ooooooooooRepublic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80194 March 21, 1989

EDGAR JARANTILLA, petitioner,

vs.
COURT OF APPEALS and JOSE KUAN SING, respondents.

Corazon Miraflores and Vicente P. Billena for petitioner.

Manuel S. Gemarino for private respondent

REGALADO, J.:

The records show that private respondent Jose Kuan Sing was "side-swiped by a vehicle in the evening of July 7, 1971 in
lznart Street, Iloilo City" 1 The respondent Court of Appeals concurred in the findings of the court a quo that the said
vehicle which figured in the mishap, a Volkswagen (Beetle type) car, was then driven by petitioner Edgar Jarantilla along
said street toward the direction of the provincial capitol, and that private respondent sustained physical injuries as a
consequence. 2

Petitioner was accordingly charged before the then City Court of Iloilo for serious physical injuries thru reckless
imprudence in Criminal Case No. 47207 thereof. 3 Private respondent, as the complaining witness therein, did not reserve
his right to institute a separate civil action and he intervened in the prosecution of said criminal case through a private
prosecutor. 4 Petitioner was acquitted in said criminal case "on reasonable doubt".5

On October 30, 1974, private respondent filed a complaint against the petitioner in the former Court of First Instance of
Iloilo, Branch IV, 6 docketed therein as Civil Case No. 9976, and which civil action involved the same subject matter and
act complained of in Criminal Case No. 47027. 7 In his answer filed therein, the petitioner alleged as special and
affirmative detenses that the private respondent had no cause of action and, additionally, that the latter's cause of action,
if any, is barred by the prior judgment in Criminal Case No. 47207 inasmuch as when said criminal case was instituted the
civil liability was also deemed instituted since therein plaintiff failed to reserve the civil aspect and actively participated in
the criminal case. 8

Thereafter, acting on a motion to dismiss of therein defendant, the trial court issued on April 3, 1975 an order of denial,
with the suggestion that "(t)o enrich our jurisprudence, it is suggested that the defendant brings (sic) this ruling to the
Supreme Court by certiorari or other appropriate remedy, to review the ruling of the court". 9

On June 17, 1975, petitioner filed in this Court a petition for certiorari, prohibition and mandamus, which was docketed as
G.R. No. L-40992, 10 assailing the aforesaid order of the trial court. Said petition was dismissed for lack of merit in the
Court's resolution of July 23, 1975, and a motion for reconsideration thereof was denied for the same reason in a
resolution of October 28, 1975. 11

After trial, the court below rendered judgment on May 23, 1977 in favor of the herein private respondent and ordering
herein petitioner to pay the former the sum of P 6,920.00 for hospitalization, medicines and so forth, P2,000.00 for other
actual expenses, P25,000.00 for moral damages, P5,000.00 for attorney's fees, and costs. 12

On July 29, 1987, the respondent Court of Appeals 13 affirmed the decision of the lower court except as to the award for
moral damages which it reduced from P25,000.00 to P18,000.00. A motion for reconsideration was denied by respondent
court on September 18, 1987. 14

The main issue for resolution by Us in the present recourse is whether the private respondent, who was the complainant
in the criminal action for physical injuries thru reckless imprudence and who participated in the prosecution thereof without
reserving the civil action arising from the act or omission complained of, can file a separate action for civil liability arising
from the same act or omission where the herein petitioner was acquitted in the criminal action on reasonable doubt and
no civil liability was adjudicated or awarded in the judgment of acquittal.

Prefatorily, We note that petitioner raises a collateral issue by faulting the respondent court for refusing to resolve an
assignment of error in his appeal therein, said respondent court holding that the main issue had been passed upon by this
Court in G.R. No. L-40992 hereinbefore mentioned. It is petitioner's position that the aforesaid two resolutions of the Court
in said case, the first dismissing the petition and the second denying the motion for reconsideration, do not constitute the
"law of the case' which would control the subsequent proceed ings in this controversy.

1. We incline favorably to petitioner's submission on this score.

The "doctrine of the law of the case" has no application at the aforesaid posture of the proceedings when the two
resolutions were handed down. While it may be true that G.R. No. L-40992 may have involved some of the issues which
were thereafter submitted for resolution on the merits by the two lower courts, the proceedings involved there was one for
certiorari, prohibition and mandamus assailing an interlocutory order of the court a quo, specifically, its order denying
therein defendants motion to dismiss. This Court, without rendering a specific opinion or explanation as to the legal and
factual bases on which its two resolutions were predicated, simply dismissed the special civil action on that incident for
lack of merit. It may very well be that such resolution was premised on the fact that the Court, at that stage and on the
basis of the facts then presented, did not consider that the denial order of the court a quo was tainted with grave abuse of
discretion. 15 To repeat, no rationale for such resolutions having been expounded on the merits of that action, no law of
the case may be said to have been laid down in G.R. No. L-40992 to justify the respondent court's refusal to consider
petitioner's claim that his former acquittal barred the separate action.

'Law of the case' has been defined as the opinion delivered on a former appeal. More specifically, it
means that whatever is once irrevocably established, as the controlling legal rule of decision between the
same parties in the same case continues to be the law of the case, whether correct on general principles
or not, so long as the facts on which such decision was predicated continue to be the facts of the case
before the court (21 C.J.S. 330). (Emphasis supplied). 16

It need not be stated that the Supreme Court being the court of last resort, is the final arbiter of all legal
questions properly brought before it and that its decision in any given case constitutes the law of that
particular case . . . (Emphasis supplied). 17

It is a rule of general application that the decision of an appellate court in a case is the law of the case on
the points presented throughout all the subsequent proceedings in the case in both the trial and the
appellate courts, and no question necessarily involved and decided on that appeal will be considered on a
second appeal or writ of error in the same case, provided the facts and issues are substantially the same
as those on which the first question rested and, according to some authorities, provided the decision is on
the merits . . . 18

2. With the foregoing ancillary issue out of the way, We now consider the principal plaint of petitioner.

Apropos to such resolution is the settled rule that the same act or omission (in this case, the negligent sideswiping of
private respondent) can create two kinds of liability on the part of the offender, that is, civil liability ex delicto and civil
liability ex quasi delicto. Since the same negligence can give rise either to a delict or crime or to a quasi-delict or tort,
either of these two types of civil liability may be enforced against the culprit, subject to the caveat under Article 2177 of the
Civil Code that the offended party cannot recover damages under both types of liability. 19

We also note the reminder of petitioner that in Roa vs. De la Cruz, et al., 20 it was held that where the offended party
elected to claim damages arising from the offense charged in the criminal case through her intervention as a private
prosecutor, the final judgment rendered therein constituted a bar to the subsequent civil action based upon the same
cause. It is meet, however, not to lose sight of the fact that the criminal action involved therein was for serious oral
defamation which, while within the contemplation of an independent civil action under Article 33 of the Civil Code,
constitutes only a penal omen and cannot otherwise be considered as a quasi-delict or culpa aquiliana under Articles
2176 and 2177 of the Civil Code. And while petitioner draws attention to the supposed reiteration of the Roa doctrine in
the later case of Azucena vs. Potenciano, et al., 21 this time involving damage to property through negligence as to make
out a case of quasi-delict under Articles 2176 and 2180 of the Civil Code, such secondary reliance is misplaced since the
therein plaintiff Azucena did not intervene in the criminal action against defendant Potenciano. The citation of Roa in the
later case of Azucena was, therefore, clearly obiter and affords no comfort to petitioner.
These are aside from the fact that there have been doctrinal, and even statutory, 22 changes on the matter of civil actions
arising from criminal offenses and quasi-delicts. We will reserve our discussion on the statutory aspects for another case
and time and, for the nonce, We will consider the doctrinal developments on this issue.

