XI.

CONSTRUCTION AND MEANING OF PHRASES

a. Ordinary Meaning

G.R. No. L-11988 February 1, 1918

JACINTO MOLINA, plaintiff-appellee,

vs.
JAMES J. RAFFERTY, as Collector of Internal Revenue, defendant-appellant.

Attorney-General Avanceña for appellant.

Mariano Escueta for appellee.

MALCOLM, J.:

This appeal present for resolution the question of whether or not fish are an agricultural product.

FACTS.

The facts are not in dispute. Plaintiff is the owner of various fish ponds (pesquerias) in the municipality
of Bulacan, Province of Bulacan. Between January 1 and September 30, 1915, plaintiff consigned to a
commission merchant in Manila quantities of fish which sold for P5,264.89. The commission merchant
paid the merchant's percentage and fixed taxes due under the Internal Revenue Law. Plaintiff, however,
had not previously paid the merchant's tax, although from August 1. 1904, the date when the first
Internal Revenue Law became effective, until October 26, 1915, plaintiff had been engaged in this
business, Plaintiff had been paid the real estate tax on the land upon which the fishponds are located.
On the date last mentioned, on demand of a representative of the Bureau of Internal revenue, plaintiff
paid under protest P71.81, the total internal-revenue tax on the gross sum received for the first three-
quarters of the year 1915. The ground of the protest was that plaintiff is an agriculturist and not a
merchant and therefore exempt from the taxes imposed by the Internal Revenue Law upon the gross
sales of merchants. The protest was denied by the Collector of Internal Revenue, who held that the
plaintiff was a merchant. Suit to recover this amount of P71.81 was thereupon instituted in the Court of
First Instance of the city of Manila against the defendant as collector of internal revenue. After trial on
an agreed statement of facts, the Honorable Jose Abreu in a carefully prepared decision ordered
defendant to refund the P71.81 paid by plaintiff as internal-revenue taxes and penalties under protest,
with legal interest thereon from November 26, 1915, the date of such payment under protest. Defendant
appealed making four assignments of error, all of which, however, with the exception of the last, which
need not be considered, center around the question which we set out in the beginning of this decision.
Both appellee and appellant have further favored the court with an exceptionally able presentation of
their respective contentions. We are given to understand that this is in the nature of a test case,
concerning not alone the comparatively small amount involved but affecting the taxes of numerous
other persons in an amount which will run up into thousands of pesos.

In addition to the foregoing statement of the case, we must note the nature of the fishponds and of the
fish. As to the first, before the lands are suitable for use as fishponds, it is necessary for the land to be
prepared by the erection of dikes and cleaning out and deepening the bottom. The presence of
caretakers is necessary to see that the fishponds do not become damaged and to regulate the entrance
and exit of water through the floodgates. The fish are of the species known bañgus. These fish are
obtained from small fishes (semillas), which are placed in the fishponds. These small fishes are first
put in a comparatively small compartment, surrounded by walls of earth, which is found within the
fishery itself. Afterwards when they get to be about the size of a cigarette, they are let loose into the
other compartments of the same fishery. This compartment for semillas is allowed to dry and is cleaned
well before the semillas are placed therein; it is even plowed to kill all the bugs that may eat up the fish.
In order to make marine plants grow, a small amount of sea water is allowed to enter. When the fish
have become large an endeavor is made to fill the fishery with water. From time to time the water
contained in the fishery is renewed to avoid the killing of the fish. The walls of a fishery are constructed
to preserve and to retain the water and the fishes inside the fishery. These walls are constructed on a
swampy lands and in some cases on rice fields bounded by a river or the sea.

The food of the bañgus includes marine plants. These algae are of seven classes, their scientific names
being cladophora, chaetomorpha, oscillatoria, oedogonium, lyngbya, enteromorpha, and najas. One of
these plants is rooted. Some of the others are very loosely attached to the ground, but not rooted.
Generally the algae float in the water.

LAW.

The provisions of the law which it is necessary to construe are not extensive. The different internal-
revenue laws have provided for a merchant's tax. "Merchant," as used in the law, "means a person
engaged in the sale, barter, or exchange of personal property of whatever character." (Act No. 2339,
sec. 40; Administrative Code [1917] sec. 1459.) The succeeding section (Act no. 2339, sec. 41;
Administrative Code [1917], sec. 1460) is entitled "Sales not subject to merchant's tax." The section
provides:

In computing the tax above imposed transactions in the following commodities shall be excluded:
....

(c) Agricultural products when sold by the producer or owner of the land where grown, whether in their
original state or not."

With the facts and the law before us, we return to the question first suggested.

QUESTION.

Are fish an agricultural product within the meaning of the exemption provisions of the Internal revenue
Law?

OPINION.

Different methods of approach to this question are possible. For example, all argument could disposed
of peremptorily with the bald statement that in accordance with the rule of stare decisis, the decision of
this court in The United States vs. Laxa ([1917], 36 Phil. Rep., 670) is decisive. Justice Araullo, in his
opinion, held that fish are not an agricultural product, that the owner of a fishpond who sells the fish at
the fishpond is a merchant, that such a merchant is not entitled to the exemption provided by the Internal
Revenue Law, and that the said owner is guilty of violation of the Internal Revenue Law. We prefer not
to take such a stand, although we are confident that it could be defended, because of the vigorous
objection to a decision in a criminal prosecution becoming a precedent in a civil action for the recovery
of taxes.

As opposed to the Laxa decision, counsel for plaintiff invites special attention to the cases of Mapa vs.
Insular Government ([1908] 10 Phil., 175) and Mercado vs. Collector of Internal Revenue ([1915] 32
Phil. Rep., 271). In the first case, the Supreme Court said —
 The question before us is not what is agricultural land, but what definition has been given to that
phrase by the Act of Congress.

The Philippine Bill, it was found, classified land as agricultural public land in order to distinguish such
land from timber or mineral land. Neither Congress nor the court gave any definition of agricultural land
as such or of the products of the land. Moreover, the court made the observation that, "The land in
question in this case, which is used as a fishery, could be filled up and any kind of crops raised thereon."
If the case can be considered as an authority, it must be that the court recognizes that agricultural land,
as the term is used in the Act of Congress, may be devoted to other than agricultural purposes, and
that using agricultural land for a fishpond is a use other than agricultural. In the second case of Mercado
vs. Collector of Internal Revenue, following Mapa vs. Insular Government (supra), the Court said —

It is, then unquestionable that bakawan firewood is an agricultural product, differing from other
kinds of firewood obtained from the forest trees because the bakawan plant grows only on land
subject to overflow, which require clearing and care by workers skilled in agricultural pursuits, in
order that it may thrive. It is also to be noted that up to the present time mangrove swamps have
been found suitable for no other useful crop.

But it is plainly a far cry from holding that bakawan, planted and grown through the culture of the soil,
is an agricultural product, to finding that fish are in similar sense planted and grown as a result of the
culture of the soil. Whatever comfort can be derived from these decisions are persuasive authority is
more than nullified by the later case of The United States vs. Laxa ([1917] 36 Phil. Rep., 670)."

Just, therefore, as the facts and the law are indisputable, so do we prefer to forget these three cases
for the time being and to rest our decision on the plain and ordinary meaning of the law disclosed by
the elementary rules of statutory construction.

And first, in order to dispose of the question, is the owner of a fishpond, such as the plaintiff, who sells
fish taken from a fishpond, a "merchant" as defined in the Internal revenue Law? Recalling this definition
of a "merchant," it would appear undeniable that the plaintiff is properly included in such classification.
To paraphrase the law, he is a person engaged in the sale of fish. Under our law, whatever may be the
usual conception of a merchant, buying and selling are not essential; to sell only is sufficient. (See also
In re Cameron Town Mut. Fire, Lightning and Windstorm Ins. Co. [1899], 96 Fed., 756.)

If such a man is a merchant, does his sale of fish place him under the exemption of the Internal Revenue
Law? We know the meaning of "fish." In the authoritative work by Dr. C. L. G. Gunther on the Study of
Fishes, we find the following:

According to the views generally adopted at present, all those vertebrate animals are referred to
the class of fishes, which, living in water, breathe air dissolved in water by means of gills or
branchiae; whose heart consists of a single ventricle and single atrium; whose limbs, if present,
are modified into fins, supplemented by unpaired median fins; and whose skin is either naked,
or covered with scales or osseous plates or bucklers . . . .

We then have left to define merely the words "agricultural products."

"Agriculture" is defined by Webster as "the art or science of cultivating the ground, including the
preparation of the soil, the planting of seeds, the raising and harvesting of crops, and the rearing,
feeding, and management of live stock." Let us test our facts by this definition. The ground of the
fishpond is cultivated. The soil is prepared. We, however, greatly doubt that seeds (of fish) are planted
or that crops (of fish) are raised and harvested. Certainly, the seeds of fish are not sown in the ground
as one would sow corn, while as distinguished from the rearing, feeding, and management of live stock,
which consumes the products of the farm, the fish living in water depending upon water for life, only
receive nourishment from marine plants most of which have little or no connection with the land.

To proceed. The equivalent of "agriculture" in "husbandry." And "husbandry" is defined by Webster as

"the business of a farmer, comprehending agriculture or tillage of the ground, the raising, managing,
and fattening of cattle and other domestic animals, the management of the dairy and whatever the land
produces." Again, we are far from confident that a farmer is generally understood to be a fisherman,
and that the land can be said to produce fish. In a case in which these definitions were considered, the
supreme court of Tennessee said that "agriculture" means "in its original sense, the cultivation of the
ground for the purpose of procuring vegetables and fruits for the use of man and beast, or the act of
preparing the soil, sowing and planting seeds, dressing the plants, and removing the crops. In this
sense of the word includes gardening or horticulture, and also the raising and feeding of cattle or stock;
but in a more common and appropriate sense is used to signify that specie of cultivation which is
intended to raise grain and other field crops for a man and beast." (Simons vs. Lovell [1872], 54 Tenn.
[7 Heisk.], 510; see also In re Drake [1902], 114 Fed., 229.)

To proceed. "Agricultural products," the supreme court of Georgia has held, "in ordinary usage," is
confined to the yield of the soil, as corn, wheat, rye, hay, etc. (Davis and Co. vs. Mayor and Council of
Macon [1879], 64 Ga., 128.) The court had here to determine if beef cattle were exempt from taxation
as "an agricultural product." The court asked —

"And when it is thought of closely, would it not be rather an unusual application of the phrase 'agricultural
products' to make it comprehend beef cattle? In ordinary usage, is not the phrase confined to the yield
of the soil, as corn, wheat, rye. oats, hay, etc., in its primary form? When there has been conversion of
the fruits of the soil into animal tissues are still to apply the phrase? And suppose we are to disregard
the change in its first stage, and call a cow or a steer an agricultural product, must we carry the name
forward to the steak or roast which the butcher sells us from the slaughter animal? If cattle fall under
the denomination, so do hogs; and if beef, so does bacon." (See also State vs. Patterson [1887], 4 S.
E., 47.)

Another case, coming from the supreme court of the District of Columbia, gives a much broader
meaning to the phrase. (District of Columbia vs. Oyster [1885], 4 Am. Rep., 275.) The court said —

The common parlance of the country, and the common practice of the county, have been to
consider all those things as farming products or agricultural products which had the situs of their
production upon the farm, and which were brought into condition for the uses of society by the
labor of those engaged in agricultural pursuits, as contra-distinguished from manufacturing or
other industrial pursuits. The product of the dairy or the product of the poultry yard, while it does
not come directly out of the soil, is necessarily connected with the soil and with those who are
engaged in the culture of the soil. It is, in every sense of the word, a part of the farm product. It
is depended upon and looked upon as one of the results and one of the means of income of the
farm, and in a just sense, therefore, it may be considered produce.

To indicate further the wide sweep of the term "agricultural products," and to show how such
terminology influences those who disagree with us, "agricultural products" has been held to include
swine, horses, meat cattle, sheep, manure, cordwood, hay, poultry, vegetables, fruit, eggs, milk, butter,
and lard. (See Mayor vs. Davis, 6 W. and S., 279.) But never by any court to include fish.

Like everything else in the world, it must be that there is a limit to the things which can be included in
the term "agricultural products." The District of Columbia case, much relied upon by the plaintiff, gives
the clue. Agriculture is but one pursuit. Agriculture and what it includes is contradistinguished from other
occupations and professions, as manufacturing — and we believe, fishing. Thus, of fisheries the
Encyclopedia Britannica (p. 429) says —

For the most part the operations of fishing have been comparable with those of primitive hunting
rather than with agriculture.

Fisheries, while possibly in concomitance with the soil, are even more certainly concerned with the
water in which the fish live and have their being, If fishing is farming, then conversely farming must be
fishing. Waiving all the technical definitions, does the ordinary man when he speaks of agriculture and
farming think of a farmer as a fisherman, and when he speaks of fisheries does he think of a fisherman
as a farmer?

One other word in the law, "grown" is necessarily included and must be considered in finding the proper
meaning. The law provides that "agricultural products" must be "grown." Again referring to Webster,
"grown" means "to cause to grow; to cultivate; to produce; as, to grow a crop; to grow wheat, hops, or
tobacco." The fish taken from the fishponds and sold are certainly not the natural products of such land.
They are retained therein by the construction of artificial dykes. They are animals farae nature, They
have none of the characteristics of the natural products of the soil. Fish are not "grown" as wheat, hops,
or tobacco are grown."

