an appropriation for the
project; that the UP retained the funds allotted for the project only in a
fiduciary capacity; that the contract price had been meanwhile adjusted to
₱ 22,338,553.25, an amount already more than sufficient to cover the
judgment award; that the UP’s prayer to reduce or delete the award of
damages had no factual basis, because they had been gravely wronged,
had been deprived of their source of income, and had suffered untold
miseries, discomfort, humiliation and sleepless years; that dela Cruz had
even been constrained to sell his house, his equipment and the
implements of his trade, and together with his family had been forced to
RTC correctly declared the Court’s TRO to be already functus officio by
reason of the withdrawal of the garnished amount from the DBP.
The decisive issues to be considered and passed upon are, therefore:
(a) whether the funds of the UP were the proper subject of garnishment in
order to satisfy the judgment award; and (b) whether the UP’s prayer for
the deletion of the awards of actual damages of ₱ 5,716,729.00, moral
damages of ₱ 10,000,000.00 and attorney’s fees of ₱ 150,000.00 plus ₱
1,500.00 per appearance could be granted despite the finality of the
judgment of the RTC.
Ruling
The petition for review is meritorious.
I.
UP’s funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through Act 1870 to provide
advanced instruction in literature, philosophy, the sciences, and arts, and
to give professional and technical training to deserving students.63 Despite
its establishment as a body corporate,64 the UP remains to be a "chartered
institution"65 performing a legitimate government function. It is an institution
of higher learning, not a corporation established for profit and declaring
any dividends.66 In enacting Republic Act No. 9500 (The University of the
Philippines Charter of 2008), Congress has declared the UP as the
well as the development of future leaders."68
Irrefragably, the UP is a government instrumentality,69 performing the
State’s constitutional mandate of promoting quality and accessible
education.70 As a government instrumentality, the UP administers special
funds sourced from the fees and income enumerated under Act No. 1870
and Section 1 of Executive Order No. 714,71 and from the yearly
appropriations, to achieve the purposes laid down by Section 2 of Act
1870, as expanded in Republic Act No. 9500.72 All the funds going into the
possession of the UP, including any interest accruing from the deposit of
such funds in any banking institution, constitute a "special trust fund," the
disbursement of which should always be aligned with the UP’s mission and
purpose,73 and should always be subject to auditing by the COA.74
Presidential Decree No. 1445 defines a "trust fund" as a fund that officially
comes in the possession of an agency of the government or of a public
officer as trustee, agent or administrator, or that is received for the
fulfillment of some obligation.75 A trust fund may be utilized only for the
"specific purpose for which the trust was created or the funds received." 76
The funds of the UP are government funds that are public in character.
They include the income accruing from the use of real property ceded to
the UP that may be spent only for the attainment of its institutional
objectives.77 Hence, the funds subject of this action could not be validly
made the subject of the RTC’s writ of execution or garnishment. The
adverse judgment rendered against the UP in a suit to which it had
impliedly consented was not immediately enforceable by execution against
the UP,78 because suability of the State did not necessarily mean its
liability.79
A marked distinction exists between suability of the State and its liability.
As the Court succinctly stated in Municipality of San Fernando, La Union v.
Firme:80
A distinction should first be made between suability and liability. "Suability
depends on the consent of the state to be sued, liability on the applicable
law and the established facts. The circumstance that a state is suable does
not necessarily mean that it is liable; on the other hand, it can never be
held liable if it does not first consent to be sued. Liability is not conceded
by the mere fact that the state has allowed itself to be sued. When the
state does waive its sovereign immunity, it is only giving the plaintiff the
chance to prove, if it can, that the defendant is liable.
Also, in Republic v. Villasor,81 where the issuance of an alias writ of
execution directed against the funds of the Armed Forces of the
Philippines to satisfy a final and executory judgment was nullified, the
Court said:
xxx The universal rule that where the State gives its consent to be sued by
private parties either by general or special law, it may limit claimant’s
action "only up to the completion of proceedings anterior to the stage of
execution" and that the power of the Courts ends when the judgment is
rendered, since government funds and properties may not be seized under
writs of execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law.