In the case under consideration, private respondent participated and intervened in the prosecution of the criminal suit
against petitioner. Under the present jurisprudential milieu, where the trial court acquits the accused on reasonable doubt,
it could very well make a pronounce ment on the civil liability of the accused 23 and the complainant could file a petition
for mandamus to compel the trial court to include such civil liability in the judgment of acquittal. 24

Private respondent, as already stated, filed a separate civil aciton after such acquittal. This is allowed under Article 29 of
the Civil Code. We have ruled in the relatively recent case of Lontoc vs. MD Transit & Taxi Co., Inc., et al. 25 that:

In view of the fact that the defendant-appellee de la Cruz was acquitted on the ground that 'his guilt was
not proven beyond reasonable doubt' the plaintiff-appellant has the right to institute a separate civil action
to recover damages from the defendants-appellants (See Mendoza vs. Arrieta, 91 SCRA 113). The well-
settled doctrine is that a person, while not criminally liable may still be civilly liable. 'The judgment of
acquittal extinguishes the civil liability of the accused only when it includes a declaration that the facts
from which the civil liability might arise did not exist'. (Padilla vs. Court of Appeals, 129 SCRA 558 cited in
People vs. Rogelio Ligon y Tria, et al., G.R. No. 74041, July 29, 1987; Filomeno Urbano vs. Intermediate
Appellate Court, G.R. No. 72964, January 7, 1988). The ruling is based on Article 29 of the Civil Code
which provides:

When the accused in a criminal prosecution is acquitted on the ground that his guilt has
not been proved beyond reasonable doubt, a civil action for damages for the same act or
omission may be instituted. Such action requires only a preponderance of evidence ... 26

Another consideration in favor of private respondent is the doctrine that the failure of the court to make any
pronouncement, favorable or unfavorable, as to the civil liability of the accused amounts to a reservation of the right to
have the civil liability litigated and determined in a separate action. The rules nowhere provide that if the court fails to
determine the civil liability it becomes no longer enforceable. 27

Furthermore, in the present case the civil liability sought to be recovered through the application of Article 29 is no longer
that based on or arising from the criminal offense. There is persuasive logic in the view that, under such circumstances,
the acquittal of the accused foreclosed the civil liability based on Article 100 of the Revised Penal Code which
presupposes the existence of criminal liability or requires a conviction of the offense charged. Divested of its penal
element by such acquittal, the causative act or omission becomes in effect a quasi-delict, hence only a civil action based
thereon may be instituted or prosecuted thereafter, which action can be proved by mere preponderance of evidence. 28
Complementary to such considerations, Article 29 enunciates the rule, as already stated, that a civil action for damages is
not precluded by an acquittal on reasonable doubt for the same criminal act or omission.

The allegations of the complaint filed by the private respondent supports and is constitutive of a case for a quasi-delict
committed by the petitioner, thus:

3. That in the evening of July 7, 197l at about 7:00 o'clock, the plaintiff crossed Iznart
Street from his restaurant situated at 220 lznart St., Iloilo City, Philippines, on his way to a
meeting of the Cantonese Club at Aldeguer Street, Iloilo City and while he was standing
on the middle of the street as there were vehicles coming from the Provincial Building
towards Plazoleta Gay, Iloilo City, he was bumped and sideswiped by Volkswagen car
with plate No. B-2508 W which was on its way from Plazoleta Gay towards the Provincial
Capitol, Iloilo City, which car was being driven by the defendant in a reckless and
negligent manner, at an excessive rate of speed and in violation of the provisions of the
Revised Motor Vehicle (sic) as amended, in relation to the Land Transportation and
Traffic Code as well as in violation of existing city ordinances, and by reason of his
inexcusable lack of precaution and failure to act with due negligence and by failing to
take into consideration (sic) his degree of intelligence, the atmospheric conditions of the
place as well as the width, traffic, visibility and other conditions of lznart Street; 29

Since this action is based on a quasi-delict, the failure of the respondent to reserve his right to file a separate civil case
and his intervention in the criminal case did not bar him from filing such separate civil action for damages. 30 The Court
has also heretofore ruled in Elcano vs. Hill 31 that —
 ... a separate civil action lies against the offender in a criminal act whether or not he is criminally
prosecuted and found guilty or acquitted, provided that the offended party is not allowed, if he is also
actually charged criminally, to recover damages on both scores; and would be entitled in such eventuality
only to the bigger award of the two, assuming the awards made in the two cases vary. In other words, the
extinction of civil liability referred to in Par. (c) of Sec. 3 Rule 111, refers exclusively to civil liability
founded on Article 100 of the Revised Penal Code; whereas the civil liability for the same act considered
as a quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case
that the criminal act charged has not happened or has not been committed by the accused . . .

The aforecited case of Lontoc vs. MD Transit & Taxi Co., Inc., et al. involved virtually the same factual situation. The
Court, in arriving at the conclusion hereinbefore quoted, expressly declared that the failure of the therein plaintiff to
reserve his right to file a separate civil case is not fatal; that his intervention in the criminal case did not bar him from filing
a separate civil action for damages, especially considering that the accused therein was acquitted because his guilt was
not proved beyond reasonable doubt; that the two cases were anchored on two different causes of action, the criminal
case being on a violation of Article 365 of the Revised Penal Code while the subsequent complaint for damages was
based on a quasi-delict; and that in the judgment in the criminal case the aspect of civil liability was not passed upon and
resolved. Consequently, said civil case may proceed as authorized by Article 29 of the Civil Code.

Our initial adverse observation on a portion of the decision of respondent court aside, We hold that on the issues decisive
of this case it did not err in sustaining the decision a quo.

WHEREFORE, the writ prayed for is hereby DENIED and the decision of the respondent Court of Appeals is AFFIRMED,
without costs.

SO ORDERED.
 FIRST DIVISION

G.R. No. 137980 June 20, 2000

TALA REALTY SERVICES CORP., petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondent.

YNARES-SANTIAGO, J.:

The instant Petition presents a classic example where the application of the principle of stare decisis comes into play.

The facts may be summarized as follows:

Sometime in 1979, respondent Banco Filipino Savings and Mortgage Bank faced a legal problem with respect to its branch site
holdings. Republic Act No. 337, otherwise known as the General Banking Act, provides that banks may only invest in real estate up to
fifty percent (50%) of their net worth. 1 This ceiling on real estate holdings posed a bar to respondent's plans for expansion and to
address the problem, its major stockholders agreed to set up an entity to which its existing branch sites may be unloaded. The said
entity would also acquire new branch sites for it, with all such branch sites, including those unloaded, to be leased to respondent bank.
It was thus that petitioner was organized, its name TALA being an acronym of four (4) of the major stockholders and directors of
respondent, namely: Antonio Tiu, Tomas B. Aguirre, Nancy Lim Ty and Pedro B. Aguirre.