The question as to whether or not a similar exemption in favor of agriculturists contained in the Internal
Revenue Law of 1904 operated to exclude from the merchant's tax, receipts from the sale of fish, arose
shortly after the passage of that Act. The Attorney-General in an opinion rendered on March 14, 1906
(3 Op. Atty. gen., 65), held in effect that the culture of the soil was determining factor in considering
what products are or are not agricultural products. As to quarrymen and fishermen. the Attorney-
General observed —

The occupation of the lumberman and the stockman, in the historical development of these
industries, as well as in present day practice, has never been confused with that of the
agriculturist; while as to quarrymen and fishermen it may be observed that tillers of the soil are
not wont to plow the fields in quest of rock or in anticipation of a crop of fishes or of pearls.

This opinion of the Attorney-General was concurred in by the then Governor-General and Acting
Secretary of Finance Justice, who had helped draft the law. The Collector of the Internal Revenue
thereupon published the opinion in full in Bureau of Internal Revenue Circular, No. 106. This official
ruling of the executive officials is now entitled to consideration by the courts. Courts will and should
respect the contemporaneous construction placed upon a statue by the executive officers whose duty
it is to enforce it, and unless such interpretation is clearly erroneous will ordinarily be controlled thereby.
(In re Allen [1903], 2 Phil., 630, following Pennoyer vs. McConnaughy [1890], 140 U. S., 363;
Government of the Philippine Islands Ex Rel. Municipality of Cardona vs. Municipality of Binangonan
[1916], 34 Phil. Rep., 518.)

We have thus far considered the etymology of the words. We frankly admit to a slight doubt of exact
interpretation by this method. We, however, believe that viewed from the standpoint of the most
elementary of all rules of statutory construction there is but one possible result. In other words, our sole
duty is to ascertain and give effect to the intention of the lawmaking body. We can best discover this
intention through the medium of the action taken by the Legislature in the enactment of other laws.

The first Internal revenue law (Act No. 1189) was enacted by the Philippine Commission. It is plain that
the Commissioners must have had in mind agriculture as known to them in the United States. The
organization of the American Government includes a "Department of Agriculture," the "Bureau of
Fisheries" is under the Department of Commerce. Agriculture and fishing are therefore separate and
distinct. In Great Britain there is a "Board of Agriculture and Fisheries." Moreover, the same Philippine
Legislature which provided an exemption from taxation for agricultural products was also interested in
establishing a Bureau of Agriculture. In enumerating the functions of this Bureau, not one word is said
of fish or fisheries. We rather doubt if the experts in agronomy in the Bureau of Agriculture would
consider themselves competent to advise as to piscatology. On the contrary, you find a section of
fisheries established not in the Bureau of Agriculture but in the Bureau of Science. Instead, also, you
find special laws unrelated to agriculture dealing with the granting of fishery privileges. The purpose of
the Legislature in exempting agricultural products from taxation under the Internal Revenue Law was
to encourage farming and not fishing. This court has herefore held, and we reiterate, that "where
language is plain, subtle refinements which tinge words so as to give them the color of a particular
judicial theory are not only unnecessary but decidedly harmful." (Yangco vs. Court of First Instance of
Manila and Yangco [1915], 29 Phil., 183.) Chief Justice Marshall in the historic case of
Gibbons vs. Ogden, ([1824], 9 Wheat., 1) said:

As men, whose intentions require no concealment, generally employ the words which most
directly and aptly express the ideas they intend to convey, the enlightened patriots who framed
our Constitution, and the people who adopted it must be understood to have employed words in
their natural sense, and to have intended what they have said.

The answer to our question are — A person engaged in the sale of fish is a merchant. Fish are not an
agriculture product. This merchant is not entitled to exemption under the Internal Revenue Law.

The further objection is made that the particular tax would constitute double taxation. It is sufficient to
note in this respect that this court in Gil Hermanos vs. Hord ([1908] 10 Phil., 218) said:

It is very apparent that tax under discussion is not a tax upon property. It is rather a tax upon the
occupation or industry in which a person is engaged.

The internal-revenue tax is also uniform for all of a class. In opposition to such a contention, it could be
advanced if necessary that the burden is on plaintiff to establish that the surrender of the taxing power
is manifested by words too plain to be mistaken. "When exemption is claimed, it must be shown
indubitably to exist." (Farrington vs. Tennessee [1877], 95 U. S., 697, 686.) "The presumption is always
against any surrender of the taxing power." (Tennessee vs. Whitworth [1885], 117 U. S., 129, 136.)

We have permitted our discussion of the question raised by this appeal to proceed much farther than
is really necessary for the decision of the case. If we have fallen into the mire of proximity, it has been
because we approached the subject with a desire to accede, if possible, to the request of the plaintiff.
We are as much interested in upholding legislation which will assist in the commercial development of
the Islands as any one. We cannot, however, step outside the settled and ordinary meaning of the law
and by judicial legislation give to the law a meaning not intended. If redress is proper, under these
circumstances, complainants must look to the Legislature and not to the courts.

The judgment of the lower court is reversed and the defendant is absolved of the complaint, with the
costs of the first instance against the plaintiff, and without special finding as to costs of this instance.
So ordered.

Carson, Araullo and Street, JJ., concur.

Separate Opinions
JONHSON, J., with whom concurs ARELLANO, C.J., dissenting:

The only important question presented by this appeal is whether or not the products of a "vivero de
peces" should be considered as an agricultural product and as such relieved from the internal-revenue
tax in accordance with paragraph (c) of article 41 of Act No. 2339.

The Court of First Instance, in a very well-reasoned opinion, held that said products were exempt from
the internal-revenue tax under said Act. This court, by a majority opinion, held that said products were
not exempt from the payment of the internal-revenue tax and reversed the judgment of the lower court.

We think the majority opinion misses both the spirit and purposes of the law, and woks a great imjustice
and a severe hardship upon thousands of the inhabitants of the Philippine Islands who are engaged in
purely agricultural pursuits. Said decision places a great burden upon those who are least able to bear
it. By reason of the very small profits of the agriculturist, earned by the hardest of labor, every
intendment of the law should be, at least, liberally construed in his favor.

Paragraph (c) of section 41 of Act No. 2339 provides that the tax imposed under said law shall not be
imposed upon "agricultural products when sold by the producer or owner of the land where grown,
whether in their original state or not." Under the interpretation given in the majority opinion, the Collector
of Internal Revenue may collect taxes upon every grain of rice produced by the farmers of the Philippine
Islands, unless he sells the same "where grown." Such an interpretation, in our opinion, was never
intended by the lawmaker.

The majority opinion has fallen into error, in our opinion, in not distinguishing a "pesqueria" from a vivero
de peces." no contention is made that the products of a "pesquera," as the terms is generally used,
should be relieved from the internal-revenue tax. Our contention is simply that the products of a "vivero
de peces" should be relieved from the internal-revenue tax, upon the theory that they are as much of
an agricultural product as any other product of the farm by reason of the method employed in producing
them. The majority opinion admits [that] whether a particular product is or is not an agricultural product
depends upon the methods used in producing it.

A "pesqueria," as distinguished from a "vivero de peces," may be defined as a specie of trap placed
upon the farm in which fish are caught from time to time. While a "vivero de peces" may be defined as
apart of the same as is done in the production of corn, sugar cane, rice, bananas, coconuts, ducks,
chickens, eggs, milk, butter, lard, hay, wood, cattle, horses, sheep, or any other great variety of products
produced by the farmers in the Philippine Islands, the only difference being one of degree of the care
and labor necessary for production.

The error which the majority opinion has fallen into may best illustrated by an example:

A is the owner of a farm. A portion of the same is dry land capable of producing sugar cane, or corn, or
other varieties of farm products which can only be produced upon dry land. A portion of said farm, by
virtue of its location with reference to water, sunlight, and air may be used for the production of abaca,
bananas, or some of the various classes of fruits. Another portion of the farm is low land, upon which
rice or certain classes of vegetables only can be produced profitably. Still another portion of the farm is
swamp land, covered by water and incapable of being properly drained. Another portion of the farm is
mountainous so that it cannot be cultivated at all. Upon the mountainous portion of said farm the owner
raises cattle, sheep, goats, horses, hogs, chickens, turkeys, eggs, lard, butter, wool and hides. Another
portion of the farm can most profitably be devoted to the production of bacauan which was held to be
an agricultural product. (Mercado vs. Collector of Internal Revenue, 32 Phil. Rep., 271.) The swamp
land of his farm is of such a character that it can not profitably be devoted to the production of rice or
any of the cereals, and is too swampy upon which to raise cattle, sheep, horses, goats, etc. The farmer,
therefore, utilizes that portion for the production of geese, ducks, and other domestic fowls, as well as
for the production of eggs. There comes a time when the swamp land ceases to be profitable for the
production of rice as well as for the production of said fowls and eggs. All of said farm, including the
various classes of land as above described, is taxed as agricultural land; and it is a matter of common
knowledge that the "vivero de peces" are taxed as agricultural land, and equally as high, if not higher,
than other lands devoted to the production of rice, corn or sugar cane, etc.

A great demand may arise for fish in the country. The farmer, in order to reap the advantage of said
demand, ceases to produce eggs, or ducks, or geese upon the swamp lands of his farm and turn the
same into a "vevero de peces." He, thus, wisely utilizing the different portions of the farm for the
production of all of the products which farmers generally produce, is greatly increasing the wealth of
the State.

The majority opinion admits that domestic fowls — chickens, ducks, geese, turkeys — and eggs, butter,
lard, milk, vegetables, fruit, etc., are agricultural products, but argues that nothing is, or may be
considered, an agricultural product which does not result from a cultivation of the soil. To admit that
eggs, butter, lard and milk are agricultural products, and to argue that nothing is an agricultural product
which does not result from a cultivation of the soil presents a consistency in argument and conclusion
which we are unable to understand. It is admitted that the land for the "vevero de peces" is specially
prepared. A certain cultivation and preparation is necessary for the creation of a "vivero de peces." It is
difficult to understand what special preparation of the soil is necessary for the production of hen's eggs,
butter, lard, milk, or cattle, or sheep or horses or hogs, or goats which makes those products agricultural
products. It is a matter of common knowledge that land may be specially prepared for the production
of rice this year and then changed into a "vivero de peces" next year and vice versa. Under what
interpretation of the law and under what definition of agricultural products may we conclude that the
year in which the same parcel of land produces rice produces an agricultural product while in the year
it is producing fish is not also producing an agricultural products? Of course, as we stated above, a
"vivero de peces" must not be confused with a "pesqueria" which is used as a trap for the purpose of
catching fish. No contention is made that the products of the latter is in any sense an agricultural product
any more than the product of a trap placed in the fields for the purpose of catching wild animals, which
from time to time pass upon the land, is an agricultural product.

It is admitted in the majority opinion that the land for a "vivero de peces" must be specially prepared by
first building dykes and cultivating the land preparatory to the planting of the fish. the only difference,
therefore, between the preparation of a "vivero de peces" and the preparation of a rice paddy is one in
extent of labor employed. In both cases the land is specially prepared for the particular purpose to
which the farmer desires to devote it. Forgetting for a moment the stereotyped and the lexicographer's
definition of agricultural products, and forgetting for a moment that there is no more difference, so far
as the method of production is concerned, between the production of corn and the production of ducks
and eggs, we will find ourselves driven to the conclusion that from the standpoint of method of
production there is no difference between the production of fish in a "vivero de peces" and the
production of ducks upon land which is recognized as agricultural lands. The majority opinion has fallen
into error by trying to make a 15th century definition apply to 20th century conditions. The judgment of
the lower court should be affirmed with costs.

b. may and shall

G.R. No. L-4712 July 11, 1952

RAMON DIOKNO, plaintiff-appellant,

vs.
REHABILITATION FINANCE CORPORATION, defendant-appellee.
Sixto de la Costa for appellee.

LABRADOR, J.:

Plaintiff is the holder of a backpay certificate of indebtedness issued by the Treasurer of the Philippines
under the provisions of Republic Act No. 304 of a face value of P75,857.14 dated August 30, 1948. On
or about November 10, 1050, when the action was brought, he had an outstanding loan with the
Rehabilitation Finance Corporation, contracted therewith on January 27, 1950, in the total sum of
P50,000, covered by a mortgage on his property situated at 44 Alhambra, Ermita, Manila, with interest
at 4 per cent per annum, of which P47,355.28 was still unpaid. In this action he seeks to compel the
defendant corporation to accept payment of the balance of his indebted with his backpay certificate.
The defendant resists the suit on the ground that plaintiffs' demand is not only not authorized by section
2 of Republic Act No. 304 but contrary to the provisions thereof, and furthermore because plaintiff's
loan was obtain on January 27, 1950, much after the passage of Republic Act No. 304, and because
the law permits only "acceptance or discount of backpay certificates," not the repayment of loans. The
court a quo held that section 2 of Republic Act No. 304 is permissive merely, and that even if where
mandatory, plaintiff's case can not fall thereunder because he is not acquiring property for a home or
construing a residential house, but compelling the acceptance of his backpay certificate to pay a debt
he contracted after the enactment of Republic Act No. 304. It, therefore, dismissed the complaint with
costs.

The appeal involves the interpretation of section 2 of Republic Act No. 302, which provides:

. . . And provided, also, That investment funds or banks or other financial institutions owned or
controlled by the Government shall, subject to the availability of loanable funds, and any
provision of the their charters, articles of incorporation's, by-laws, or rules and regulations to the
contrary notwithstanding, accept or discount at not more than two per centum per annum for ten
years such certificate for the following purposes only: (1) the acquisition of real property for use
as the applicant's home, or (2) the building or construction of the residential house of the payee
of said certificate: . . .

It is first contended by the appellant that the above provision is mandatory, not only because it employs
the word "shall", which in its ordinary signification is mandatory, not permissive, but also because the
provision is applicable to institutions of credit under the control of the Government, and because
otherwise the phrases "subject to availability of loanable funds" and "any provisions of this charter, . . .
and regulations to the contrary notwithstanding" would be superfluous.

It is true that its ordinary signification the word "shall" is imperative.