The functions and public services rendered by the State cannot be allowed
to be paralyzed or disrupted by the diversion of public funds from their
legitimate and specific objects, as appropriated by law.
The UP correctly submits here that the garnishment of its funds to satisfy
the judgment awards of actual and moral damages (including attorney’s
fees) was not validly made if there was no special appropriation by
Congress to cover the liability. It was, therefore, legally unwarranted for the
CA to agree with the RTC’s holding in the order issued on April 1, 2003
that no appropriation by Congress to allocate and set aside the payment of
the judgment awards was necessary because "there (were) already an
appropriations (sic) earmarked for the said project."82 The CA and the RTC
thereby unjustifiably ignored the legal restriction imposed on the trust
funds of the Government and its agencies and instrumentalities to be used
exclusively to fulfill the purposes for which the trusts were created or for
which the funds were received except upon express authorization by
Congress or by the head of a government agency in control of the funds,
and subject to pertinent budgetary laws, rules and regulations.83
Indeed, an appropriation by Congress was required before the judgment
that rendered the UP liable for moral and actual damages (including
attorney’s fees) would be satisfied considering that such monetary
liabilities were not covered by the "appropriations earmarked for the said
project." The Constitution strictly mandated that "(n)o money shall be paid
out of the Treasury except in pursuance of an appropriation made by
law."84
II
COA must adjudicate private respondents’ claim
before execution should proceed
The execution of the monetary judgment against the UP was within the
primary jurisdiction of the COA. This was expressly provided in Section 26
of Presidential Decree No. 1445, to wit:
Section 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 to 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 donations through the government, those
required to pay levies or government share, and those for which the
government has put up a counterpart fund or those partly funded by the
government.
and of no legal effect, specifically: (a) the order Judge Yadao issued on
January 3, 2007 allowing Stern Builders and dela Cruz to withdraw the
deposited garnished amount; (b) the order Judge Yadao issued on January
16, 2007 directing DBP to forthwith release the garnish amount to Stern
Builders and dela Cruz; (c) the sheriff’s report of January 17, 2007
manifesting the full satisfaction of the writ of execution; and (d) the order of
April 10, 2007 deying the UP’s motion for the redeposit of the withdrawn
amount. Hence, such orders and issuances should be struck down without
exception.
Nothing extenuated Judge Yadao’s successive violations of Presidential
Decree No. 1445. She was aware of Presidential Decree No. 1445,
considering that the Court circulated to all judges its Administrative Circular
No. 10-2000,86 issued on October 25, 2000, enjoining them "to observe
utmost caution, prudence and judiciousness in the issuance of writs of
execution to satisfy money judgments against government agencies and
local government units" precisely in order to prevent the circumvention of
Presidential Decree No. 1445, as well as of the rules and procedures of
the COA, to wit:
In order to prevent possible circumvention of the rules and
procedures of the Commission on Audit, judges are hereby enjoined
to observe utmost caution, prudence and judiciousness in the
issuance of writs of execution to satisfy money judgments against
government agencies and local government units.
Judges should bear in mind that in Commissioner of Public Highways v.
San Diego (31 SCRA 617, 625 1970), this Court explicitly stated:
"The universal rule that where the State gives its consent to be sued by
private parties either by general or special law, it may limit claimant’s
action ‘only up to the completion of proceedings anterior to the stage of
execution’ and that the power of the Court ends when the judgment is
rendered, since government funds and properties may not be seized under
writs of execution or garnishment to satisfy such judgments, is based on
obvious considerations of public policy. Disbursements of public funds
must be covered by the corresponding appropriation as required by law.
The functions and public services rendered by the State cannot be allowed
to be paralyzed or disrupted by the diversion of public funds from their
legitimate and specific objects, as appropriated by law.