On August 25, 1981, pursuant to the foregoing arrangement, respondent sold eleven (11) real estate properties housing its branch sites
to petitioner, including the Davao branch site subject of the instant suit. Immediately following the sale, petitioner leased the same
branch sites to respondent. According to respondent, petitioner was merely holding out such properties for it for a three percent (3%)
per annum add-on to their carrying cost. Respondent further claims that it was part of their agreement that the said properties would be
returned to it at its pleasure at the same transfer price.

At present, therefore, there stand pending cases filed by respondent against petitioner for reconveyance of all such branch sites held by
petitioner on the ground that the latter is a mere trustee of respondent.

The present Petition, however, stems from an action for ejectment wherein the issue was which of two (2) different contracts of lease
presented by each party governs them. For its part, petitioner presents an 11-year amended lease contract allegedly executed on
August 25, 1981 before Notary Public Generoso Fulgencio. On the other hand, respondent presents a 20-year lease contract executed
on the same date, August 25, 1981, but before Notary Public Jose Dimaisip.

The lease arrangement subject of this case also covered the other branch sites held by petitioner in other locations, i.e., Malabon, Sta.
Cruz, R. Hidalgo, Parañaque, Marikina, Malolos, Cabanatuan, Lucena, Urdaneta, La Union, Iloilo and Cotabato. Aside from the
present case, therefore, other similar cases for ejectment have been filed where, ultimately, the question of which among the two lease
contracts is valid becomes an issue.

Under the terms of the eleven-year amended contract presented by petitioner, the lease expired on August 31, 1992. Petitioner claims
that thereafter, the lease was extended on a month-to-month basis on the condition that whatever terms and conditions are agreed upon
would retroact to September 1, 1992. The parties' negotiations failed to yield any results, whereupon petitioner informed respondent
that the rental rates shall be those it submitted to the latter, which were based on a study by the Asian Appraisal Co., Inc., retroactive
to September 1, 1992. More particularly, rates were as follows: Two Hundred Thousand Eight Hundred Forty Pesos (P200,840.00)
monthly with a rental escalation of ten percent (10%) per year, with four months deposit, four months advance deposit, and a Five
Hundred Thousand Peso (P500,000.00) goodwill.
Respondent refused to comply with these terms. Instead, it continued to pay rent in the old monthly rate until March 31, 1994, when it
totally ceased paying any rent. This prompted petitioner to demand from respondent, in a letter dated April 14, 1994, payment of its
accrued rentals. Petitioner also gave notice to respondent that at the end of the month, the month-to-month lease over the premises
would no longer be renewed. This was followed by a letter, dated May 2, 1994, demanding that respondent pay its obligations under
the lease and vacate the premises.

On March 27, 1995, petitioner instituted a Complaint for Ejectment against respondent before the Municipal Trial Court of Davao
City, docketed as Civil Case No. 2109-95. On June 5, 1995, respondent filed its Answer. After the submission of the parties'
respective Position Papers, the court a quo rendered its Decision on July 20, 1995, 2 dismissing the Complaint on the ground of lack
of jurisdiction, after finding that the real issue, i.e., which of the two contracts of lease was controlling, was not capable of pecuniary
estimation.

On appeal, the Regional Trial Court of Davao City affirmed the decision in toto on June 13, 1996. 3 With the denial of its Motion for
Reconsideration, petitioner filed a Petition for Review with the Court of Appeals, 4 docketed as CA-G.R. SP No. 48667.

On January 12, 1999, the Court of Appeals rendered its now questioned Decision, 5 holding that both lower courts erred in refusing to
exercise jurisdiction over the case when the issue of validity of lease contract is intertwined with the issue of possession. However, it
dismissed the Petition to maintain judicial stability and consistency, it appearing that in other similar ejectment suits brought before
the Court of Appeals, the twenty-year lease contract presented by respondent had been upheld. Petitioner's Motion for Reconsideration
was granted in that respondent was ordered to pay unpaid rentals to petitioner. 6 Subsequently, however, on Motion for
Reconsideration of respondent, the Court of Appeals reversed itself and revoked its order for payment of back rentals. 7

Petitioner now seeks a reversal of the Decision of the Court of Appeals upon the following grounds —

THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THE RULING OF THE COURT IN CA-G.R.
NO. 39104 AS THE LAW OF THE CASE BETWEEN HEREIN PARTIES.

II

THE HONORABLE COURT BELOW ERRED IN NOT EJECTING RESPONDENT FROM THE LEASED PREMISES. 8

In its favor, respondent argues that "only decisions of the Supreme Court establish jurisprudence or doctrines." And that is exactly
what we are faced with at present.

On February 17, 2000, the Second Division of this Court, through Mr. Justice Sabino R. De Leon, Jr., rendered a Decision in G.R. No.
129887 between the same parties, this time involving respondent's Urdaneta, Pangasinan branch, finding the eleven-year lease contract
presented by petitioner as a forgery and consequently upholding the validity of the twenty-year lease contract. Resolving this identical
issue, the Decision states, to wit —

Second. Petitioner Tala Realty insists that its eleven (11)-year lease contract controls. We agree with the MTC and the RTC,
however, that the eleven (11)-year contract is a forgery because (1) Teodoro O. Arcenas, then Executive Vice-President of
private respondent Banco Filipino, denied having signed the contract; (2) the records of the notary public who notarized the
said contract, Atty. Generoso S. Fulgencio, Jr., do not include the said document; and (3) the said contract was never
submitted to the Central Bank as required by the latter's rules and regulations (Rollo, pp. 383-384.).

Clearly, the foregoing circumstances are badges of fraud and simulation that rightly make any court suspicious and wary of
imputing any legitimacy and validity to the said lease contract.

Executive Vice-President Arcenas of private respondent Banco Filipino testified that he was responsible for the daily
operations of said bank. He denied having signed the eleven (11)-year contract and reasoned that it was not in the interest of
Banco Filipino to do so (Rollo, p. 384). That fact was corroborated by Josefina C. Salvador, typist of Banco Filipino's Legal
Department, who allegedly witnessed the said contract and whose initials allegedly appear in all the pages thereof. She
disowned the said marginal initials (Id., p. 385).

The Executive Judge of the RTC supervises a notary public by requiring submission to the Office of the Clerk of Court of his
monthly notarial report with copies of acknowledged documents thereto attached. Under this procedure and requirement of
 the Notarial Law, failure to submit such notarial report and copies of acknowledged documents has dire consequences
including the possible revocation of the notary's notarial commission.

The fact that the notary public who notarized petitioner Tala Realty's alleged eleven (11)-year lease contract did not retain a
copy thereof for submission to the Office of the Clerk of Court of the proper RTC militates against the use of said document
as a basis to uphold petitioner's claim. The said alleged eleven (11)-year lease contract was not submitted to the Central Bank
whose strict documentation rules must be complied with by banks to ensure their continued good standing. On the contrary,
what was submitted to the Central Bank was the twenty (20)-year lease contract.

Granting arguendo that private respondent Banco Filipino deliberately omitted to submit the eleven (11)-year contract to the
Central Bank, we do not consider that fact as violative of the res inter alios acta aliis non nocet (Section 28, Rule 130,
Revised Rules of Court provides, viz.: "Sec. 28. Admission by third party — The rights of a party cannot be prejudiced by an
act, declaration or omission of another, except as hereinafter provided."; Compania General de Tabacos v. Ganson, 13 Phil.
472, 477 [1909]) rule in evidence. Rather, it is an indication of said contract's inexistence.