In common or ordinary parlance, and in its ordinary signification, the term "shall" is a word of
command, and one which has always or which must be given compulsory meaning; as denoting
obligation. It has a preemptory meaning, and it is generally imperative or mandatory. It has the
invariable significance of operating to impose a duty which may be enforced, particularly if public
policy is in favor of this meaning or when addressed to public officials, or where a public interest
is involved, or where the public or persons have rights which ought to be exercised or enforced,
unless a contrary intent appears. People vs. O'Rourke, 13 P. 2d. 989, 992, 124 Cal. App. 752.
(39 Words and Phrases, Permanent Ed., p. 90.)

The presumption is that the word "shall" in a statute is used is an imperative, and not in a
directory, sense. If a different interpretation is sought, it must rest upon something in the
character of the legislation or in the context which will justify a different meaning. Haythorn vs.
Van Keuren & Son, 74 A. 502, 504, 79 N. J. L. 101; Board of Finance of School City of
 Aurora vs. People's Nat. Bank of Lawrenceburg, 89 N. E. 904, 905 44 Ind. App. 578. (39 Words
and Phrases, Permanent Ed., p. 93.)

However, the rule is not absolute; it may be construed as "many", when so required by the context or
by the intention of the statute.

In the ordinary signification, "shall" is imperative, and not permissive, though it may have the
latter meaning when required by the context. Town of Milton vs. Cook, 138 N.E. 589, 590, 244
Mass. 93. (39 Words and Phrases, Permanent Ed., p. 89.)

"Must" or "shall" in a statute is not always imperative, but may be consistent with an exercise of
discretion. In re O'Hara, 82 N.Y.S. 293, 296, 40 Misc. 355, citing In re Thurber's Estate, 162 N.Y.
244, 252, 56 N.E. 638, 639. (Ibid. p. 92.)

The word "shall" is generally regarded as imperative, but in some context it is given a permissive
meaning, the intended meaning being determined by what is intended by the statute. National
Transit Corporation Co. vs. Boardman, 197 A. 239, 241, 328, Pa. 450.

The word "shall" is to be construed as merely permissive, where no public benefit or private right
requires it to be given an imperative meaning Sheldon vs. Sheldon, 134 A. 904, 905, 100 N.J.
Ex. 24.

Presumption is that word "shall" in ordinance, is mandatory; but, where it is necessary to give
effect to legislative intent, the word will be construed as "may." City of Colorado
Springs vs. Street, 254 p. 440, 441, 81 Colo. 181.

The word "shall" does not necessarily indicate a mandatory behest. Grimsrud vs. Johnson, 202
N. W. 72, 73, 162 Minn. 98.

Words like "may," "must," "shall" etc., are constantly used in statutes without intending that they
shall be taken literally, and in their construction the object evidently designed to be reached limits
and controls the literal import of the terms and phrases employed. Fields vs. United States, 27
App. D. C. 433, 440. (39 Words and Phrases, Permanent Ed., 89, 92).

In this jurisdiction the tendency has been to interpret the word "shall" as the context or a reasonable
construction of the statute in which it is used demands or requires. Thus the provision of section 11 of
Rule 4 of the Rules requiring a municipal judge or a justice of the peace to render judgment of the
conclusion of the trial has been held in the directory. (Alejandro vs. Judge of First Instance1 40 Off.
Gaz., 9th Supp., 261). In like manner section 178 of the Election Law, in so far a it requires that appeals
shall be decided in three months, has been to the directory for the Court of Appeals. (Querubin vs. The
Court of Appeals,2 46 Off. Gaz., 155).

In the provision subject controversy, it is to be noted that the verb-phrase "shall accept or discount" has
two modifiers, namely, "subject to availability of loanable funds" and "at not more that two per centum
per annum for ten years." As to the second modifier, the interest to be charged, there seems to be no
question that the verb phrase is mandatory, because not only does the law use "at not more" but the
legislative purpose and intent, to conserve the value of the backpay certificate for the benefit of the
holders, for whose benefit the same have been issued, can be carried out by fixing a maximum limit for
discounts. But as to when the discounting or acceptance shall be made, the context and the sense
demand a contrary interpretation. The phrase "subject" means "being under the contingency of"
(Webster's Int. Dict.) a condition. If the acceptance or discount of the certificates to be "subject" to the
condition of the availability of a loanable funds, it is evident that the Legislature intended that the
acceptance shall be allowed on the condition that there are "available loanable funds." In other words,
acceptance or discount is to be permitted only if there are loanable funds.

Let us now consider the meaning of the condition imposed for accepting or discounting certificates, the
"availability of loanable funds." On this issue the appellant contends that the mere fact that P50,000
was loaned to him and that the Rehabilitation Finance Corporation has been granting loans up to the
time plaintiff offered to pay the loan with his certificate — these prove that there are "available loanable
funds". As the court a quo did not pass on such availability, he also contends that this is a question of
fact to be determined by the courts. The defendant denies the existence of "available loanable funds."
The gist of plaintiffs' contention is that any and all funds of the Rehabilitation Finance Corporation are
subject to the provision of the discount or acceptance of the certificates; that of defendant-appellee is
that only funds made available for the purpose of discounting backpay certificates may be used for
such purpose and that at the time the action was filed there was no such funds.

The Rehabilitation Finance Corporation was created by Republic Act No. 85, which was approved on
October 29, 1946. The corporation was created "to provide credit facilities for the rehabilitation and
development of agriculture, commerce, and industry, the reconstruction of property damaged by war,
and the broadening and diversification of the national economy" (section 1), and to achieve the above
aims it was granted the following powers:

SEC. 2. Corporate powers. — The Rehabilitation Finance Corporation shall have the power:

(a) To grant loans for home building and for the rehabilitation, establishment or development of
any agricultural, commercial or industrial enterprise, including public utilities;

(b) To grant loans to provincial, city and municipal governments for the rehabilitation,
construction or reconstruction of public markets, waterworks, toll bridges, slaughterhouses, and
other self-liquidating or income-producing services;

(c) To grant loans to agencies and corporations owned or controlled by the Government of the
Republic of the Philippines for the production and distribution of electrical power, for the
purchase and subdivision of rural and urban estates, for housing projects, for irrigation and
waterworks systems, and for other essential industrial and agricultural enterprises;

(d) To grant loans to cooperative associations to facilitate production, the marketing of crops,
and the acquisition of essential commodities;

(e) To underwrite, purchase, own, sell, mortgage or otherwise dispose of stocks, bonds,
debentures, securities and other evidences of indebtedness issued for or in connection with any
project or enterprise referred to in the proceeding paragraphs;

(f) To issue bonds, debentures, securities, collaterals, and other obligations with the approval of
the President, but in no case to exceed at any one time an aggregate amount equivalent to one
hundred per centum of its subscribed capital and surplus. . . .

If the Rehabilitation Finance Corporation is to carry out the aims and purposes for which it was created,
It must evolve a definite plan of the industries or activities which it should be rehabilitate, establish, or
develop, and apportion its available funds and resources among these, consistent with the policies
outlined in its charter.

As of May 31, 1948, immediately prior to the passage of the Backpay Law, it had granted the following
classes of loans:
 Agricultural loans
........................................................ P23,610,350.74
Industrial loans
............................................................ 22,717,565.87
Real Estate Loans
........................................................ 34,601,258.29
Loans for purchase, Subdivision and
Resale of Landed Estates
......................................................... 7,271,258.78
Loans to Provinces, Cities, and
Municipalities for Self-liquidating
Projects .............................................. 1,889,763.00
Total Loans P90,090,77.68
..................................................
(Exhibit 2)

As of February 2, 1951, the corporation had accepted in payment of loans granted before June 18,
1948, the total amount of P8,225,229.96, as required by section 2 of the Backpay Law. (See Exhibit
11, p.4.).

The third anniversary report of the Rehabilitation Finance Corporation dated January 2, 1950 (Exhibit
1,), shows that the funds originally available to the corporation came from the following sources:

Funds made available:

Initial cash capital
................................................................ P50,000,000,00
Cash Transferred from Financial
Rehabilitation Funds .... 2,423,079.94
Cash received from Surplus Property
Commission ....... 26,350,000.00
Cash received from Phil. Shipping Adm.
........................... 3,700,000.00
Cash payment of capital
.................................................. 82,473,079.74
Proceeds of bond issues
.................................................. 58,909,148.18
Advances from the Central Bank
....................................... 10,000,000.00

There was also collectible from the loans the total amount of P28,659,442.12, so that the total cash
available to the corporation from January 2, 1947, to November 30, 1949, was P180,041,670.04. But
the Total amount of loans already approved as of the last date was P203,667,403.78 and the total of
approved loans pending release was P25,342,020.78, and the only cash balance available in
November, 1949, to meet these approved loans was P1,716,286.71.

It may readily be seen from the above data that were we to follow appellant's theory and contention
that the law is mandatory, the loan he had applied for, as well as that of any holder of a backpay
certificate, would have to be paid out of this available cash, pursuant to the alleged mandate of section
2 of the Backpay Law. The compulsory acceptance and discount of certificates will bring about, as a
direct and necessary consequence, the suspension of all, if not of most, of the activities of the
Rehabilitation Finance Corporation; and no agricultural or industrial loans, or loans to financial
institutions and local governments for their markets, waterworks, etc., would be granted until all the
backpay certificates (amounting to some hundred millions of pesos) shall heave been accepted or
discounted. And as the defendant-appellant forcefully argues, even funds obtained by the Rehabilitation
Finance Corporation by the issue of the bonds, at rates of interest of more than 2 per cent, the rate
fixed for the discount of the backpay certificates, will have to be loaned to holders of backpay certificates
at a loss, to the prejudice of the corporation. There would be loans for holders of backpay certificates,
but none for rehabilitation or reconstruction, or development of industries, or of the national economy;
there would be funds for employees' loans, but none for the improvements of public services, etc., as
all Rehabilitation Finance Corporation funds will be necessary to meet the demands of holders of
backpay certificates. And if it be remembered that the provision is intended for all financial institutions
controlled by the Government, the consequences would be felt by all industries and activities, and the
whole scheme of national financial organization and development disrupted. It seems evident that the
legislature never could have intended such absurd consequences, even with all the sympathy that it is
showing for holders of backpay certificates.

But while we agree with the appellee that it could not have been the intention of Congress to disrupt
the whole scheme of rehabilitation, reconstruction, and development envisioned in the Rehabilitation
Act, by its passage of section 2 of the Backpay Law, neither we are prepared to follow appellee's
insinuation that the section is impracticable or impossible of execution by the Rehabilitation Finance
Corporation in the situation in which its funds and resources were at the time of the trial. In our opinion,
what the Legislature intended by the provision in dispute is that the Rehabilitation Finance Corporation,
through its Board of Directors, should from time to time set aside some reasonable amount for the
discount of backpay certificates, when this can be done without unduly taxing its resources, or unduly
prejudicing the plan of rehabilitation and development that it has mapped out, or that which the
corresponding authority has laid down as a policy. This legislative intention can be inferred from the
fact that Congress itself expressly ordered that all financial institutions accept or discount backpay
certificates in payment of those loans, evidently laying down an example to be followed by financial
institutions under its control. The loans granted under section 2 of the law by the Rehabilitation Finance
Corporation amounted to P8,225,229.96. It is shown or even presented that the payment of this
considerable amount has impaired or disrupted the activities of the Rehabilitation Finance Corporation.
It is not claimed, either, that at the time of the filing of appellant's action the Rehabilitation Finance
Corporation was in no position to set aside a modest sum, in a manner similar to the creation of a
sinking fund, for the discount of backpay certificates to help the Government comply with its financial
commitments. We are convinced that the Rehabilitation Finance Corporation may, without impairment
of its activities, set aside from time to time, say, half a million pesos or a considerable part thereof, for
the payment of backpay certificates. But these circumstances notwithstanding, we are of the opinion
that the law in question (section 2 of the Backpay Law), in so far as the discount and acceptance of
backpay certificates are concerned, should be interpreted to be directory merely, not mandatory, as
claimed by plaintiff-appellant, the same to be construed as a directive for the Rehabilitation Finance
Corporation to invest a reasonable portion of its funds for the discount of backpay certificates, from time
to time and in its sound discretion, as circumstances and its resources may warrant.

Having come to the conclusion that section 2 of the Backpay Law is directly merely, we now address
ourselves to the propriety of the action, which the plaintiff and appellant labels specific performance.
As the action is not based on any contractual relation between the plaintiff and appellant and the
defendant and appellee, it may be one for specific performance; it is in effect predicated on a supposed
legal duty imposed by law and is properly the designated as a special civil action of mandamus because
the appellant seeks to compel the appellee to accept his backpay certificate in payment of his
outstanding obligation. We are not impressed by the defense technical in a sense, that the
Rehabilitation Finance Corporation is not expressly authorized to accept certificates in payment of
outstanding loans. There is no provision expressly authorizing this procedure or system; but neither is
there one prohibiting it. The legislature has once ordered it; the Rehabilitation Finance Corporation has
once authorized it. We believe the legislature could not have intended to discriminate against those
who have already built their houses, who have contracted obligations in so doing. We prefer to predicate
court ruling that this special action does not lie on the ground that the duty imposed by the Backpay
Law upon the appellee as to the acceptance or discount of backpay certificates is neither clear nor
ministerial, but discretionary merely and that mandamus does not issue to control the exercise of
discretion of public officer. (Viuda e hijos de Crispulo Zamora vs. Wright and Segado, 53 Phil., 613,
621; Blanco vs. Board of Medical Examiners, 46 Phil., 190 192, citing Lamb vs. Phipps, 22 Phil., 456;
Gonzales vs. Board of Pharmacy, 20 Phil., 367, etc.) It is, however, argued on behalf of the appellant
that inasmuch as the Board of Directors of the Rehabilitation Finance Corporation has seen fit to
approve a resolution accepting backpay certificates amounting to P151,000 (Exhibit H), law and equity
demand that the same privilege should be accorded him. The trial court held that the above resolution
was illegal and that its unauthorized enactment (which he called a "wrong") does not justify its repetition
for the benefit of appellant. As we have indicated above, we believe that its approval (not any supposed
discrimination on behalf of some special holders) can be defended under the law, but that the passage
of a similar resolution can not be enjoined by an action of mandamus.