Moreover, it is settled jurisprudence that upon determination of State
liability, the prosecution, enforcement or satisfaction thereof must
still be pursued in accordance with the rules and procedures laid
down in P.D. No. 1445, otherwise known as the Government Auditing
Code of the Philippines (Department of Agriculture v. NLRC, 227
SCRA 693, 701-02 1993 citing Republic vs. Villasor, 54 SCRA 84 1973).
All money claims against the Government must first be filed with the
Commission on Audit which must act upon it within sixty days.
Rejection of the claim will authorize the claimant to elevate the matter
to the Supreme Court on certiorari and in effect, sue the State thereby
(P.D. 1445, Sections 49-50).
However, notwithstanding the rule that government properties are not
subject to levy and execution unless otherwise provided for by statute
(Republic v. Palacio, 23 SCRA 899 1968; Commissioner of Public
Highways v. San Diego, supra) or municipal ordinance (Municipality of
Makati v. Court of Appeals, 190 SCRA 206 1990), the Court has, in various
instances, distinguished between government funds and properties for
public use and those not held for public use. Thus, in Viuda de Tan Toco v.
Municipal Council of Iloilo (49 Phil 52 1926, the Court ruled that "where
property of a municipal or other public corporation is sought to be
subjected to execution to satisfy judgments recovered against such
corporation, the question as to whether such property is leviable or not is
to be determined by the usage and purposes for which it is held." The
following can be culled from Viuda de Tan Toco v. Municipal Council of
Iloilo:
1. Properties held for public uses – and generally everything held for
governmental purposes – are not subject to levy and sale under
execution against such corporation. The same rule applies to funds
in the hands of a public officer and taxes due to a municipal
corporation.

It was of no moment that a final and executory decision already validated 2. Where a municipal corporation owns in its proprietary capacity, as
the claim against the UP. The settlement of the monetary claim was still distinguished from its public or government capacity, property not used or
subject to the primary jurisdiction of the COA despite the final decision of used for a public purpose but for quasi-private purposes, it is the general
the RTC having already validated the claim.85 As such, Stern Builders and rule that such property may be seized and sold under execution against
dela Cruz as the claimants had no alternative except to first seek the the corporation.
approval of the COA of their monetary claim.
3. Property held for public purposes is not subject to execution merely
On its part, the RTC should have exercised utmost caution, prudence and because it is temporarily used for private purposes. If the public use is
judiciousness in dealing with the motions for execution against the UP and wholly abandoned, such property becomes subject to execution.
the garnishment of the UP’s funds. The RTC had no authority to direct the
immediate withdrawal of any portion of the garnished funds from the
This Administrative Circular shall take effect immediately and the Court
depository banks of the UP. By eschewing utmost caution, prudence and
Administrator shall see to it that it is faithfully implemented.
judiciousness in dealing with the execution and garnishment, and by
authorizing the withdrawal of the garnished funds of the UP, the RTC acted
beyond its jurisdiction, and all its orders and issuances thereon were void
Although Judge Yadao pointed out that neither the CA nor the Court had
issued as of then any writ of preliminary injunction to enjoin the release or
withdrawal of the garnished amount, she did not need any writ of injunction
from a superior court to compel her obedience to the law. The Court is
disturbed that an experienced judge like her should look at public laws like
Presidential Decree No. 1445 dismissively instead of loyally following and
unquestioningly implementing them. That she did so turned her court into
an oppressive bastion of mindless tyranny instead of having it as a true
haven for the seekers of justice like the UP.
III
Period of appeal did not start without effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due course to its petition for
review in the name of equity in order to reverse or modify the adverse
judgment against it despite its finality. At stake in the UP’s plea for equity
was the return of the amount of ₱ 16,370,191.74 illegally garnished from
its trust funds. Obstructing the plea is the finality of the judgment based on
the supposed tardiness of UP’s appeal, which the RTC declared on
September 26, 2002. The CA upheld the declaration of finality on February
24, 2004, and the Court itself denied the UP’s petition for review on that
issue on May 11, 2004 (G.R. No. 163501). The denial became final on
November 12, 2004.