It is not the eleven (11)-year lease contract but the twenty (20)-year lease contract which is the real and genuine contract
between petitioner Tala Realty and private respondent Banco Filipino. Considering that the twenty (20)-year lease contract is
still subsisting and will expire in 2001 yet, Banco Filipino is entitled to the possession of the subject premises for as long as it
pays the agreed rental and does not violate the other terms and conditions thereof (Art. 1673, New Civil Code).

In light of the foregoing recent Decision of this Court, we have no option but to uphold the twenty-year lease contract over the eleven-
year contract presented by petitioner. It is the better practice that when a court has laid down a principle of law as applicable to a
certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same. "Stare
decisis et non quieta movere." 9

That the principle of stare decisis applies in the instant case, even though the subject property is different, may be gleaned from the
pronouncement in Negros Navigation Co., Inc. vs. Court of Appeals, 10 to wit —

Petitioner criticizes the lower court's reliance on the Mecenas case, arguing that although this case arose out of the same
incident as that involved in Mecenas, the parties are different and trial was conducted separately. Petitioner contends that the
decision in this case should be based on the allegations and defenses pleaded and evidence adduced in it or, in short, on the
record of this case.

The contention is without merit. What petitioner contends may be true with respect to the merits of the individual claims
against petitioner but not as to the cause of the sinking of its ship on April 22, 1980 and its liability for such accident, of
which there is only one truth. Otherwise, one would be subscribing to the sophistry: truth on one side of the Pyrenees,
falsehood on the other!

Adherence to the Mecenas case is dictated by this Court's policy of maintaining stability in jurisprudence in accordance with
the legal maxim "stare decisis et non quieta movere" (Follow past precedents and do not disturb what has been settled.)
Where, as in this case, the same questions relating to the same event have been put forward by parties similarly situated as in
a previous case litigated and decided by a competent court, the rule of stare decisis is a bar to any attempt to relitigate the
same issue (J.M. Tuason & Corp. v. Mariano, 85 SCRA 644 [1978]). In Woulfe v. Associated Realties Corporation (130 N.J.
Eq. 519, 23 A. 2d 399, 401 [1942]), the Supreme Court of New Jersey held that where substantially similar cases to the
pending case were presented and applicable principles declared in prior decisions, the court was bound by the principle of
stare decisis. Similarly, in State ex rel. Tollinger v. Gill (75 Ohio App., 62 N.E. 2d 760 [1944]), it was held that under the
doctrine of stare decisis a ruling is final even as to parties who are strangers to the original proceeding and not bound by the
judgment under the res judicata doctrine. The Philadelphia court expressed itself in this wise: "Stare decisis simply declares
that, for the sake of certainty, a conclusion reached in one case should be applied to those which follow, if the facts are
substantially the same, even though the parties may be different" (Heisler v. Thomas Colliery Co., 274 Pa. 448, 452, 118A,
394, 395 [1922]. Manogahela Street Ry, Co. v. Philadelphia Co., 350 Pa. 603, 39 A. 2d 909, 916 [1944]; In re Burtt's Estate,
353 Pa. 217, 4 A. 2d 670, 677 [1945]). Thus, in J. M. Tuason v. Mariano, supra, this Court relied on its rulings in other cases
involving different parties in sustaining the validity of a land title on the principle of "stare decisis et non quieta movere."
(emphasis, Ours)

Here, therefore, even if the property subject of the Decision of G.R. No. 129887 is located in Urdaneta, Pangasinan while that in the
instant case is located in Davao, we can very well apply the conclusion in G.R. No. 129887 that it is the twenty-year lease contract
which is controlling inasmuch as not only are the parties the same, but more importantly, the issue regarding its validity is one and the
same and, hence, should no longer be relitigated.
Petitioner is even barred from questioning our adherence to the ruling in G.R. No. 129887 since it categorically declared in its Petition
that the same was "likewise filed so that any favorable ruling in said petitions (referring to G.R. Nos. 129887 and 132051) may be
extended or made to apply in the instant case." 11 Petitioner cannot now complain that the ruling in G.R. No. 129887 regarding the
validity of the twenty-year lease contract is not binding in this case simply because the same is unfavorable to it.

Coming now to the issue of whether or not respondent should be ejected for non-payment of rentals, we do not agree with the ruling in
G.R. No. 129887 that since the unpaid rentals demanded by petitioner were based on a new rate which it unilaterally imposed and to
which respondent did not agree, there lies no ground for ejectment. In such a case, there could still be ground for ejectment based on
non-payment of rentals. The recent case of T & C Development Corporation vs. Court of Appeals 12 is instructional on this point. It
was there cautioned that —

The trial court found that private respondent had failed to pay the monthly rental of P1,800.00 from November 1992 to
February 16, 1993, despite demands to pay and to vacate the premises made by petitioner. Even if private respondent
deposited the rents in arrears in the bank, this fact cannot alter the legal situation of private respondent since the account was
opened in private respondent's name. Clearly, there was cause for the ejectment of private respondent. Although the increase
in monthly rentals from P700.00 to P1,800.00 was in excess of 20% allowed by B.P. Blg. 877, as amended by R.A. No. 6828,
what private respondent could have done was to deposit the original rent of P700.00 either with the judicial authorities or in a
bank in the name of, and with notice to, petitioner. As this Court held in Uy v. Court of Appeals (178 SCRA 671, 676
[1989]):

The records reveal that the new rentals demanded since 1979 (P150.00 per month) exceed that allowed by law so refusal on
the part of the lessor to accept was justified. However, what the lessee should have done was to deposit in 1979 the previous
rent. This deposit in the Bank was made only in 1984 indicating a delay of more than four years.

From the foregoing facts, it is clear that the lessor was correct in asking for the ejectment of the delinquent lessee. Moreover,
he should be granted not only the current rentals but also all the rentals in arrears. This is so even if the lessor himself did not
appeal because as ruled by this Court, there have been instances when substantial justice demands the giving of the proper
reliefs." (Emphasis, ours).

While advance rentals appear to have been made to be applied for the payment of rentals due from the eleventh year to the twentieth
year of the lease, to wit —

3. That upon the signing and execution of this Contract, the LESSEE shall pay the LESSOR ONE MILLION TWENTY
THOUSAND PESOS ONLY (P1,020,000.00) Philippine Currency representing advance rental to be applied on the monthly
rental for the period from the eleventh to the twentieth year, 1

the records show that such advance rental had already been applied for rent on the property for the period of August, 1985 to
November, 1989. 14

Thus, when respondent stopped paying any rent at all beginning April, 1994, it gave petitioner good ground for instituting ejectment
proceedings. 15 We reiterate the ruling in T & C Development Corporation, supra, that if ever petitioner took exception to the
unilateral or illegal increase in rental rate, it should not have completely stopped paying rent but should have deposited the original
rent amount with the judicial authorities or in a bank in the name of, and with notice to, petitioner. This circumstance, i.e.,
respondent's failure to pay the rent at the old rate, does not appear in G.R. No. 129887. Thus, while we are bound by the findings of
this Court's Second Division in that case under the principle of stare decisis, the fact that respondent's failure to pay any rentals
beginning April 1994, which provided ground for its ejectment from the premises, justifies our departure from the outcome of G.R.
No. 129887. In this case, we uphold petitioner's right to eject respondent from the leased premises.

WHEREFORE, for the reasons aforestated, the instant Petition is GRANTED. The Decision in CA-G.R. SP No. 48667 is SET ASIDE
insofar as it denies the prayer for ejectment of petitioner.