We must admit, however, that appellant's case is not entirely without any merit or justification; similar
situations have already been favorably acted upon by the Congress, when it ordered that certificates
be accepted in payment of outstanding obligations, and by the Rehabilitation Finance Corporation in
its above-mentioned resolution. But we feel we are powerless to enforce his claim, as the acceptance
and discount to backpay certificates has been placed within the sound discretion of the rehabilitation
Finance Corporation, and subject to the availability of loanable funds, and said discretion may not be
reviewed or controlled by us. It is clear that this remedy must be available in other quarters, not in the
courts of justice.

For all the foregoing considerations, we are constrained to dismiss the appeal, with coasts against the
appellant.

G.R. No. L-28742 April 30, 1982

VIRGILIO CAPATI, plaintiff-appellant,

vs.
DR. JESUS P. OCAMPO, defendant-appellee.

ESCOLIN, J.:

We set aside the order of the Court of First Instance of Pampanga in Civil Case No. 3188 which
dismissed the plaintiff's complaint on ground of improper venue.

Plaintiff Virgilio Capati a resident of Bacolor, Pampanga, was the contractor of the Feati Bank for the
construction of its building in Iriga, Camarines Sur. On May 23, 1967, plaintiff entered into a sub-
contract with the defendant Dr. Jesus Ocampo, a resident of Naga City, whereby the latter, in
consideration of the amount of P2,200.00, undertook to construct the vault walls, exterior walls and
columns of the said Feati building in accordance with the specifications indicated therein. Defendant
further bound himself to complete said construction on or before June 5, 1967 and, to emphasize this
time frame for the completion of the construction job, defendant affixed his signature below the following
stipulation written in bold letters in the sub-contract: "TIME IS ESSENTIAL, TO BE FINISHED 5 JUNE'
67."

Claiming that defendant finished the construction in question only on June 20, 1967, plaintiff filed in the
Court of First Instance of Pampanga an action for recovery of consequential damages in the sum of
P85,000.00 with interest, plus attorney's fees and costs. The complaint alleged inter alia that "due to
the long unjustified delay committed by defendant, in open violation of his express written agreement
with plaintiff, the latter has suffered great irreparable loss and damage ... "

Defendant filed a motion to dismiss the complaint on the ground that venue of action was improperly
laid. The motion was premised on the stipulation printed at the back of the contract which reads:

14. That all actions arising out, or relating to this contract may be instituted in the Court of First Instance
of the City of Naga.

Plaintiff filed an opposition to the motion, claiming that their agreement to hold the venue in the Court
of First Instance of Naga City was merely optional to both contracting parties. In support thereof, plaintiff
cited the use of the word "may " in relation with the institution of any action arising out of the contract.

The lower court, in resolving the motion to dismiss, ruled that "there was no sense in providing the
aforequoted stipulation, pursuant to Sec. 3 of Rule 4 of the Revised Rules of Court, if after all, the
parties are given the discretion or option of filing the action in their respective residences," and thereby
ordered the dismissal of the complaint.

Hence, this appeal.

The rule on venue of personal actions cognizable by the courts of first instance is found in Section 2
(b), Rule 4 of the Rules of Court, which provides that such "actions may be commenced and tried where
the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff." The said section is qualified by the following provisions
of Section 3 of the same rule:

By written agreement of the parties the venue of an action may be changed or transferred from one
province to another.

Defendant stands firm on his contention that because of the aforequoted covenant contained in par. 14
of the contract, he cannot be sued in any court except the Court of First Instance of Naga City. We are
thus called upon to rule on the issue as to whether the stipulation of the parties on venue is restrictive
in the sense that any litigation arising from the contract can be filed only in the court of Naga City, or
merely permissive in that the parties may submit their disputes not only in Naga City but also in the
court where the defendant or the plaintiff resides, at the election of the plaintiff, as provided for by
Section 2 (b) Rule 4 of the Rules of Court.

It is well settled that the word "may" is merely permissive and operates to confer discretion upon a
party. Under ordinary circumstances, the term "may be" connotes possibility; it does not connote
certainty. "May" is an auxillary verb indicating liberty, opportunity, permission or possibility. 1

In Nicolas vs. Reparations Commission 2, a case involving the interpretation of a stipulation as to venue
along lines similar to the present one, it was held that the agreement of the parties which provided that
"all legal actions arising out of this contract ... may be brought in and submitted to the jurisdiction of the
proper courts in the City of Manila," is not mandatory.
We hold that the stipulation as to venue in the contract in question is simply permissive. By the said
stipulation, the parties did not agree to file their suits solely and exclusively with the Court of First
Instance of Naga. They merely agreed to submit their disputes to the said court, without waiving their
right to seek recourse in the court specifically indicated in Section 2 (b), Rule 4 of the Rules of Court.

Since the complaint has been filed in the Court of First Instance of Pampanga, where the plaintiff
resides, the venue of action is properly laid in accordance with Section 2 (b), Rule 4 of the Rules of
Court.

WHEREFORE, the order appealed from is hereby set aside. Let the records be returned to the court of
origin for further proceedings. Costs against defendant-appellee.

c. principally and exclusively

G.R. No. 144104 June 29, 2004

LUNG CENTER OF THE PHILIPPINES, petitioner,

vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon
City, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the
Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the
decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and
its hospital building constructed thereon are subject to assessment for purposes of real property tax.

The Antecedents

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January
16, 1981 by virtue of Presidential Decree No. 1823. 2 It is the registered owner of a parcel of land,
particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner
Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is
covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City.
Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A
big space at the ground floor is being leased to private parties, for canteen and small store spaces, and
to medical or professional practitioners who use the same as their private clinics for their patients whom
they charge for their professional services. Almost one-half of the entire area on the left side of the
building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of
Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual
subsidies from the government.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon City.3 Accordingly, Tax
Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and
the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from
real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The
petitioner’s request was denied, and a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution of the City
Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are
exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity
patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner
liable for real property taxes.6

The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable
institution and that its real properties were not actually, directly and exclusively used for charitable
purposes; hence, it was not entitled to real property tax exemption under the constitution and the law.
The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision
of the CBAA.8

Undaunted, the petitioner filed its petition in this Court contending that:

A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO

REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND
IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.

B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS
CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON
PROPER APPLICATION.

The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it
admits paying patients and renders medical services to them, leases portions of the land to private
parties, and rents out portions of the hospital to private medical practitioners from which it derives
income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999,
100% of its out-patients were charity patients and of the hospital’s 282-bed capacity, 60% thereof, or
170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the
government attests to its character as a charitable institution. It contends that the "exclusivity" required
in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is
leased out to private individuals from whom it derives income, it does not lose its character as a
charitable institution, and its exemption from the payment of real estate taxes on its real property. The
petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that
even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from
seeking tax exemption under the 1987 Constitution.

In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The
petitioner’s real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the
said property is actually, directly and exclusively used for charitable purposes. The respondents noted
that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the
director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical
Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the
property in 1990 for only ₱20,000 a month, when the monthly rental should be ₱357,000 a month as
determined by the Commission on Audit; and that instead of complying with the directive of the COA
for the cancellation of the contract for being grossly prejudicial to the government, the petitioner
renewed the same on March 13, 1995 for a monthly rental of only ₱24,000. They assert that the
petitioner uses the subsidies granted by the government for charity patients and uses the rest of its
income from the property for the benefit of paying patients, among other purposes. They aver that the
petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the
hospital are reserved for indigent patients. The respondents further assert, thus:

13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service.
That before a patient is admitted for treatment in the Center, first impression is that it is pay-
patient and required to pay a certain amount as deposit. That even if a patient is living below the
poverty line, he is charged with high hospital bills. And, without these bills being first settled, the
poor patient cannot be allowed to leave the hospital or be discharged without first paying the
hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or
person known only to the Center; that even the remains of deceased poor patients suffered the
same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one
must undergo a series of interviews and must submit all the requirements needed by the Center,
usually accompanied by endorsement by an influential agency or person known only to the
Center. These facts were heard and admitted by the Petitioner LCP during the hearings before
the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients,
instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute.
Can such practice by the Center be called charitable?10

The Issues

The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the
context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of
Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real
property taxes.

The Court’s Ruling

The petition is partially granted.

On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973
and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the methods of administration, the nature of the actual work
performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use
and occupation of the properties.11

In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws,
for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or otherwise
lessening the burden of government.12 It may be applied to almost anything that tend to promote the
well-doing and well-being of social man. It embraces the improvement and promotion of the happiness
of man.13 The word "charitable" is not restricted to relief of the poor or sick. 14 The test of a charity and
a charitable organization are in law the same. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for
gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the President of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit
of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in
the Philippines. The raison d’etre for the creation of the petitioner is stated in the decree, viz:

Whereas, for decades, respiratory diseases have been a priority concern, having been the
leading cause of illness and death in the Philippines, comprising more than 45% of the total
annual deaths from all causes, thus, exacting a tremendous toll on human resources, which
ailments are likely to increase and degenerate into serious lung diseases on account of unabated
pollution, industrialization and unchecked cigarette smoking in the country;lavvph!l.net

Whereas, the more common lung diseases are, to a great extent, preventable, and curable with
early and adequate medical care, immunization and through prompt and intensive prevention
and health education programs;

Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and
efforts at preventing, treating and rehabilitating people affected by lung diseases, and to
undertake research and training on the cure and prevention of lung diseases, through a Lung
Center which will house and nurture the above and related activities and provide tertiary-level
care for more difficult and problematical cases;

Whereas, to achieve this purpose, the Government intends to provide material and financial
support towards the establishment and maintenance of a Lung Center for the welfare and benefit
of the Filipino people.15

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus:

SECOND: That the purposes for which such corporation is formed are as follows:

1. To construct, establish, equip, maintain, administer and conduct an integrated medical

institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung
and allied diseases in line with the concern of the government to assist and provide
material and financial support in the establishment and maintenance of a lung center
primarily to benefit the people of the Philippines and in pursuance of the policy of the
State to secure the well-being of the people by providing them specialized health and
medical services and by minimizing the incidence of lung diseases in the country and
elsewhere.

2. To promote the noble undertaking of scientific research related to the prevention of

lung or pulmonary ailments and the care of lung patients, including the holding of a series
of relevant congresses, conventions, seminars and conferences;

3. To stimulate and, whenever possible, underwrite scientific researches on the biological,

demographic, social, economic, eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the findings of such research for
public consumption;

4. To facilitate the dissemination of ideas and public acceptance of information on lung

consciousness or awareness, and the development of fact-finding, information and
reporting facilities for and in aid of the general purposes or objects aforesaid, especially
 in human lung requirements, general health and physical fitness, and other relevant or
related fields;

5. To encourage the training of physicians, nurses, health officers, social workers and
medical and technical personnel in the practical and scientific implementation of services
to lung patients;

6. To assist universities and research institutions in their studies about lung diseases, to
encourage advanced training in matters of the lung and related fields and to support
educational programs of value to general health;

7. To encourage the formation of other organizations on the national, provincial and/or

city and local levels; and to coordinate their various efforts and activities for the purpose
of achieving a more effective programmatic approach on the common problems relative
to the objectives enumerated herein;

8. To seek and obtain assistance in any form from both international and local foundations
and organizations; and to administer grants and funds that may be given to the
organization;

9. To extend, whenever possible and expedient, medical services to the public and, in
general, to promote and protect the health of the masses of our people, which has long
been recognized as an economic asset and a social blessing;

10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies
of the people in any and all walks of life, including those who are poor and needy, all
without regard to or discrimination, because of race, creed, color or political belief of the
persons helped; and to enable them to obtain treatment when such disorders occur;

11. To participate, as circumstances may warrant, in any activity designed and carried on
to promote the general health of the community;

12. To acquire and/or borrow funds and to own all funds or equipment, educational
materials and supplies by purchase, donation, or otherwise and to dispose of and
distribute the same in such manner, and, on such basis as the Center shall, from time to
time, deem proper and best, under the particular circumstances, to serve its general and
non-profit purposes and objectives;lavvphil.net

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of
properties, whether real or personal, for purposes herein mentioned; and

14. To do everything necessary, proper, advisable or convenient for the accomplishment

of any of the powers herein set forth and to do every other act and thing incidental thereto
or connected therewith.16

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all
walks of life including those who are poor and the needy without discrimination. After all, any person,
the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.17

As a general principle, a charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients, whether out-patient, or confined in
the hospital, or receives subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the institution. 18 In Congregational Sunday
School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus:

… [A]n institution does not lose its charitable character, and consequent exemption from
taxation, by reason of the fact that those recipients of its benefits who are able to pay are required
to do so, where no profit is made by the institution and the amounts so received are applied in
furthering its charitable purposes, and those benefits are refused to none on account of inability
to pay therefor. The fundamental ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the public by them, and a consequent relief,
to some extent, of the burden upon the state to care for and advance the interests of its citizens.20

As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South
Dakota v. Baker:21

… [T]he fact that paying patients are taken, the profits derived from attendance upon these
patients being exclusively devoted to the maintenance of the charity, seems rather to enhance
the usefulness of the institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the deserving poor can
with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects
of charity; and that their honest pride is much less wounded by being placed in an institution in
which paying patients are also received. The fact of receiving money from some of the patients
does not, we think, at all impair the character of the charity, so long as the money thus received
is devoted altogether to the charitable object which the institution is intended to further. 22

The money received by the petitioner becomes a part of the trust fund and must be devoted to public
trust purposes and cannot be diverted to private profit or benefit. 23

Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its
character as a charitable institution simply because the gift or donation is in the form of subsidies
granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board
of Equalization of Salt Lake County:24

Second, the … government subsidy payments are provided to the project. Thus, those payments
are like a gift or donation of any other kind except they come from the government. In
both Intermountain Health Care and the present case, the crux is the presence or absence of
material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a
private benefactor, chose to make up the deficit resulting from the exchange between St. Mark’s
Tower and the tenants by making a contribution to the landlord, just as it would have been
irrelevant in Intermountain Health Care if the patients’ income supplements had come from
private individuals rather than the government.

Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the
government rather than private charitable contributions does not dictate the denial of a charitable
exemption if the facts otherwise support such an exemption, as they do here. 25

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies
from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even
incurred a net loss in 1991 and 1992 from its operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those
portions of its real property that are leased to private entities are not exempt from real property taxes
as these are not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption
is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for
exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken.26 As held in Salvation Army v. Hoehn:27

An intention on the part of the legislature to grant an exemption from the taxing power of the
state will never be implied from language which will admit of any other reasonable construction.
Such an intention must be expressed in clear and unmistakable terms, or must appear by
necessary implication from the language used, for it is a well settled principle that, when a special
privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be
construed strictly against the property owner and in favor of the public. This principle applies
with peculiar force to a claim of exemption from taxation . …28

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the
petitioner shall enjoy the tax exemptions and privileges:

SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation

organized primarily to help combat the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and equipment and supplies to be
imported by authorized entities or persons and by the Board of Trustees of the Lung Center of
the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from
income and gift taxes, the same further deductible in full for the purpose of determining the
maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue
Code, as amended.

The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with respect
to equipment purchases made by, or for the Lung Center.29

It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon. If the intentions were
otherwise, the same should have been among the enumeration of tax exempt privileges under Section
2:

It is a settled rule of statutory construction that the express mention of one person, thing, or
consequence implies the exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.

The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation
of the rule is the principle that what is expressed puts an end to that which is implied. Expressium
facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters,
it may not, by interpretation or construction, be extended to other matters.

...

The rule of expressio unius est exclusio alterius and its variations are canons of restrictive
interpretation. They are based on the rules of logic and the natural workings of the human mind.
 They are predicated upon one’s own voluntary act and not upon that of others. They proceed
from the premise that the legislature would not have made specified enumeration in a statute
had the intention been not to restrict its meaning and confine its terms to those expressly
mentioned.30

The exemption must not be so enlarged by construction since the reasonable presumption is that the
State has granted in express terms all it intended to grant at all, and that unless the privilege is limited
to the very terms of the statute the favor would be intended beyond what was meant. 31

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational
purposes shall be exempt from taxation.32

The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice
Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is
exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational
purposes."34

Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160
(otherwise known as the Local Government Code of 1991) as follows:

SECTION 234. Exemptions from Real Property Tax. – The following are exempted from
payment of the real property tax:

...

(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.35

We note that under the 1935 Constitution, "... all lands, buildings, and improvements used ‘exclusively’
for … charitable … purposes shall be exempt from taxation." 36 However, under the 1973 and the
present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be
considered exempt, the same should not only be "exclusively" used for charitable purposes; it is
required that such property be used "actually" and "directly" for such purposes.37

In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling
in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30,
1961 before the 1973 and 1987 Constitutions took effect.38 As this Court held in Province of Abra v.
Hernando:39

… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents

appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." The present Constitution
added "charitable institutions, mosques, and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they should not only be "exclusively" but
also "actually" and "directly" used for religious or charitable purposes. The Constitution is worded
 differently. The change should not be ignored. It must be duly taken into consideration. Reliance
on past decisions would have sufficed were the words "actually" as well as "directly" not added.
There must be proof therefore of the actual and direct use of the lands, buildings, and
improvements for religious or charitable purposes to be exempt from taxation. …

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption,
the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution;
and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one or more commercial purposes, it is not exclusively used
for the exempted purposes but is subject to taxation. 41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and
the law.42 Solely is synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct
and immediate and actual application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes.44

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually,
directly and exclusively used for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the business
name "Elliptical Orchids and Garden Center." Indeed, the petitioner’s evidence shows that it collected
₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28 for 1992 from the said lessees.

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes.45 On the other hand, the portions
of the land occupied by the hospital and portions of the hospital used for its patients, whether paying
or non-paying, are exempt from real property taxes.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon
City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land
and the area thereof which are leased to private persons, and to compute the real property taxes due
thereon as provided for by law.

d. previously

G.R. Nos. L-69810-14 June 19, 1985

TEODULO RURA, petitioner,

vs.
THE HON. GERVACIO A. LEOPENA, Presiding Judge of the 2nd Municipal Circuit Trial Court of
Tubigon-Clarin, Tubigon, Bohol and PEOPLE OF THE PHILIPPINES, respondents.

ABAD SANTOS, J.:

This case involves the application of the Probation Law (P.D. No. 968, as amended), more specifically
Section 9 thereof which disqualifies from probation those persons:

(c) who have previously been convicted by final judgment of an offense punished by
imprisonment of not less than one month and one day and or a fine of not less than Two
Hundred Pesos.

Petitioner Teodulo Rura was accused, tried and convicted of five (5) counts of estafa committed on
different dates in the Municipal Circuit Trial Court of Tubigon-Clarin, Tubigon, Bohol, denominated as
Criminal Case Nos. 523, 524, 525, 526 and 527.

The five cases were jointly tried and a single decision was rendered on August 18, 1983. Rura was
sentenced to a total prison term of seventeen (17) months and twenty-five (25) days. In each criminal
case the sentence was three (3) months and fifteen (15) days.

Rura appealed to the Regional Trial Court of Bohol but said court affirmed the decision of the lower
court. When the case was remanded to the court of origin for execution of judgment, Rura applied for
probation. The application was opposed by a probation officer of Bohol on the ground Chat Rura is
disqualified for probation under Sec. 9 (c) of the Probation law quoted above. The court denied the
application for probation. A motion for reconsideration was likewise denied. Hence the instant petition.

The question which is raised is whether or not the petitioner is disqualified for probation.

In denying the application for probation, the respondent judge said:

Though the five estafa cases were jointly tried and decided by the court convicting the
accused thereof, yet the dates of commission are different. Upon conviction he was guilty
of said offenses as of the dates of commission of the acts complained of. (Rollo, p, 58.)

Upon the other hand, the petitioner argues:

We beg to disagree. There is no previous conviction by final judgment to speak of. The
five (5) cases of Estafa were tried jointly and there is only one decision rendered on the
same date—August 18. 1983. It could not be presumed that accused-petitioner had been
convicted one after the other for the five cases of Estafa because the conviction in these
cases took place within the same day, August 18, 1983 by means of a Joint Decision,
and not in a separate decision.

Previous conviction, we submit, presupposes that there is a prior sentence or that there
was already a decision rendered which convicted the accused. In this instant cases,
however, there is only one decision rendered on the five (5) counts of Estafa which was
promulgated on the same date. In other words the effects of conviction does not retract
to the date of the commission of the offense as the trial court held. (Id., pp, 8-9.)

We hold for the petitioner. When he applied for probation he had no previous conviction by final
judgment. When he applied for probation the only conviction against him was the judgment which was
the subject of his application. The statute relates "previous" to the date of conviction, not to the date of
the commission of the crime.

WHEREFORE, the petition is granted and the respondent judge is directed to give due course to the
petitioner's application for probation. No costs.
SO ORDERED.

e. every

G.R. No. L-64313 January 17, 1985

NATIONAL HOUSING CORPORATION, petitioner,

vs.
BENJAMIN JUCO AND THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

Government Corporate Counsel for petitioner.

Amante A. Pimentel for respondents.

GUTIERREZ, JR., J.:

Are employees of the National Housing Corporation (NHC) covered by the Labor Code or by laws and
regulations governing the civil service?

The background facts of this case are stated in the respondent-appellee's brief as follows:

The records reveal that private respondent (Benjamin C. Juco) was a project engineer of
the National Housing Corporation (NHC) from November 16, 1970 to May 14, 1975. For
having been implicated in a crime of theft and/or malversation of public funds involving
214 pieces of scrap G.I. pipes owned by the corporation which was allegedly committed
on March 5, 1975. Juco's services were terminated by (NHC) effective as of the close of
working hours on May 14, 1975. On March 25, 1977 he filed a complaint for illegal
dismissal against petitioner (NHC) with Regional Office No. 4, Department of Labor (now
Ministry of Labor and Employment) docketed as R04-3-3309-77 (Annex A, Petition). The
said complaint was certified by Regional Branch No. IV of the NLRC for compulsory
arbitration where it was docketed as Case No. RB-IV-12038-77 and assigned to Labor
Arbiter Ernilo V. Peñalosa. The latter conducted the hearing. By agreement of the parties,
the case was submitted for resolution upon submission of their respective position papers.
Private respondent (Juco) submitted his position paper on July 15, 1977. He professed
innocence of the criminal acts imputed against him contending "that he was dismissed
based on purely fabricated charges purposely to harass him because he stood as a
witness in the theft case filed against certain high officials of the respondent's
establishment" (NHC) and prayed for 'his immediate reinstatement to his former position
in the (NHC) without loss of seniority rights and the consequent payment of his will back
wages plus all the benefits appertaining thereto. On July 28, 1977, the NHC also filed its
position paper alleging that the Regional Office Branch IV, Manila, NLRC, "is without
authority to entertain the case for lack of jurisdiction, considering that the NHC is a
government owned and controlled corporation; that even assuming that this case falls
within the jurisdiction of this Office, respondent firm (now petitioner) maintains that
respondent (Juco), now private respondent, was separated from the service for valid and
justified reasons, i.e., for having sold company properties consisting of 214 pieces of
scrap G.I. pipes at a junk shop in Alabang, Muntinlupa, Metro Manila, and thereafter
appropriating the proceeds thereof to his own benefit."
The pertinent portion of the decision of respondent National Labor Relations Commission (NLRC)
reads:

The fact that in the early case of Fernandez v. Cedro (NLRC Case No. 201165-74, May
19, 1975) the Commission, (Second Division) ruled that the respondent National Housing
Corporation is a government-owned or controlled corporation does not preclude us from
later taking a contrary stand if by doing so the ends of justice could better be served.

For although adherence to precedents (stare decisis) is a sum formula for achieving
uniformity of action and conducive to the smooth operation of an office, Idolatrous
reverence for precedents which have outlived their validity and usefulness retards
progress and should therefore be avoided. In fact, even courts do reverse themselves for
reasons of justice and equity. This Commission as an Administrative body performing
quasi judicial function is no exception.

WHEREFORE, in the light of the foregoing, the decision appealed from is hereby, set
aside. In view, however, of the fact that the Labor Arbiter did not resolve the issue of
illegal dismissal we have opted to remand this case to the Labor Arbiter a quo for
resolution of the aforementioned issue.

The NHC is a one hundred percent (100%) government-owned corporation organized in accordance
with Executive Order No. 399, the Uniform Charter of Government Corporations, dated January 5,
1951. Its shares of stock are owned by the Government Service Insurance System the Social Security
System, the Development Bank of the Philippines, the National Investment and Development
Corporation, and the People's Homesite and Housing Corporation. Pursuant to Letter of Instruction No.
118, the capital stock of NHC was increased from P100 million to P250 million with the five government
institutions above mentioned subscribing in equal proportion to the increased capital stock. The NHC
has never had any private stockholders. The government has been the only stockholder from its
creation to the present.

There should no longer be any question at this time that employees of government-owned or controlled
corporations are governed by the civil service law and civil service rules and regulations.

Section 1, Article XII-B of the Constitution specifically provides:

The Civil Service embraces every branch, agency, subdivision, and instrumentality of the
Government, including every government-owned or controlled corporation. ...

The 1935 Constitution had a similar provision in its Section 1, Article XI I which stated:

A Civil Service embracing all branches and subdivisions of the Government shall be
provided by law.

The inclusion of "government-owned or controlled corporations" within the embrace of the civil service
shows a deliberate effort of the framers to plug an earlier loophole which allowed government-owned
or controlled corporations to avoid the full consequences of the an encompassing coverage of the civil
service system. The same explicit intent is shown by the addition of "agency" and "instrumentality" to
branches and subdivisions of the Government. All offices and firms of the government are covered.

The amendments introduced in 1973 are not Idle exercises or a meaningless gestures. They carry the
strong message that t civil service coverage is broad and an- embracing insofar as employment in the
government in any of its governmental or corporate arms is concerned.
The constitutional provision has been implemented by statute. Presidential Decree No. 807 is
unequivocal that personnel of government-owned or controlled corporations belong to the civil service
and are subject to civil service requirements.

It provides:

SEC. 56. Government-owned or Controlled Corporations Personnel. — All permanent

personnel of government-owned or controlled corporations whose positions are now
embraced in the civil service shall continue in the service until they have been given a
chance to qualify in an appropriate examination, but in the meantime, those who do not
possess the appropriate civil service eligibility shag not be promoted until they qualify in
an appropriate civil service examination. Services of temporary personnel may be
terminated any time.

The very Labor Code, P. D. No. 442 as amended, which the respondent NLRC wants to apply in its
entirety to the private respondent provides:

ART. 277. Government employees. — The terms and conditions of employment of all
government employees, including employees of government-owned and controlled
corporations shall be governed by the Civil Service Law, rules and regulations. Their
salaries shall be standardized by the National Assembly as provided for in the New
Constitution. However, there shall be reduction of existing wages, benefits and other
terms and conditions of employment being enjoyed by them at the time of the adoption of
the Code.