It is true that a decision that has attained finality becomes immutable and
unalterable, and cannot be modified in any respect,87 even if the
modification is meant to correct erroneous conclusions of fact and law, and
whether the modification is made by the court that rendered it or by this
Court as the highest court of the land.88 Public policy dictates that once a
judgment becomes final, executory and unappealable, the prevailing party
should not be deprived of the fruits of victory by some subterfuge devised
by the losing party. Unjustified delay in the enforcement of such judgment
sets at naught the role and purpose of the courts to resolve justiciable
controversies with finality.89Indeed, all litigations must at some time end,
even at the risk of occasional errors.
But the doctrine of immutability of a final judgment has not been absolute,
and has admitted several exceptions, among them: (a) the correction of
clerical errors; (b) the so-called nunc pro tunc entries that cause no
prejudice to any party; (c) void judgments; and (d) whenever
circumstances transpire after the finality of the decision that render its
execution unjust and inequitable.90 Moreover, in Heirs of Maura So v.
Obliosca,91 we stated that despite the absence of the preceding
circumstances, the Court is not precluded from brushing aside procedural
norms if only to serve the higher interests of justice and equity. Also, in
Gumaru v. Quirino State College,92 the Court nullified the proceedings and
the writ of execution issued by the RTC for the reason that respondent
state college had not been represented in the litigation by the Office of the
Solicitor General.
We rule that the UP’s plea for equity warrants the Court’s exercise of the
exceptional power to disregard the declaration of finality of the judgment of
the RTC for being in clear violation of the UP’s right to due process.
Both the CA and the RTC found the filing on June 3, 2002 by the UP of the
notice of appeal to be tardy. They based their finding on the fact that only
six days remained of the UP’s reglementary 15-day period within which to
file the notice of appeal because the UP had filed a motion for
reconsideration on January 16, 2002 vis-à-vis the RTC’s decision the UP
received on January 7, 2002; and that because the denial of the motion for
reconsideration had been served upon Atty. Felimon D. Nolasco of the
UPLB Legal Office on May 17, 2002, the UP had only until May 23, 2002
within which to file the notice of appeal.
The UP counters that the service of the denial of the motion for
reconsideration upon Atty. Nolasco was defective considering that its
counsel of record was not Atty. Nolasco of the UPLB Legal Office but the
OLS in Diliman, Quezon City; and that the period of appeal should be
reckoned from May 31, 2002, the date when the OLS received the order.
The UP submits that the filing of the notice of appeal on June 3, 2002 was
well within the reglementary period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for reconsideration upon Atty.
Nolasco of the UPLB Legal Office was invalid and ineffectual because he
was admittedly not the counsel of record of the UP. The rule is that it is on
the counsel and not the client that the service should be made.93
That counsel was the OLS in Diliman, Quezon City, which was served with
the denial only on May 31, 2002. As such, the running of the remaining
period of six days resumed only on June 1, 2002,94 rendering the filing of
the UP’s notice of appeal on June 3, 2002 timely and well within the
remaining days of the UP’s period to appeal.
Verily, the service of the denial of the motion for reconsideration could only
be validly made upon the OLS in Diliman, and no other. The fact that Atty.
Nolasco was in the employ of the UP at the UPLB Legal Office did not
render the service upon him effective. It is settled that where a party has
appeared by counsel, service must be made upon such counsel.95 Service
on the party or the party’s employee is not effective because such notice is
not notice in law.96 This is clear enough from Section 2, second paragraph,
of Rule 13, Rules of Court, which explicitly states that: "If any party has
appeared by counsel, service upon him shall be made upon his counsel or
one of them, unless service upon the party himself is ordered by the court.