Judgment is rendered ordering respondent to vacate the subject premises and to restore possession thereof to petitioner. Respondent is
also ordered to pay rent in the amount of P20,500.00 per month computed from April, 1994 until such time as it vacates the subject
property, with interest thereon at the legal rate.

No pronouncement as to costs.

SO ORDERED.
 SECOND DIVISION

G.R. No. 134284, December 1, 2000.

AYALA CORPORATION, petitioner.

vs.
ROSA-DIANA REALTY AND DEVELOPMENT CORPORATION, respondent.

DE LEON, J.:

Before us is a petition for review on certiorari seeking the reversal of a decision rendered by the Court of
Appeals in C.A. G.R. C.V. No. 4598 entitled "Ayala Corporation vs. Rosa-Diana Realty and Development
Corporation, ‘ dismissing Ayala Corporation’s petition for lack of merit.

The facts of the case are not in dispute:

Petitioner Ayala Corporation (herein-after referred to as Ayala) was the registration owner of a parcel of land
located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters, more or less and
covered by Transfer Certificate of Title (TCT) No. 233435 of the Register of Deeds of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married to Rosa
Chan. The Deed of Sale executed between Ayala and the buyers contained Special conditions of sale and Deed
Restrictions. Among the Special Conditions of Sale were.

a. The vendee shall build on the lot and submit the building plans to the vendor before September
30, 1976 for the latter’s approval.
b. The construction of the building shall start on or before March 30, 1977 and completed before
1979. Before such completion, neither no the title released even if the purchase price shall have
been fully paid.
c. There shall be no resale of the property.

The Deed Restrictions, on the other hand, contained the stipulation that the gross floor area of the building to be
constructed shall not be more than five (5) times the lot area and the total height shall not exceed forty two (42)
meters. The restrictions were to expire in the year 2025.

Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions of Sale.
Notwithstanding the violation, Manuel Sy anf Sy Ka Kieng, in April 1989, were able to sell the lot to
respondent Rosa-Diana Realty and Development Corporation (hereinafter referred to as Rosa-Diana) with
Ayala’s approval. As a consideration for Ayala to release the Certificate of title of the subject property, Rosa
Diana, on July 27, 1989 executed an Undertaking, together with the buildings plans for a condominium project,
known as "The Peak", Ayala released title to the lot, thereby enabling Rosa-Diana t register the deed of sale in
its favor and obtain Certificate of Title No. 165720 in its name. The title carried as encumbrances the special
conditions of sale and the deed restrictions. Rosa-Diana’s building plans as approved by Ayala were ‘subject to
strict compliance of cautionary notices appearing on the building plans and to the restrictions encumbering the
Lot regarding the use and occupancy of the same.’

Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans for "The Peak"
which Rosa-Diana submitted to Ayala for approval envisioned a 24-meter high, seven (7) storey condominium
project with a gross floor area of 3,968.56 square meters, the building plans which Rosa-Diana submitted to the
building official of Makati, contemplated a 91.65 meter high, 38 storey condominium building with a gross
floor area of 23,305.09 square meters.1 Needless to say, while the first set of building plans complied with the
deed restrictions, the latter set seceded the same.

During the construction of Rosa-Diana’s condominium project, Ayala filed an action with the Regional Trial
Court (RTC) of Makati, Branch 139 for specific performance, with application for a writ of preliminary
injunction/temporary restraining order against Rosa-Diana Realty seeking to compel the latter to comply with
the contractual obligations under the deed of restrictions annotated on its title as well as with the building plans
it submitted to the latter. In the alternative, Ayala prayed for rescission of the sale of the subject lot to Rosa-
Diana Realty.

The lower court denied Ayala’s prayer for injunctive relief, thus enabling Rosa-Diana to complete the
construction of the building. Undeterred, Ayala tried to cause the annotation of a notice of lis pendens on Rosa-
Diana’s title. The Register of Deeds of Makati, however, refused registration of the notice of lis pendens on the
ground that the case pending before the trial court, being an action for specific performance and/or rescission, is
an action in personal which does not involve the title, use or possession of the property.2 The Land Registration
Authority (LRA) reversed the ruling of the Register of Deeds saying that an action for specific performance or
recession may be classified as a proceeding of any kind in court directly affecting title to the land or the use or
occupation thereof for which a notice of lis pendens may be held proper.3 The decision of the LRA, however,
was overturned by the Court of Appeals in C.A. G.R. S.P. No. 29157. In G.R. No. 112774, We affirmed the
ruling of the CA on February 16, 1994 saying.

We agree with respondent court that the notice of lis pendens is not proper in this instance. The
case before the trial court is a personal action since the cause of action thereof arises primarily
from the alleged violation of the Deed of Restriction.

In the meantime, Ayala completed its presentation of evidence before the trial court. Rosa-Diana filed a
Demurrer to Evidence averring that Ayala failed to establish its right to the relief sought in-as much as (a)
Ayala admittedly does not enforce the deed restrictions uniformly and strictly (b) Ayala has lost its right/power
to enforce the restrictions due to its own acts and omissions; and (c) the deed restrictions are no longer valid and
effective against lot buyers in Ayala’s controlled subdivision.

The trial court sustained Rosa-Diana’s Demurrer to Evidence saying that Ayala was guilty of abandonment
and/or estoppel due to its failure to enforce the terms of deed of restrictions and special conditions of sale
against Manuel Sy and Sy Ka Kieng. The trial court noted that notwithstanding the violation of the special
conditions of sale, Manuel Sy and Sy Ka Kieng were able to transfer the title to Rosa-Diana with the approval
of Ayala. The trial court added that Ayala’s failure to enforce the restrictions with respect to Trafalgar,
Shellhouse, Eurovilla, LPL Plaza, Parc Regent, LPL Mansion and Leronville, which are located within Salcedo
Village, shows that Ayala discriminated against those which it wants to have the obligation enforced. The trial
court then concluded that for Ayala to discriminatory choose which obligor would be made to follow certain
conditions and which should not, did not seem fair and legal.

The Court of Appeals affirmed the ruling of the trial court saying that the "appeal is seated by the doctrine of
the law of the case in C.A. G.R. S.P. No. 29157" where it was stated that
xxx Ayala is bared from enforcing the Deed of Restriction in question pursuant to the doctrine of waiver and
estoppel. Under the terms of the deed of sale, the vendee Sy Ka Kieng assumed faithful compliance with the
special conditions of sale and with the Salcedo Village Deed of Restrictions. One of the conditions was that a
building would be constructed within one year. However, Sy Ka Kieng failed to construct the building as
required under the Deed Sale. Ayala did nothing to enforce the terms of the contract. In fact, it even agreed to
the sale of the lot by Sy Ka Kieng in favor of petitioner Realty in 1989 or thirteen (13) years later. We,
therefore, see no justifiable reason for Ayala to attempt to enforce the terms of the conditions of sale against the
petitioner.

xxx

The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray Burton
Development Corporation’ which relied on C.A. G.R. S.P. No. 29157 in ruling that Ayala is barred from
enforcing the deed restrictions in dispute. Upon a motion for reconsideration filed by herein petitioner, the
Court of Appeals clarified that "the citation of the decision in Ayala Corporation vs. Ray Burton Development
Corporation, Ca G.R. C.V. No. 46488, February 27, 1996, was made not because said decision is res judicata to
the case at bar but rather because it is precedential under the doctrine of stare decisis."