Our decision in Alliance of Government Workers, et al v. Honorable Minister of Labor and Employment
et all. (124 SCRA 1) gives the background of the amendment which includes government-owned or
controlled corporations in the embrace of the civil service.

We stated:

Records of the 1971 Constitutional Convention show that in the deliberation held relative
to what is now Section 1(1), Article XII-B, supra, the issue of the inclusion of government-
owned or controlled corporations figured prominently.

The late delegate Roberto S. Oca, a recognized labor leader, vehemently objected to the
inclusion of government-owned or controlled corporations in the Civil Service. He argued
that such inclusion would put asunder the right of workers in government corporations,
recognized in jurisprudence under the 1935 Constitution, to form and join labor unions for
purposes of collective bargaining with their employers in the same manner as in the
private section (see: records of 1971 Constitutional Convention).

In contrast, other labor experts and delegates to the 1971 Constitutional Convention
enlightened the members of the Committee on Labor on the divergent situation of
government workers under the 1935 Constitution, and called for its rectification. Thus, in
a Position Paper dated November 22, 197 1, submitted to the Committee on Labor, 1971
Constitutional Convention, then Acting Commissioner of Civil Service Epi Rey
Pangramuyen declared:

It is the stand, therefore, of this Commission that by reason of the nature of

the public employer and the peculiar character of the public service, it must
necessary regard the right to strike given to unions in private industry as not
 applying to public employees and civil service employees. It has been
stated that the Government, in contrast to the private employer, protects the
interests of all people in the public service, and that accordingly, such
conflicting interests as are present in private labor relations could not exist
in the relations between government and those whom they employ.

Moreover, determination of employment conditions as well as supervision

of the management of the public service is in the hands of legislative bodies.
It is further emphasized that government agencies in the performance of
their duties have a right to demand undivided allegiance from their workers
and must always maintain a pronounced esprit de corps or firm discipline
among their staff members. It would be highly incompatible with these
requirements of the public service, if personnel took orders from union
leaders or put solidarity with members of the working class above solidarity
with the Government. This would be inimical to the public interest.

Moreover, it is asserted that public employees by joining labor unions may

be compelled to support objectives which are political in nature and thus
jeopardize the fundamental principle that the governmental machinery must
be impartial and non-political in the sense of party politics. (See: Records
of 1971 Constitutional Convention).

Similar, Delegate Leandro P. Garcia, expressing for the inclusion of government-owned

or controlled corporations in the Civil Service, argued:

It is meretricious to contend that because Government-owned or controlled

corporations yield profits, their employees are entitled to better wages and
fringe benefits than employees of Government other than Government-
owned and controlled corporations which are not making profits. There is
no gainsaying the fact that the capital they use is the people's money. (see:
Records of the 1971 Constitutional Convention).

Summarizing the deliberations of the 1971 Constitutional Convention on the inclusion of

Government-owned or controlled corporation Dean Joaquin G. Bernas, SJ., of the Ateneo
de Manila University Professional School of Law, stated that government-owned
corporations came under attack as g cows of a privileged few enjoying salaries far higher
than their counterparts in the various branches of government, while the capital of these
corporations belongs to the Government and government money is pumped into them
whenever on the brink of disaster, and they should therefore come under the strict
surveillance of the Civil Service System. (Bernas, The 1973 Philippine Constitution, Notes
and Cases, 1974 ed., p. 524).

Applying the pertinent provisions of the Constitution, the Labor Code as amended, and the Civil Service
Decree as amended and the precedent in the Alliance of Government Workers decision, it is clear that
the petitioner National Housing Corporation comes under the jurisdiction of the Civil Service
Commission, not the Ministry of Labor and Employment.

This becomes more apparent if we consider the fact that the NHC performs governmental functions
and not proprietary ones.

The NHC was organized for the governmental objectives stated in its amended articles of incorporation
as follows:
 SECOND: That the purpose for which the corporation is organized is to assist and carry
out the coordinated massive housing program of the government, principally but not
limited to low-cost housing with the integration cooperation and assistance of all
governmental agencies concerned, through the carrying on of any or all the following
activities:

l) The acquisition, development or reclamation of lands for the purpose of construction

and building therein preferably low-cost housing so as to provide decent and durable
dwelling for the greatest number of inhabitants in the country;

2) The promotion and development of physical social and economic community growth
through the establishment of general physical plans for urban, suburban and metropolitan
areas to be characterized by efficient land use patterns;

3) The coordination and implementation of all projects of the government for the
establishment of nationwide and massive low cost housing;

4) The undertaking and conducting of research and technical studies of the development
and promotion of construction of houses and buildings of sound standards of design
liability, durability, safety, comfort and size for improvement of the architectural and
engineering designs and utility of houses and buildings with the utilization of new and/or
native materials economics in material and construction, distribution, assembly and
construction and of applying advanced housing and building technology.

5) Construction and installation in these projects of low-cost housing privately or

cooperatively owned water and sewerage system or waste disposal facilities, and the
formulations of a unified or officially coordinated urban transportation system as a part of
a comprehensive development plan in these areas.

The petitioner points out that it was established as an instrumentality of the government to accomplish
governmental policies and objectives and extend essential services to the people. It would be
incongruous if employees discharging essentially governmental functions are not covered by the same
law and rules which govern those performing other governmental functions. If government corporations
discharging proprietary functions now belong to the civil service with more reason should those
performing governmental functions be governed by civil service law.

The respondent NLRC cites a 1976 opinion of the Secretary of Justice which holds that the phrase
"government-owned or controlled corporations" in Section 1, Article XII-B of the Constitution
contemplates only those government-owned or controlled corporations created by special law. The
opinion states that since the Constitution provides for the organization or regulation of private
corporations only by "general law", expressly excluding government-owned or controlled corporations,
it follows that whenever the Constitution mentions government-owned or controlled corporations, it
must refer to those created by special law. P.D. No. 868 which repeals all charters, laws, decrees,
rules, and provisions exempting any branch, agency, subdivision, or instrumentality of the government,
including government- owned or controlled corporations from the civil service law and rules is also cited
to show that corporations not governed by special charters or laws are not to be brought within civil
service coverage. The discussions in the Constitutional Convention are also mentioned. It appears that
at the time the Convention discussed government-owned or controlled corporations, all such
corporations were organized only under special laws or charters.

The fact that "private" corporations owned or controlled by the government may be created by special
charter does not mean that such corporations not created by special law are not covered by the civil
service. Nor does the decree repealing all charters and special laws granting exemption from the civil
service law imply that government corporations not created by special law are exempt from civil service
coverage. These charters and statutes are the only laws granting such exemption and, therefore, they
are the only ones which could be repealed. There was no similar exempting provision in the general
law which called for repeal. And finally, the fact that the Constitutional Convention discussed only
corporations created by special law or charter cannot be an argument to exclude petitioner NHC from
civil service coverage. As stated in the cited speech delivered during the convention sessions of March
9, 1972, all government corporations then in existence were organized under special laws or charters.
The convention delegates could not possibly discuss government-owned or controlled corporations
which were still non-existent or about whose existence they were unaware.

Section I of Article XII-B, Constitution uses the word "every" to modify the phrase "government-owned
or controlled corporation."

"Every" means each one of a group, without exception It means all possible and all taken one by one.
Of course, our decision in this case refers to a corporation created as a government-owned or
controlled entity. It does not cover cases involving private firms taken over by the government in
foreclosure or similar proceedings. We reserve judgment on these latter cases when the appropriate
controversy is brought to this Court.

The infirmity of the respondents' position lies in its permitting a circumvention or emasculation of
Section 1, Article XII-B of the Constitution It would be possible for a regular ministry of government to
create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A
government-owned corporation could create several subsidiary corporations. These subsidiary
corporations would enjoy the best of two worlds. Their officials and employees would be privileged
individuals, free from the strict accountability required by the Civil Service Decree and the regulations
of the Commission on Audit. Their incomes would not be subject to the competitive restraints of the
open market nor to the terms and conditions of civil service employment. Conceivably, all government-
owned or controlled corporations could be created, no longer by special charters, but through
incorporation under the general law. The constitutional amendment including such corporations in the
embrace of the civil service would cease to have application. Certainly, such a situation cannot be
allowed to exist.

WHEREFORE, the petition is hereby GRANTED. The questioned decision of the respondent National
Labor Relations Commission is SET ASIDE. The decision of the Labor Arbiter dismissing the case
before it for lack of jurisdiction is REINSTATED.

f. punctuations

G.R. No. L-8848 November 21, 1913

THE UNITED STATES, plaintiff-appllee,

vs.
WILLIAM C. HART, C. J. MILLER, and SERVILIANO NATIVIDAD, defendants-appellants.

Pedro Abad Santos, for appellants Hart and Natividad.

W. H. Booram, for appellant Miller.
Office of the Solicitor-General Harvey, for appellee.
TRENT, J.:

The appellants, Hart, Miller, and Natividad, were arraigned in the Court of First Instance of Pampanga
on a charge of vagrancy under the provisions of Act No. 519, found guilty, and were each sentenced
to six months' imprisonment. Hart and Miller were further sentenced to a fine of P200, and Natividad to
a fine of P100. All appealed.

The evidence of the prosecution as to the defendant Hart shows that he pleaded guilty and was
convicted on a gambling charge about two or three weeks before his arrest on the vagrancy charge;
that he had been conducting two gambling games, one in his saloon and the other in another house,
for a considerable length of time, the games running every night. The defense showed that Hart and
one Dunn operated a hotel and saloon at Angeles which did a business, according to the bookkeeper,
of P96,000 during the nineteen months preceding the trial; that Hart was also the sole proprietor of a
saloon in the barrio of Tacondo; that he raised imported hogs which he sold to the Army garrison at
Camp Stotsenberg, which business netted him during the preceding year about P4,000; that he was
authorized to sell several hundred hectares of land owned by one Carrillo in Tacondo; that he
administered, under power of attorney, the same property; and that he furnished a building for and paid
the teacher of the first public school in Tacondo, said school being under Government supervision.

The evidence of the prosecution as to Miller was that he had the reputation of being a gambler; that he
pleaded guilty and was fined for participating in a gambling game about two weeks before his arrest on
the present charge of vagrancy; and that he was seen in houses of prostitution and in a public dance
hall in Tacondo on various occasions. The defense showed without contradiction that Miller had been
discharged from the Army about a year previously; that during his term of enlistment he had been made
a sergeant; that he received rating as "excellent" on being discharged; that since his discharge he had
been engaged in the tailoring business near Camp Stotsenberg under articles of partnership with one
Burckerd, Miller having contributed P1,000 to the partnership; that the business netted each partner
about P300 per month; that Miller attended to business in an efficient manner every day; and that his
work was first class.

The evidence of the prosecution as to Natividad was that he had gambled nearly every night for a
considerable time prior to his arrest on the charge of vagrancy, in the saloon of one Raymundo, as well
as in Hart's saloon; that Natividad sometimes acted as banker; and that he had pleaded guilty to a
charge of gambling and had been sentenced to pay a fine therefor about two weeks before his arrest
on the vagrancy charge. The defense showed that Natividad was a tailor, married, and had a house of
his own; that he made good clothes, and earned from P80 to P100 per month, which was sufficient to
support his family.

From this evidence it will be noted that each of the defendants was earning a living at a lawful trade or
business, quite sufficient to support himself in comfort, and that the evidence which the prosecution
must rely upon for a conviction consists of their having spent their evenings in regularly licensed
saloons, participating in gambling games which are expressly made unlawful by the Gambling Act, No.
1757, and that Miller frequented a dance hall and houses of prostitution.

Section 1 of Act No. 519 is divided into seven clauses, separated by semicolons. Each clause
enumerates a certain class of persons who, within the meaning of this statute, are to be considered as
vagrants. For the purposes of this discussion, we quote this section below, and number each of these
seven clauses.

(1) Every person having no apparent means of subsistence, who has the physical ability to work,
and who neglects to apply himself or herself to some lawful calling; (2) every person found
loitering about saloons or dram shops or gambling houses, or tramping or straying through the
 country without visible means of support; (3) every person known to be a pickpocket, thief,
burglar, ladrone, either by his own confession or by his having been convicted of either of said
offenses, and having no visible or lawful means of support when found loitering about any
gambling house, cockpit, or in any outlying barrio of a pueblo; (4) every idle or dissolute person
or associate of known thieves or ladrones who wanders about the country at unusual hours of
the night; (5) every idle peron who lodges in any barn, shed, outhouse, vessel, or place other
than such as is kept for lodging purposes, without the permission of the owner or person entitled
to the possession thereof; (6) every lewd or dissolute person who lives in and about houses of
ill fame; (7) every common prostitute and common drunkard, is a vagrant.

It is insisted by the Attorney-General that as visible means of support would not be a bar to a conviction
under any one of the last four clauses of this act, it was not the intention of the Legislature to limit the
crime of vagrancy to those having no visible means of support. Relying upon the second clause to
sustain the guilt of the defendants, the Attorney-General then proceeds to argue that "visible means of
support" as used in that clause does not apply to "every person found loitering about saloons or dram
shops or gambling houses," but is confined entirely to "or tramping or straying through the country." It
is insisted that had it been intended for "without visible means of support" to qualify the first part of the
clause, either the comma after gambling houses would have been ommitted, or else a comma
after country would have been inserted.