Where one counsel appears for several parties, he shall only be entitled to
one copy of any paper served upon him by the opposite side." As such, the
period to appeal resumed only on June 1, 2002, the date following the
service on May 31, 2002 upon the OLS in Diliman of the copy of the
decision of the RTC, not from the date when the UP was notified.97
Accordingly, the declaration of finality of the judgment of the RTC, being
devoid of factual and legal bases, is set aside.
Secondly, even assuming that the service upon Atty. Nolasco was valid
and effective, such that the remaining period for the UP to take a timely
appeal would end by May 23, 2002, it would still not be correct to find that
the judgment of the RTC became final and immutable thereafter due to the
notice of appeal being filed too late on June 3, 2002.
In so declaring the judgment of the RTC as final against the UP, the CA
and the RTC applied the rule contained in the second paragraph of Section
3, Rule 41 of the Rules of Court to the effect that the filing of a motion for
reconsideration interrupted the running of the period for filing the appeal;
and that the period resumed upon notice of the denial of the motion for
reconsideration. For that reason, the CA and the RTC might not be taken
to task for strictly adhering to the rule then prevailing.
However, equity calls for the retroactive application in the UP’s favor of the
fresh-period rule that the Court first announced in mid-September of 2005
through its ruling in Neypes v. Court of Appeals,98 viz:
To standardize the appeal periods provided in the Rules and to afford
litigants fair opportunity to appeal their cases, the Court deems it practical
to allow a fresh period of 15 days within which to file the notice of appeal in
the Regional Trial Court, counted from receipt of the order dismissing a
motion for a new trial or motion for reconsideration.
The retroactive application of the fresh-period rule, a procedural law that
aims "to regiment or make the appeal period uniform, to be counted from
receipt of the order denying the motion for new trial, motion for
reconsideration (whether full or partial) or any final order or resolution," 99 is
impervious to any serious challenge. This is because there are no vested
rights in rules of procedure.100 A law or regulation is procedural when it
prescribes rules and forms of procedure in order that courts may be able to
administer justice.101 It does not come within the legal conception of a
retroactive law, or is not subject of the general rule prohibiting the
retroactive operation of statues, but is given retroactive effect in actions
pending and undetermined at the time of its passage without violating any
right of a person who may feel that he is adversely affected.
We have further said that a procedural rule that is amended for the benefit
of litigants in furtherance of the administration of justice shall be
retroactively applied to likewise favor actions then pending, as equity
delights in equality.102 We may even relax stringent procedural rules in
order to serve substantial justice and in the exercise of this Court’s equity
jurisdiction.103 Equity jurisdiction aims to do complete justice in cases
where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal
jurisdiction.104
It is cogent to add in this regard that to deny the benefit of the fresh-period
rule to the UP would amount to injustice and absurdity – injustice, because
the judgment in question was issued on November 28, 2001 as compared
to the judgment in Neypes that was rendered in 1998; absurdity, because
parties receiving notices of judgment and final orders issued in the year
1998 would enjoy the benefit of the fresh-period rule but the later rulings of
the lower courts like that herein would not.105
Consequently, even if the reckoning started from May 17, 2002, when Atty.
Nolasco received the denial, the UP’s filing on June 3, 2002 of the notice
of appeal was not tardy within the context of the fresh-period rule. For the
UP, the fresh period of 15-days counted from service of the denial of the
motion for reconsideration would end on June 1, 2002, which was a
Saturday. Hence, the UP had until the next working day, or June 3, 2002, a
Monday, within which to appeal, conformably with Section 1 of Rule 22,
Rules of Court, which holds that: "If the last day of the period, as thus
computed, falls on a Saturday, a Sunday, or a legal holiday in the place
where the court sits, the time shall not run until the next working day."
IV
Awards of monetary damages,
 being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution prescribes that express
findings of fact and of law should be made in the decision rendered by any
court, to wit:
Section 14. No decision shall be rendered by any court without expressing
therein clearly and distinctly the facts and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the
court shall be refused due course or denied without stating the legal basis
therefor.