Upon denial of said motion for reconsideration, Ayala filed the present appeal.

Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P. No. 29157 that it is estopped
from enforcing the deed restrictions is merely obiter dicta inasmuch as the only issue raised in the aforesaid
case was the propriety of a lis pendens annotation on Rosa-Diana’s certificate of title.

Ayala avers that Rosa-Diana presented no evidence whatsoever on Ayala’s supposed waiver or estoppel in C.A.
G.R. S.P. No. 29157. Ayala likewise pointed out that at the time C.A. G.R. S.P. No. 29157 was on appeal, the
issues of the validity and continued viability of the deed of restrictions and their enforceability by Ayala were
joined and then being tried before the trial court.

Petitioner’s assignment of errors in the present appeal may essentially be summarized as follows:

I. The Court of Appeals acted in manner not in accord with law and the applicable decisions of the
Supreme Court in holding that the doctrine of the law of the case, or stare decisis, operated to
dismiss Ayala’s appeal.
II. The Court of Appeals erred as a matter of law and departed from the accepted and usual course
of judicial proceedings when it failed to expressly pass upon the specific errors assigned in
Ayala’s appeal.

A discussion on the distinctions between law of the case, stare decisis and obiter dicta is in order.

The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from, the doctrines
of res judicata and stare decisis, principally on the ground that the rule of the law of the case operates only in
the particular case and only as a rule of policy and not as one of law. 4 At variance with the doctrine of stare
decisis, the ruling adhered to in the particular case under the doctrine of the law of the case need not be
followed as a precedent in subsequent litigation between other parties, neither by the appellate court which
made the decision followed on a subsequent appeal in the same case, nor by any other court. The ruling covered
by the doctrine of the law of the case is adhered to in the single case where it arises, but is not carried into other
cases as a precedent.5 On the other hand, under the doctrine of stare decisis, once a point of law has been
established by the court, that point of law will, generally, be followed by the same court and by all courts of
lower rank in subsequent cases where the same legal issue is raised. 6 Stare decisis proceeds from the first
principle of justice that, absent powerful countervailing considerations, like cases ought to be decided alike.7

The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the appeal is ‘sealed’ by the
doctrine of the law of the case, referring to G.R. No. 112774 entitled "Ayala Corporation, petitioner vs. Courts
of Appeals, et al., respondents". The Court of Appeals likewise made reference to C.A. G.R. C.V. No. 46488
entitled, "Ayala Corporation vs. Ray Burton Development Corporation, Inc." in ruling against petitioner saying
that it is jurisprudentially under the doctrine of stare decisis.

It must be pointed out that the only issue that was raised before the Court of Appeals in C.A. G.R. S.P. No.
29157 was whether or not the annotation of lis pendens is proper. The Court of Appeals, in its decision, in fact
stated "the principal issue to be resolved is: whether or not an action for specific performance, or in the
alternative, rescission of deed of sale to enforce the deed of restrictions governing the use of property, is a real
or personal action, or one that affects title thereto and its use or occupation thereof.8

In the aforesaid decision, the Court of Appeals even justified the cancellation of the notice of lis pendens on the
ground that Ayala had ample protection should it succeed in proving its allegations regarding the violation of
the deed of restrictions, without unduly curtailing the right of the petitioner to fully enjoy its property in the
meantime that there is as yet no decision by the trial court.9

From the foregoing, it is clear that the Court of Appeals was aware that the issue as to whether petitioner is
estopped from enforcing the deed of restrictions has yet to be resolved by the trial court. Though it did make a
pronouncement that the petitioner is estopped from enforcing the deed of restrictions, it also mentioned at the
same time that this particular issue has yet to be resolved by the trial court. Notably, upon appeal to this Court,
We have affirmed the ruling of the Court of Appeals only as regards the particular issue of the propriety of the
cancellation of the notice of lis pendens.

We see no reason then, how the law of the case or stare decisis can be held to be applicable in the case at bench.
If at all, the pronouncement made by the Court of Appeals that petitioner Ayala is barred from enforcing the
deed of restrictions can only be considered as obiter dicta. As earlier mentioned the only issue before the Court
of Appeals at the time was the propriety of the annotation of the lis pendens. The additional pronouncement of
the Court of Appeals that Ayala is estopped from enforcing the deed of restrictions even as it recognized that
this said issue is being tried before the trial court was not necessary to dispose of the issue as to the propriety of
the annotation of the lis pendens. A dictum is an opinion of a judge which does not embody the resolution or
determination of the court, and made without argument, or full consideration of the point, not the proffered
deliberate opinion of the judge himself.10 It is not necessarily limited to issues essential to the decision but may
also include expressions of opinion which are not necessary to support the decision reached by the court. Mere
dicta are not binding under the doctrine of stare decisis11.

While the Court of Appeals did not err in ruling that the present petition is not barred by C.A. G.R. C.V. No.
46488 entitled "Ayala Corporation vs. Ray Burton Development Inc." under the doctrine of res judicata,
neither, however, can the latter case be cited as presidential under the doctrine of stare decisis. It must be
pointed out that at the time the assailed decision was rendered, C.A. G.R. C.V. No. 46488 was on appeal with
this Court. Significantly, in the decision. We have rendered in Ayala Corporation vs. Ray Burton Development
Corporation12 which became final and executory on July 5, 1999 we have clearly stated that "An examination of
the decision in the said Rosa-Diana case reveals that the sole issue raised before the appellate court was the
propriety of the lis pendens annotation. However, the appellate court went beyond the sole issue and made
factual findings bereft of any basis in the record to inappropriately rule that AYALA is in estoppel and has
waived its right to enforce the subject restrictions. Such ruling was immaterial to the annotation of the lis
pendens. The finding of estoppel was thus improper and made in excess of jurisdiction."
Coming now to the merits of the case, petitioner avers that the Court of Appeals departed from the usual course
of judicial proceedings when it failed to expressly pass upon the specific errors assigned in its appeal. Petitioner
reiterates its contention that law and evidence do not support the trial court’s findings that Ayala has waived its
right to enforce the deed of restrictions.

We find merit in the petition.

It is basic that findings of fact of the trial court and the Court of Appeals are conclusive upon the Supreme
Court when supported by substantial evidence.13 We are constrained, however, to review the trial court'’
findings of fact, which the Court of Appeals chose not to pass upon, in as much as there is ample evidence on
record to show that certain facts were overlooked which would affect the disposition of the case.

In its assailed decision of February 4, 1994, the trial court, ruled in favor of respondent Rosa-Diana Realty on
the ground that Ayala had not acted fairly when it did not institute an action against the original vendees despite
the latter’s violation of the Special Conditions of Sale but chose instead to file an action against herein
respondent Rosa-Diana. The trial court added that although the 38-storey building of Rosa-Diana is beyond the
total height restriction, it was not violative of the National Building Code. According to the trial court the
construction of the 38 storey building known as "The Peak" has not been shown to have been prohibited by law
and neither is it against public policy.