When the meaning of a legislative enactment is in question, it is the duty of the courts to ascertain, if
possible, the true legislative intention, and adopt that construction of the statute which will give it effect.
The construction finally adopted should be based upon something more substantial than the mere
punctuation found in the printed Act. If the punctuation of the statute gives it a meaning which is
reasonable and in apparent accord with the legislative will, it may be used as an additional argument
for adopting the literal meaning of the words of the statute as thus punctuated. But an argument based
upon punctuation alone is not conclusive, and the courts will not hesitate to change the punctuation
when necessary, to give to the Act the effect intended by the Legislature, disregarding superfluous or
incorrect punctuation marks, and inserting others where necessary.

The Attorney-General has based his argument upon the proposition that neither visible means of
support nor a lawful calling is a sufficient defense under the last four paragraphs of the section; hence,
not being universally a defense to a charge of vagrancy, they should not be allowed except where the
Legislature has so provided. He then proceeds to show, by a "mere grammatical criticism" of the second
paragraph, that the Legislature did not intend to allow visible means of support or a lawful calling to
block a prosecution for vagrancy founded on the charge that the defendant was found loitering around
saloons, dram shops, and gambling houses.

A most important step in reasoning, necessary to make it sound, is to ascertain the consequences
flowing from such a construction of the law. What is loitering? The dictionaries say it is idling or wasting
one's time. The time spent in saloons, dram shops, and gambling houses is seldom anything but that.
So that under the proposed construction, practically all who frequent such places commit a crime in so
doing, for which they are liable to punishment under the Vagrancy Law. We cannot believe that it was
the intention of the Legislature to penalize what, in the case of saloons and dram shops, is under the
law's protection. If it be urged that what is true of saloons and dram shops is not true of gambling
houses in this respect, we encounter the wording of the law, which makes no distinction whatever
between loitering around saloons and dram shops, and loitering around gambling houses.

The offense of vagrancy as defined in Act No. 519 is the Anglo-Saxon method of dealing with the
habitually idle and harmful parasites of society. While the statutes of the various States of the American
Union differ greatly as to the classification of such persons, their scope is substantially the same. Of
those statutes we have had an opportunity to examine, but two or three contain a provision similar to
the second paragraph of Act No. 519. (Mo. Ann. Stat., sec. 2228; N. D. Rev. Codes, sec. 8952; N. M.
Comp. Laws 1897, sec. 1314.) That the absence of visible means of support or a lawful calling is
necessary under these statutes to a conviction for loitering around saloons, dram shops, and gambling
houses is not even negatived by the punctuation employed. In the State of Tennessee, however, we
find an exact counterpart for paragraph 2 of section 1 of our own Act (Code of Tenn., sec. 3023), with
the same punctuation:lawph!1.net

. . . or of any person to be found loitering about saloons or dram shops, gambling houses, or
houses of ill fame, or tramping or strolling through the country without any visible means of
support.

A further thought suggest itself in connection with the punctuation of the paragraph in question. The
section, as stated above, is divided into seven clauses, separated by semicolons. To say that two
classes of vagrants are defined in paragraph 2, as to one of which visible means of support or a lawful
calling is not a good defense, and as to the other of which such a defense is sufficient, would imply a
lack of logical classification on the part of the legislature of the various classes of vagrants. This we are
not inclined to do.

In the case at bar, all three of the defendants were earning a living by legitimate methods in a degree
of comfort higher that the average. Their sole offense was gambling, which the legislature deemed
advisable to make the subject of a penal law. The games in which they participated were apparently
played openly, in a licensed public saloon, where the officers of the law could have entered as easily
as did the patrons. It is believed that Act No. 1775 is adequate, if enforced, to supress the gambling
proclivities of any person making a good living at a lawful trade or business.

For these reasons, the defendants are acquitted, with the costs de oficio.

g. surplusage

G.R. No. L-28396 December 29, 1967

AGRIPINO DEMAFILES, petitioner,

vs.
COMMISSION ON ELECTIONS, PROVINCIAL BOARD OF ANTIQUE, in its capacity as Board of
Canvassers for the newly created Municipality of Sebaste of the Province of Antique, and
BENITO B. GALIDO, respondents.

Salonga, Ordoñez Sicat and Associates for respondent.

Ramon Barrios for respondent Comelec.
Jose W. Diokno for petitioner.

CASTRO, J.:

The new municipality of Sebaste1 in Antique province held its first election of officers in the general
elections of November 14, 1967, with the petitioner Agripino Demafiles and the respondent Benito B.
Galido vying for the mayoralty.

On November 21 the respondent Galido asked the provincial board, acting as municipal board of
canvassers pursuant to section 167 (b) of the Revised Election Code, to disregard, as "obviously
manufactured", the election return from precinct 7 on the ground that the said return shows that 195
voters were registered (of whom 188 voted), when, according to a certificate of the municipal election
registrar only 182 had registered in that precinct as of October 30, 1997. At its session on the following
day, November 22, the board, over the objection of one member, voted to reject the return from precinct
7 and then proceeded with the canvass of the returns from the other precints. The resulting tally gave
Galido 888 votes as against 844 for Demafiles. Accordingly, Galido was proclaimed mayor-elect of the
municipality of Sebaste.

On November 24 Demafiles wired the Commission on Elections, protesting the board's action of
rejection of the return from precinct 7 and the subsequent proclamation of Galido, and challenging the
right of two board members, Julito Moscoso and Quirico Escaño, to sit, considering that they were
reelectionists. Acting on the protest, the COMELEC resolved on November 28, 1967:

To annul the canvass and proclamation of the local officials of the new municipality of Sebaste,
Antique, which was made by the Provincial Board of Antique;

To constitute the Board of Canvassers by appointing the substitutes pursuant to the provisions
of Sec. 167 (a) of the Revised Election Code, which shall canvass anew the results of the
election for local offices of Sebaste, Antique, in accordance with the Instructions to Boards of
Canvassers contained in the Resolution of the Commission No. RR-544, particularly No. 5-K
thereof, and thereafter to proclaim the winning candidates for local offices of said municipality.

In turn, Galido asked for a reconsideration on the ground that the two members of the provincial board
who were reelectionists were disqualified from sitting only when the board was acting as a provincial,
but not as a municipal, board of canvassers and that the COMELEC resolution annulling the canvass
and proclamation of officials was issued without giving him an opportunity to be heard. In its resolution
of December 4, 1967 the respondent Commission reconsidered its previous order and held "that the
canvass and proclamation already made of the local officials . . . stands".

Failing to secure a reconsideration of this latter resolution, Demafiles filed the present petition
for mandamus and certiorari to set aside the aforesaid resolution of the COMELEC, to annull the
proclamation of Galido, and to secure an order directing the COMELEC to appoint substitute members
of the provincial board and to order a new canvass of the returns, including that from precinct 7.

The three principal issues tendered for resolution in this case are: (1) whether the respondent board of
canvassers was within the periphery of its power in rejecting the return from precinct 7 on the strength
of an election registrar's certificate that a less number of voters than that shown in the return had
registered; (2) whether the provincial board members, who were candidates for reelection, were
disqualified from sitting in the board in its capacity as a municipal board of canvassers; and (3) whether
the Commission on Elections can order the board of canvassers to count a return from a given precinct.

These issues, together with the arguments of the parties, will be discussed seriatim, but we must first
proceed to dispose of the preliminary question raised by the respondent Galido, namely, that this case
is moot because he had taken his oath and assumed office on November 22, pursuant to Republic Act
4870.

Obviously, the frame of reference is section 2 of the statute which reads:

The first mayor, vice-mayor and councilors of the Municipality of Sebaste shall be elected in the
next general elections for local officials and shall have qualified [sic].

In our view, the last portion of the provision — "and shall have qualified" — is devoid of any meaning,
is unmitigated jargon in or out of context, and does not warrant the respondent's reading that the term
of office of the first municipal officials of Sebaste begins immediately after their proclamation. It is quite
probable that that is what the legislature meant. But here is a clear case of a failure to express a
meaning, and a becoming sense of judicial modesty forbids the courts from assuming and,
consequently, from supplying.itc-alf "If there is no meaning in it," said the King in Alice in Wonderland,
"that saves a world of trouble, you know, as we needn't try to find any." Frankfurter, who himself was
fond of quoting this passage, admonishes that "a judge must not rewrite a statute, neither to enlarge
nor to contract it. Whatever temptations the statesmanship of policy-making might wisely suggest,
construction must eschew interpolation and evisceration."2 Accordingly, we have to go by the general
rule that the term of office of municipal officials shall begin on the first day of January following their
election,3 and so the assumption of office by the respondent Galido in no way affected the basic issues
in this case, which we need not reach and resolve.

First, a canvassing board performs a purely ministerial function — that of compiling and adding the
results they appear in the returns, transmitted to it. This is the teaching in Nacionalista Party v.
Commission on Elections:4 "the canvassers are to be satisfied of the, genuineness of the returns —
namely, that the papers presented to them are not forged and spurious, that they are returns, and that
they are signed by the proper officers. When so satisfied, . . . they may not reject any returns because
of informalities in them or because of illegal and fraudulent practices in the elections." 5 Thus, they
cannot pass upon the validity of an election return, much less exclude it from the canvass on the ground
that the votes cast in the precinct from whence it came are illegal.6

But the exclusion of the return in this case is sought to be justified on the ground that it is "obviously
manufactured" because, contrary to the statement therein that there were 195 registered voters, of
whom 188 voted, the certificate of the local election registrar states that only 182 voters had registered
on October 30, 1967. Lagumbay v. Commission on Elections7 is cited in support of this view. In
Lagumbay the returns were palpably false as it was indeed statistically improbable that "all the
eight candidates of one party garnered all the votes, each of them receiving exactly the same number,
whereas all the eight candidates of the other party got precisely nothing.itc-alf" In other words, the aid
of evidence aliunde was not needed, as "the fraud [being] so palpable from the return itself (res ipsa
loquitur — the thing speaks for itself), there is no reason to accept it and give it prima facie value.

On the other hand, the return in this case shows nothing on its face from which the canvassers might
conclude that it does not speak the truth. It is only when it is compared in the certificate of the election
registrar that a discrepancy appears as to the number of registered voters. The return therefore is by
no means "obviously manufactured" so as to justify its exclusion.

This is not to belittle the respondent's claim that more people than registered voters were allowed to
vote in precinct 7. Perhaps that is true, although the petitioner claims that after October 30, 1967 eight
more voters were allowed to register (making a total of 190, voters), and on the day of the election 5
voters erroneously assigned to precinct 6 were allowed to vote in precinct 7 because that was where
they were really assigned. The point is simply that this question should be threshed out in an election
contest.itc-alf Lagumbay itself explicitly says —

Of course we agree that fraud in the holding of the election should be handled — and finally
settled — by the corresponding courts or electoral tribunals. That is the general rule, where
testimonial or documentary evidence is necessary. . . .

Consequently, the canvass made and proclamation had should be annulled. 8

Second, the canvass and proclamation should be annulled because two of the four members of the
board of canvassers were disqualified from sitting in it, they being candidates for reelection. As this
Court held in Salcedo v. Commission on Elections:9
 And added reason for the nullification of the actuation of the Provincial Board of Oriental Mindoro
is the fact that its members were disqualified to act it appearing that they were all candidates for
reelection. This is clear from Section 28 of the Revised Election Code which provides that any
member of the provincial board who is a candidate for an elective office shall be incompetent to
act in said board in the performance of its duties in connection with the election.

Branding the above statement as obiter dictum, the respondent Galido argues that reelectionist
members of the provincial board are disqualified under section 28 only when the board acts as a
provincial board of canvassers, to prevent them fro canvassing their own votes, and not when they sit
as a municipal board of canvassers.

With respect to the canvass and proclamation made the provincial board of Oriental Mindoro, three
issues raised in Salcedo, in resolving which this Court held (1) that a provincial board cannot act as a
municipal board of canvassers where a municipal council has been formed; (2) that provincial board
members who are candidates for reelection are disqualified to sit in the board and (3) that a board of
canvassers which excludes from canvass the return from a precinct acts "in contravention of law."

At any rate the language of section 28 is all-inclusive Thus:

Any member of a provincial board or of a municipal council who is a candidate for office in any
election, shall be incompetent to act on said body in the performance of the duties the of relative
to said election . . . .

The statute draws no distinction between the provincial board acting as a provincial board of canvassers
and the same board acting as a municipal canvassing body new municipalities, and so we make none,
in line with the maxim ubi lex non distinguit, nec nos distinguere debemos.

Third, it is now settled doctrine that the COMELEC has the power to annul an illegal canvass and an
illegal proclamation as when they are based on incomplete returns, and order a new canvass to be
made by counting the returns wrongfully excluded.10 If it has power to direct that certain copies of
election returns be used in preference to other copies of the same returns,11 there is no reason why it
cannot direct canvassing bodies to count all turns which are otherwise regular.itc-alf Indeed, it is its
duty to do so, failing which it may be compelled by mandamus. As earlier pointed out, it is the ministerial
function a board of canvassers to count the results as they appeal in the returns which on their face do
not reveal any irregularities or falsities.

ACCORDINGLY, the resolutions dated December 4 and 8, 1967 of the Commission on Elections are
set aside, and the canvass of returns made and the subsequent proclamation of the respondent Benito
B. Galido are annulled. The respondent Commission on Elections is hereby directed. (1) to appoint new
members of the board of canvassers in substitution of Julito Moscoso and Quirico Escaño, and (2)
immediately thereafter to order the board of canvassers as reconstituted to convene, canvass all votes
including those appearing in the return from precinct 7, and, in accordance with the results of such
canvass, proclaim the winning candidates. Costs against the private respondent Galido.

h. doctrine of last antecedent

CASTRO, J., concurring:

The resolution penned by Chief Justice Makalintal compels my concurrence. I fully agree (1) that the
fees imposed by Section 40(e) of the Public Service Act, as amended by Republic Act 3792, are
supervision and/or regulation fees, and not taxes; (2) that they are exactly what the provision says they
are; (3) that therefore the nature and amount of such fees must be reasonably related to the cost of
such supervision and/or regulation; and (4) that to base the computation of the fees on the value of the
properties and equipment of the petitioners, with or without depreciation, would be to ignore altogether
the requirement of such reasonable relation.