Implementing the constitutional provision in civil actions is Section 1 of
Rule 36, Rules of Court, viz:
Section 1. Rendition of judgments and final orders. — A judgment or final
order determining the merits of the case shall be in writing personally and
directly prepared by the judge, stating clearly and distinctly the facts and
the law on which it is based, signed by him, and filed with the clerk of the
court. (1a)
The Constitution and the Rules of Court apparently delineate two main
essential parts of a judgment, namely: the body and the decretal portion.
Although the latter is the controlling part,106 the importance of the former is
not to be lightly regarded because it is there where the court clearly and
distinctly states its findings of fact and of law on which the decision is
based. To state it differently, one without the other is ineffectual and
useless. The omission of either inevitably results in a judgment that
violates the letter and the spirit of the Constitution and the Rules of Court.
The term findings of fact that must be found in the body of the decision
refers to statements of fact, not to conclusions of law.107 Unlike in pleadings
where ultimate facts alone need to be stated, the Constitution and the
Rules of Court require not only that a decision should state the ultimate
facts but also that it should specify the supporting evidentiary facts, for
they are what are called the findings of fact.
The importance of the findings of fact and of law cannot be overstated. The
reason and purpose of the Constitution and the Rules of Court in that
regard are obviously to inform the parties why they win or lose, and what
their rights and obligations are. Only thereby is the demand of due process
met as to the parties. As Justice Isagani A. Cruz explained in Nicos
Industrial Corporation v. Court of Appeals:108
It is a requirement of due process that the parties to a litigation be
informed of how it was decided, with an explanation of the factual and
legal reasons that led to the conclusions of the court. The court cannot
simply say that judgment is rendered in favor of X and against Y and just
leave it at that without any justification whatsoever for its action. The losing
party is entitled to know why he lost, so he may appeal to a higher court, if
permitted, should he believe that the decision should be reversed. A
decision that does not clearly and distinctly state the facts and the law on
which it is based leaves the parties in the dark as to how it was reached
and is especially prejudicial to the losing party, who is unable to pinpoint
the possible errors of the court for review by a higher tribunal.
Here, the decision of the RTC justified the grant of actual and moral
damages, and attorney’s fees in the following terse manner, viz:
xxx The Court is not unmindful that due to defendants’ unjustified refusal to
pay their outstanding obligation to plaintiff, the same suffered losses and
incurred expenses as he was forced to re-mortgage his house and lot
located in Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay
its monetary obligations in the form of interest and penalties incurred in the
course of the construction of the subject project.109
The statement that "due to defendants’ unjustified refusal to pay their
outstanding obligation to plaintiff, the same suffered losses and incurred
expenses as he was forced to re-mortgage his house and lot located in
Quezon City to Metrobank (Exh. "CC") and BPI Bank just to pay its
monetary obligations in the form of interest and penalties incurred in the
course of the construction of the subject project" was only a conclusion of
fact and law that did not comply with the constitutional and statutory
prescription. The statement specified no detailed expenses or losses
constituting the ₱ 5,716,729.00 actual damages sustained by Stern
Builders in relation to the construction project or to other pecuniary
hardships. The omission of such expenses or losses directly indicated that
Stern Builders did not prove them at all, which then contravened Article
2199, Civil Code, the statutory basis for the award of actual damages,
which entitled a person to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. As such, the actual
damages allowed by the RTC, being bereft of factual support, were
speculative and whimsical. Without the clear and distinct findings of fact
and law, the award amounted only to an ipse dixit on the part of the
RTC,110 and did not attain finality.