It bears emphasis that as complainant, Ayala had the prerogative to initiate an action against violators of the
deed restrictions. That Rosa-Diana had acted in bad faith is manifested by the fact that it submitted two sets of
building plans, one which was in conformity with the deed restrictions submitted to Ayala and MACEA, and
the other, which exceeded the height requirement in the deed restrictions to the Makati building official for the
purpose of procuring a building permit from the latter. Moreover, the violation of the deed restrictions
committed by respondent can hardly be denominated as a minor violation. It should be pointed out that the
original building plan which was submitted to and approved by petitioner Ayala Corporation, envisioned a
twenty four (24) meter high, seven (7) storey condominium whereas the respondent’s building plan which was
submitted to and approved by the building official of Makati is that of a thirty eight (38) storey, 91.65 meters
high, building. At present, the Peak building of respondent which actually stands at 133.65 meters with a total
gross floor area of 23,305.09 square meters, seriously violates the dimensions indicated in the building plans
submitted by Rosa-Diana to petitioner Ayala for approval in as much as the Peak building exceeds the approved
height limit by about 109 meters and the allowable gross floor area under the applicable deed restrictions by
about 19,105 square meters. Clearly, there was a gross violation of the deed restrictions and evident bad faith by
the respondent.

It may not be amiss to mention that the deed restrictions were revised in a general membership meeting of the
association of lot owners in Makati Central Business District the Makati Commercial Estate Association, Inc.
(MACEA).

Whereby direct height restrictions were abolished in lieu of floor area limits. Respondent, however, did not vote
for the approval of this revision during the General Membership meeting, which was held on July 11, 1990 at
the Manila Polo Clud Pavilion, Makati, and Metro Manila. Hence, respondent continues to be bound by the
original deed restrictions applicable to Lot 7, Block 1 and annotated on its title to said lot. In any event,
assuming arguendo that respondent voted for the approval of direct height restrictions in lieu of floor area
limits, the total floor area of its Peak building would still be violative of the floor area limits to the extent of
about 9,865 square meters of allowable floor area under the MACEA revised restrictions.

Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building plans which it used in the
construction of the Peak condominium ‘inasmuch as it bears the imprimatur of the building official of Makati,
who is tasked to determine whether building and construction plans are in accordance with the law, notably, the
National Building Code."
Respondent Rosa-Diana, however, misses the point inasmuch as it has freely consented to be bound by the deed
restrictions when it entered into a contract of sale with spouses Manuel Sy and Sy Ka Kieng. While respondent
claims that it was under the impression that Ayala was no longer enforcing the deed restrictions, the
Undertaking14 it executed belies this same claim. In said Undertaking, respondent agreed to ‘construct and
complete the construction of the house on said lot as required under the special condition of sale." Respondent
likewise bound itself to abide and comply with x x x the condition of the rescission of the scale by Ayala Land,
Inc. on the grounds therein stated x x x.

Contractual obligations between parties have the force of law between them and absent any allegation that the
same are contrary to law, morals, good custom, public order or public policy, they must be complied with in
good faith. Hence, Article 1159 of the New Civil Code provides.

"Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith."

Respondent Rosa-Diana insists that the trial court had already ruled that the undertaking executed by its
Chairman and President cannot validly bind Rosa-Diana and hence, it should not be held bound by the deed
restrictions.

We agree with petitioner Ayala’s observation that respondent Rosa-Diana’s special and affirmative defenses
before the trial court never mentioned any allegation that its president and chairman were not authorized to
execute the Undertaking. It was inappropriate therefore for the trial court to rule that in the absence of any
authority or confirmation from the Board of Directors of respondent Rosa-Diana, its Chairman and the President
cannot validly enter into an undertaking relative to the construction of the building on the lot within one year
from July 27, 1989 and in accordance with the deed restrictions, Curiously, while the trial court stated that it
cannot be presumed that the Chairman and the President can validly bind respondent Rosa-Diana to enter into
the aforesaid Undertaking in the absence of any authority or confirmation from the Board of Directors, the trial
court held that the ordinary presumption of regularity of business transactions is applicable as regards the Deed
of Sale which was executed by Manuel Sy and Sy Ka Kieng and respondent Rosa-Diana. In the light of the fact
that respondent Rosa-Diana never alleged in its Answer that its president and chairman were not authorized to
execute the Undertaking, the aforesaid ruling of the trial court is without factual and legal basis and suppressing
to say the least.

The fact alone that respondent Rosa-Diana conveniently prepared two sets of building plans –with one set
which fully conformed to the Deed Restrictions and another in gross violation of the same – should have
cautioned the trial court to conclude that respondent Rose-Diana was under the erroneous impression that the
Deed Restrictions were no longer enforceable and that it never intended to be bound by the Undertaking signed
by its President and Chairman. We reiterate that contractual obligations have the force of law between parties
and unless the same is contrary to public policy morals and good customs, they must be complied by the parties
in good faith.

Petitioners, in its Petition, prays that judgement be rendered:

a. ordering Rosa-Diana Realty and Development Corporation to comply with its contractual
obligations in the construction of the Peak by removing, or closing down and prohibiting Rosa-
Diana from using, selling, leasing or otherwise disposing, of the portions of areas thereof
constructed beyond or in excess of the approved height, as shown by the building plans
submitted to, and approved by, Ayala, including any other portion of the building constructed not
in accordance with the said building plans, during the effectivity of the Deed Restrictions;
b. Alternatively, in the event specific performance has become impossible;
 1. ordering the cancellation and recession of the April 20, 1976 Deed of Sale by Ayala in favor of
the original vendees thereof as well as the subsequent Deed of Sale executed by such original
vendees in favor of Rosa-Diana, and ordering Rosa-Diana to return Ayala Lot 7, Block 1 of
Salcedo Village;
2. ordering the cancellation of Transfer Certificate of Title No. 165720 (in the name of Rosa-Diana)
and directing the office of the Register of Deeds of Makati to issue a new title over the lot in the
name of Ayala; and
3. Ordering Rosa-Diana to pay Ayala attorney’s fees in the amount of P500, 000.00, exemplary
damages in the amount of P5, 000,000.00 and the costs of suit.

It must be noted that during the trial respondent Rosa-Diana was able to complete the construction of The Peak
as a building with a height of thirty-eight (38) floors or 133.65 meters. Having been completed for a number of
years already, it would be reasonable to assume that it is now fully tenanted. Consequently, the remedy of
specific performance by respondent is no longer feasible. However, neither can we grant petitioner’s prayer for
the cancellation and rescission of the April 20, 1976 Deed of Sale by petitioner Ayala in favor of respondent
Rosa-Diana inasmuch as the resale of the property by the original vendees, spouses Manuel Sy and Ka Kieng to
comply with their obligation to construct a building within one year from April 20, 1976, has effectively waived
its right to rescind the sale of the subject lot to the original vendees.

Faced with the same question as to the proper remedy available to petitioner in the case of "Ayala Corporation
vs. Ray Burton Development Inc., ‘ a case which is on all fours with the case at bench, we ruled therein that the
party guilty of violating the deed restrictions may only be held alternatively liable for substitute performance of
its obligation, that is, for the payment of damages. In the aforesaid case it was observed that the Consolidated
and Revised Deed Restrictions (CRDR) imposed development charges on constructions which exceed the
estimated Gross Limits permitted under the original Deed Restrictions but which are within the limits of the
CRDR’s.1âwphi1.nêt

The pertinent portion of the Deed of Restrictions reads:

3. DEVELOPMENT CAHRGE For building construction within the Gross Floor Area limits defined under
Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area exceeding certain standards
defined in Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to the construction of any new
building a DEVELOPMENT CHARGE as a contribution to a trust fund to be administered by MACEA. This
trust fund shall be used to improve facilities and utilities in Makati Central District.