I wish to add my views on the matter, of legal hermeneutics, which to me is likewise a vital determinant
of the issue at bar.

Section 40(e) of the Public Service Act, as amended by Republic Act, 3792, reads as follows:

(e) For annual reimbursement of the expenses incurred by the Commission in the
supervision of other public services and/or in the regulation or fixing of their rates, twenty
centavos for each one hundred pesos or fraction thereof, of the capital stock subscribed
or paid, if no shares have been issued, of the capital invested, or of the property and
equipment, whichever is higher.

The basic issue is whether the added phrase, "or of the property and equipment, whichever is higher,"
was intended as an alternative only to the immediately antecedent phrase, "of the capital invested," or
also to the previous one, namely "of the capital stock subscribed or paid."

The relevant and pertinent Congressional records do not at all provide any indication of the meaning
intended by the lawmaking body.

The task may, however, be simplified by supplying the words which obviously were deliberately omitted
and merely indicated by means of a comma between the phrase, "or if no shares have been issued,"
and the clause, "of the capital invested, or of the property and equipment, whichever is higher." The
omitted words thus supplied, the provision would read as follows:

(e) For annual reimbursement of expenses incurred by the Commission in the supervision
of other public services and/or in the regulation or fixing of their rates, twenty centavos
for each one hundred pesos or fraction thereof, of the capital stock subscribed or paid, or
if no shares have been issued, twenty centavos for each one hundred pesos or a fraction
thereof, of the capital invested, or of the property and equipment, whichever is higher.

Viewed from this perspective, the meaning of the provision, as intended by the lawmaking body,
becomes unmistakable, which is, to make the alternative basis of computation (property and
equipment)applicable exclusively to the case or situation to which it obviously relates, namely, "if no
shares have been issued."

The rule that a qualifying or relative word or clause, such as "which," "said," and "such," is to be
construed as applying to the words, phrase or clause next preceding or, as is frequently stated, to the
next preceding antecedent, and not as extending to or including others more remote, unless a contrary
intention appears (Crawford, Sec. 193, p 331), may be applied in the present case. This rule is known
as the doctrine of last antecedent, which is both a rule of grammar and a rule of law (Wood vs. Baldwin,
10 N.Y. S. 195).

In fine, the basis for the computation of the fees collectible from stock corporations for supervision
and/or regulation is "twenty centavos for each one hundred pesos or fraction thereof, of the capital
stock subscribed or paid." If no shares have been issued, as in the case of non-stock corporations, the
basis for the computation of the fees collectible for supervision and/or regulation is "twenty centavos
for each one hundred pesos or fraction thereof .... of the capital invested, or of the property and
equipment, whichever is higher."
G.R. No. 78585 July 5, 1989

JOSE ANTONIO MAPA, petitioner,

vs.
HON. JOKER ARROYO, in his Capacity as Executive Secretary, and LABRADOR
DEVELOPMENT CORPORATION, respondents.

Francisco T. Mamaug for petitioner.

Emiliano S. Samson for private respondent.

REGALADO, J.:

We are called upon once again, in this special civil action for certiorari, for a pronouncement as to
whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of the executive branch of Government, particularly in the adjudication of a controversy
originally commenced in one of its regulatory agencies.

Petitioner herein seeks the reversal of the decision of the Office of the President, rendered by the
Deputy Executive Secretary on April 24,1987, 1 which dismissed his appeal from the resolution of the
Commission Proper, Human Settlements Regulatory Commission (HSRC, for short), promulgated on
January 10, 1986 and affirming the decision of July 3, 1985 of the Office of Adjudication and Legal
Affairs (OAALA, for brevity) of HSRC. Petitioner avers that public respondent "gravely transcended the
sphere of his discretion" in finding that Presidential Decree No. 957 is inapplicable to the contracts to
sell involved in this case and in consequently dismissing the same. 2

The established facts on which the assailed decision is based are set out therein as follows:

Records disclose that, on September 18, 1975, appellant Jose Antonio Mapa and
appellee Labrador Development Corporation (Labrador, for short), owner/developer of
the Barangay Hills Subdivision in Antipolo, Rizal, entered into two contracts to sell over
lots 12 and 13 of said subdivision. On different months in 1976, they again entered into
two similar contracts involving lots 15 and 16 in the same subdivision. Under said
contracts, Mapa undertook to make a total monthly installment of P2,137.54 over a period
of ten (10) years. Mapa, however, defaulted in the payment thereof starting December
1976, prompting Labrador to send to the former a demand letter, dated May 5, 1977,
giving him until May 18, 1977, within which to settle his unpaid installments for the 4 lots
amounting to P15,411.66, with a warning that non-payment thereof will result in the
cancellation of the four (4) contracts. Despite receipt of said letter on May 6,1977, Mapa
failed to take any action thereon. Labrador subsequently wrote Mapa another letter, dated
June 15, 1982, which the latter received on June 21, 1982, reminding him of his total
arrears amounting to P180,065.27 and demanding payment within 5 days from receipt
thereof, but which letter Mapa likewise ignored. Thus, on August 16, 1982, Labrador sent
Mapa a notarial cancellation of the four (4) contracts to sell, which Mapa received on
August 20, 1982. On September 10, 1982, however, Mapa's counsel sent Labrador a
letter calling Labrador's attention to, and demanding its compliance with, Clause 20 of the
four (4) contracts to sell which relates to Labrador's obligation to provide, among others,
lighting/water facilities to subdivision lot buyers.
 On September 10, 1982, Labrador issued a certification holding the implementation of the
letter dated August 16, 1982 (re notarial cancellation) pending the complete development
of road lot cul de sac within the properties of Mapa at Barangay Hills Subdivision.'
Thereafter on October 25,1982, Labrador sent Mapa a letter informing him 'that the
construction of road, sidewalk, curbs and gutters adjacent to Block 11 Barangay Hills
Subdivision are already completed' and further requesting Mapa to 'come to our office
within five (5) days upon receipt of this letter to settle your account.'

On December 10, 1982, Mapa tendered payment by means of a check in the amount of
P 2,137.54, but Labrador refused to accept payment for the reason that it was agreed
'that after the development of the cul de sac, he (complainant) will pay in full the total
amount due,' which Labrador computed at P 260,138.61. On December 14, 1982, Mapa
wrote Labrador claiming that 'you have not complied with the requirements for water and
light facilities in lots 12, 13, 15 & 16 Block 2 of Barangay Hills Subdivision.' The following
day, Mapa filed a complaint against Labrador for the latter's neglect to put 1) a water
system that meets the minimum standard as specified by HSRC, and 2) electrical power
supply. By way of relief, Mapa requested the HSRC to direct Labrador to provide the
facilities aforementioned, and to issue a cease and desist order enjoining Labrador from
cancelling the contracts to sell.

After due hearing/investigation, which included an on-site inspection of the subdivision,

OAALA, issued its decision of July 3, 1985, dismissing the complaint and declaring that
after the lapse of 5 years from complainant's default respondent had every right to rescind
the contract pursuant to Clause 7 thereof. . .

Per its resolution of January 10, 1986, the Commission Proper, HSRC, affirmed the
aforesaid OAALA decision.3

It was petitioner's adamant submission in the administrative proceedings that the provisions of
Presidential Decree No. 957 4 and implementing rules form part of the contracts to sell executed by him
and respondent corporation, hence the obligations imposed therein had to be complied with by
Labrador within the period provided. Since, according to petitioner, Labrador failed to perform the
aforementioned obligations, it is precluded from rescinding the subject contracts to sell since petitioner
consequently did not incur in delay on his part.

Such intransigent position of petitioner has not changed in the petition at bar and unyielding reliance is
placed on the provisions of Presidential Decree No. 957 and its implementing rules. The specific
provisions of the Decree which are persistently relied upon read:

SEC. 20. Time of Completion. — Every owner or developer shall construct and provide
the facilities, improvements, infrastructures and other forms of development, including
water supply and lighting facilities, which are offered and indicated in the approved
subdivision or condominium plans, brochures, prospectus, printed matters letters or in
any form of advertisements, within one year from the date of the issuance of the license
for the subdivision or condominium project or such other period of time as may be fixed
by the Authority.

SEC. 21. Sales Prior to Decree. — In cases of subdivision lots or condominium units sold
or disposed of prior to the effectivity of this Decree, it shall be incumbent upon the owner
or developer of the subdivision or condominium project to complete compliance with his
or its obligations as provided in the preceding section within two years from the date of
 this Decree unless otherwise extended by the Authority or unless an adequate
performance bond is filed in accordance with Section 6 hereof.

Failure of the owner or developer to comply with the obligations under this and the
preceding provisions shall constitute a violation punishable under Sections 38 and 39 of
this Decree.

Rule V of the implementing rules, on the other hand, requires two (2) sources of electric power, two (2)
deep-well and pump sets with a specified capacity and two standard fire hose flows with a capacity of
175 gallons per minute. 5

The provision, in said contracts to sell which, according to petitioner, includes and incorporates the
aforequoted statutory provisions, is Clause 20 of said contracts which provides:

Clause 20. SUBDIVISION DEVELOPMENT — To insure the physical development of the

subdivision, the SELLER hereby obliges itself to provide the individual lot buyer with the
following:

a) PAVED ROADS

b) UNDERGROUND DRAINAGE

c) CONCRETE CURBS AND GUTTERS

d) WATER SYSTEM

e) PARK AND OPEN SPACE

These improvements shall apply only to the portions of the subdivision which are for sale
or have been sold. All improvements except those requiring the services of a public utility
company or the government shall be completed within a period of three (3) years from
date of this contract. Failure by the SELLER to reasonably comply with the above
schedule shall permit the BUYER/ S to suspend his monthly installments without any
penalties or interest charges until such time that these improvements shall have been
made as scheduled.6

As recently reiterated, it is jurisprudentially settled that absent a clear, manifest and grave abuse of
discretion amounting to want of jurisdiction, the findings of the administrative agency on matters falling
within its competence will not be disturbed by the courts. 7 Specifically with respect to factual findings,
they are accorded respect, if not finality, because of the special knowledge and expertise gained by
these tribunals from handling the specific matters falling under their jurisdiction. Such factual findings
may be disregarded only if they "are not supported by evidence; where the findings are vitiated by
fraud, imposition or collusion; where the procedure which led to the factual findings is irregular; when
palpable errors are committed; or when grave abuse of discretion, arbitrariness or capriciousness is
manifest." 8

A careful scrutiny of the records of the instant case reveals that the circumstances thereof do not fag
under the aforesaid excepted cases, with the findings duly supported by the evidence.

Petitioner's insistence on the applicability of Presidential Decree No. 957 must be rejected. Said decree
was issued on July 12, 1976 long after the execution of the contracts involved. Obviously and
necessarily, what subsequently were statutorily provided therein as obligations of the owner or
developer could not have been intended by the parties to be a part of their contracts. No intention to
give restrospective application to the provisions of said decree can be gathered from the language
thereof. Section 20, in relation to Section 21, of the decree merely requires the owner or developer to
construct the facilities, improvements, infrastructures and other forms of development but only such as
are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus,
printed matters, letters or in any form of advertisements. Other than what are provided in Clause 20 of
the contract, no further written commitment was made by the developer in this respect. To read into the
contract the matters desired by petitioner would have the law impose additional obligations on the
parties to a contract executed before that very law existed or was contemplated.

We further reject petitioner's strained and tenuous application of the so-called doctrine of last
antecedent in the interpretation of Section 20 and, correlatively, of Section 21. He would thereby have
the enumeration of "facilities, improvements, infrastructures and other forms of development"
interpreted to mean that the demonstrative phrase "which are offered and indicated in the approved
subdivision plans, etc." refer only to "other forms of development" and not to "facilities, improvements
and infrastructures." While this subserves his purpose, such bifurcation whereby the supposed
adjectival phrase is set apart from the antecedent words, is illogical and erroneous. The complete and
applicable rule is ad proximum antecedens fiat relatio nisi impediatur sentencia. 9 Relative words refer
to the nearest antecedent, unless it be prevented by the context. In the present case, the employment
of the word "and" between "facilities, improvements, infrastructures" and "other forms of development,"
far from supporting petitioner's theory, enervates it instead since it is basic in legal hermeneutics that
"and" is not meant to separate words but is a conjunction used to denote a joinder or union.

Thus, if ever there is any valid ground to suspend the monthly installments due from petitioner, it would
only be based on non-performance of the obligations provided in Clause 20 of the contract, particularly
the alleged non-construction of the cul-de-sac. But, even this is unavailing and is obviously being used
only to justify petitioner's default. The on-site inspection of the subdivision conducted by the OAALA
and its subsequent report reveal that Labrador substantially complied with its obligation. 10

Furthermore, the initial non-construction of the cul-de-sac, as private respondent Labrador explained,
was because petitioner Mapa requested the suspension of its construction since his intention was to
purchase the adjoining lots and thereafter enclose the same. 11 If these were not true, petitioner would
have invoked that supposed default in the first instance. As the OAALA noted, petitioner "stopped
payments of his monthly obligations as early as December, 1976, which is a mere five months after the
effectivity of P.D. No. 957 or about a year after the execution of the contracts. This means that
respondent still has 1 and 1/2 years to comply with its legal obligation to develop the subdivision under
said P.D. and two years to do so under the agreement, hence, it was improper for complainant to have
suspended payments in December, 1976 on the ground of non-development since the period allowed
for respondent's obligation to undertake such development has not yet expired." 12

ON THE FOREGOING CONSIDERATIONS, the petition should be, as it is hereby DISMISSED.