There was also no clear and distinct statement of the factual and legal
support for the award of moral damages in the substantial amount of ₱
10,000,000.00. The award was thus also speculative and whimsical. Like
the actual damages, the moral damages constituted another judicial ipse
dixit, the inevitable consequence of which was to render the award of
moral damages incapable of attaining finality. In addition, the grant of
moral damages in that manner contravened the law that permitted the
recovery of moral damages as the means to assuage "physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury." 111 The
contravention of the law was manifest considering that Stern Builders, as
an artificial person, was incapable of experiencing pain and moral
sufferings.112 Assuming that in granting the substantial amount of ₱
10,000,000.00 as moral damages, the RTC might have had in mind that
dela Cruz had himself suffered mental anguish and anxiety. If that was the
case, then the RTC obviously disregarded his separate and distinct
personality from that of Stern Builders.113 Moreover, his moral and
emotional sufferings as the President of Stern Builders were not the
sufferings of Stern Builders. Lastly, the RTC violated the basic principle
that moral damages were not intended to enrich the plaintiff at the expense
of the defendant, but to restore the plaintiff to his status quo ante as much
as possible. Taken together, therefore, all these considerations exposed
the substantial amount of ₱ 10,000,000.00 allowed as moral damages not
only to be factually baseless and legally indefensible, but also to be
unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the ₱ 150,000.00, plus ₱ 1,500.00 per
appearance, granted as attorney’s fees were factually unwarranted and
devoid of legal basis. The general rule is that a successful litigant cannot
recover attorney’s fees as part of the damages to be assessed against the
losing party because of the policy that no premium should be placed on
the right to litigate.114 Prior to the effectivity of the present Civil Code,
indeed, such fees could be recovered only when there was a stipulation to
that effect. It was only under the present Civil Code that the right to collect
attorney’s fees in the cases mentioned in Article 2208115 of the Civil Code
came to be recognized.116 Nonetheless, with attorney’s fees being allowed
in the concept of actual damages,117 their amounts must be factually and
legally justified in the body of the decision and not stated for the first time
in the decretal portion.118 Stating the amounts only in the dispositive portion
of the judgment is not enough;119 a rendition of the factual and legal
justifications for them must also be laid out in the body of the decision.120
That the attorney’s fees granted to the private respondents did not satisfy
the foregoing requirement suffices for the Court to undo them.121 The grant
was ineffectual for being contrary to law and public policy, it being clear
that the express findings of fact and law were intended to bring the case
within the exception and thereby justify the award of the attorney’s fees.
Devoid of such express findings, the award was a conclusion without a
premise, its basis being improperly left to speculation and conjecture. 122
Nonetheless, the absence of findings of fact and of any statement of the
law and jurisprudence on which the awards of actual and moral damages,
as well as of attorney’s fees, were based was a fatal flaw that invalidated
the decision of the RTC only as to such awards. As the Court declared in
Velarde v. Social Justice Society,123 the failure to comply with the
constitutional requirement for a clear and distinct statement of the
supporting facts and law "is a grave abuse of discretion amounting to lack
or excess of jurisdiction" and that "(d)ecisions or orders issued in careless
disregard of the constitutional mandate are a patent nullity and must be
struck down as void."124 The other item granted by the RTC (i.e., ₱
503,462.74) shall stand, subject to the action of the COA as stated herein.
WHEREFORE, the Court GRANTS the petition for review on
certiorari; REVERSES and SETS ASIDE the decision of the Court of
Appeals under review; ANNULS the orders for the garnishment of the
funds of the University of the Philippines and for the release of the
garnished amount to Stern Builders Corporation and Servillano dela Cruz;
and DELETES from the decision of the Regional Trial Court dated
November 28, 2001 for being void only the awards of actual damages of ₱
5,716,729.00, moral damages of ₱ 10,000,000.00, and attorney's fees of ₱
150,000.00, plus ₱ 1,500.00 per appearance, in favor of Stern Builders
Corporation and Servillano dela Cruz.
The Court ORDERS Stem Builders Corporation and Servillano dela Cruz
to redeposit the amount of ₱ 16,370,191.74 within 10 days from receipt of
this decision.
Costs of suit to be paid by the private respondents.
SO ORDERED.