3.1 The amount of the development charge that shall be due from the OWNER shall be computed as follows:

DEVELOPMENT

CAHRGE = A x (B-C-D)

Where:

A – is equal to the a Area Assessment which shall be set at Five Hundred Pesos (P500.00) until December 31,
1990. Each January 1st thereafter, such amount shall increase by ten percent (10%) over the immediately
preceding year; provided that beginning 1995 and at the end of every successive five-year period thereafter, the
increase in the Area Assessment shall be reviewed and adjusted by the VENDOR to correspond to the
accumulated increase in the construction cost index during the immediately preceding five years as based on
the weighted average of wholesale price and wage indices of the National Census and Statistics Office and the
Bureau of Labor Statistics.

B – Is equal to the Gross Floor Area of the completed or expanded building in square meters.
C – is equal to the estimated Gross Floor Area permitted under the original deed restrictions, derived by
multiplying the lot area by the effective original FAR shown below for each location.

We then ruled in the aforesaid case that the development; charges are a fair measure of compensatory damages
which therein respondent Ray Burton Development Inc. is liable to Ayala Corporation. The dispositive portion
of the decision in the said case, which is squarely applicable to the case at bar, reads as, follows:

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated February 27, 1996, in
CA G.R. C.V. No. 46488, and its Resolution dated October 7, 1996 are hereby REVERSED and SET ASIDE,
and in lieu thereof judgement is hereby rendered finding that:

1. The Deed Restrictions are valid and petitioner AYALA is not estopped from enforcing them
against lot owners who have not yet adopted the Consolidated and Revised Deed Restrictions.
2. Having admitted that the Consolidated and Revised Deed Restrictions are the applicable Deed
Restrictions to Ray Burton Development Corporation, RBDC should be, and is bound by the
same.
3. Considering that Ray Burton Development Corporation’s Trafalgar plaza exceeds the floor area
limits of the Deed Restrictions, RBDC is hereby ordered to pay development charges as
computed under the provisions of the consolidated and Revised Deed Restrictions currently in
force.
4. Ray Burton Development corporation is further ordered to pay AYALA exemplary damages in
the amount of P2, 500,000.00 attorney’s fees in the amount of P250,000.00

SO ORDERED:

There is no reason why the same rule should not be followed in the case at bar, the remedies of specific
performance and/or rescission prayed for by petitioner no longer being feasible. In accordance with the peculiar
circumstances of the case at bar, the development charges would certainly be a fair measure of compensatory
damages to petitioner Ayala.

Exemplary damages in the sum of P2, 500,000.00 as prayed for by petitioner are also in order inasmuch as
respondent Rosa-Diana was in evident bad faith when it submitted a set of building plans in conformity with the
deed restrictions to petitioner Ayala for the sole purpose of obtaining title to the property, but only to prepare
and later on submit another set of buildings plans which are in gross violation of the Deed Restrictions.
Petitioner Ayala is likewise entitled to an award of attorney’s fees in the sum of P250, 000.00.

WHEREFORE, the assailed Decision of the Court of Appeals dated December 4, 1997 and its Resolution dated
June 19, 1998, C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE. In lieu thereof, judgement is
rendered.

a. orderings respondent Rosa-Diana Realty and Development Corporation to pay development

charges as computed under the provisions of the consolidated and Revised Deed Restrictions
currently in force; and
b. ordering respondent Rosa-Diana Realty and Development Corporation to pay petitioner Ayala
Corporation exemplary damages in the sum of P2,500,00.00, attorney’s fees in the sum of
P250,000.00 and the costs of the suit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 177190 February 23, 2011

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
HON. ERNESTO P. PAGAYATAN, in his capacity as Presiding Judge of the Regional Trial Court,
Branch 46, San Jose, Occidental Mindoro; and JOSEFINA S. LUBRICA, in her capacity as Assignee of
Federico Suntay, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks to annul the August 17, 2006 Decision 1 and March
27, 2007 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 93206, which affirmed the Order dated
March 4, 20053 of the Regional Trial Court (RTC), Branch 46 in San Jose, Occidental Mindoro, in Agrarian
Case No. 1390 for the fixing of just compensation, entitled Land Bank of the Philippines v. Josefina S. Lubrica,
in her capacity as assignee of Federico Suntay, and Hon. Teodoro A. Cidro, as Provincial Agrarian Reform
Adjudicator of San Jose, Occidental Mindoro. The RTC Order affirmed the Decision dated March 21, 2003 4 of
the Provincial Agrarian Reform Adjudicator (PARAD) of San Jose, Occidental Mindoro in Case No. DCN-
0405-0022-02, entitled Josefina S. Lubrica, in her capacity as Assignee of Federico Suntay v. Hon. Hernani A.
Braganza, in his capacity as Secretary of the Department of Agrarian Reform, and Land Bank of the
Philippines.

The Facts

On October 21, 1972, the 3,682.0286-hectare Suntay Estate, consisting of irrigated/unirrigated rice and corn
lands covered by Transfer Certificate of Title No. T-31(1326) located in the Barangays of Gen. Emilio
Aguinaldo, Sta. Lucia, and San Nicolas in Sablayan, Occidental Mindoro, was subjected to the operation of
Presidential Decree No. 27, under its Operation Land Transfer (OLT), with the farmer-beneficiaries declared as
owners of the property. However, a 300-hectare portion of the land was subjected to the Comprehensive
Agrarian Reform Program (CARP) instead of the OLT. Thus, Certificates of Landownership Award were issued
to the farmer-beneficiaries in possession of the land.5 Such application of the CARP to the 300-hectare land was
later the subject of a case before the Department of Agrarian Reform Adjudicatory Board (DARAB), which
ruled that the subject land should have been the subject of OLT instead of CARP. The landowner admitted
before the PARAD that said case was pending with this Court and docketed as G.R. No. 108920, entitled
Federico Suntay v. Court of Appeals.

Meanwhile, the owner of the land remained unpaid for the property. Thus, Josefina S. Lubrica, in her capacity
as assignee of the owner of the property, Federico Suntay, filed a Petition for Summary Determination of Just
Compensation with the PARAD, docketed as Case No. DCN-0405-0022-2002. Thereafter, the PARAD issued
its Decision dated March 21, 2003, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

 1. Fixing the preliminary just compensation for 431.1407 hectare property at P166,150.00 per hectare or
a total of P71,634,027.30.

2. Directing the Land Bank of the Philippines to immediately pay the aforestated amount to the
Petitioner;

3. Directing the DAR to immediately comply with all applicable requirements so that the subject
property may be formally distributed and turned over to the farmer beneficiaries thereof, in accordance
with the Decision of the DARAB Central in DARAB Case No. 2846.

No cost.

SO ORDERED.6

Petitioner Land Bank of the Philippines (LBP) filed a Motion for Reconsideration dated April 10, 2003 of the
above decision, but the PARAD denied the motion in an Order dated December 15, 2003.7

The LBP then filed a Petition dated March 4, 2004 with the RTC docketed as Agrarian Case No. 1390,
appealing the PARAD Decision. In the Petition, the LBP argued that because G.R. No. 108920 was pending
with this Court in relation to the 300-hectare land subject of the instant case, the Petition for Summary
Determination of Just Compensation filed before the PARAD was premature. The LBP argued further that the
PARAD could only make an award of up to PhP 5 million only. The PARAD, therefore, could not award an
amount of PhP 71,634,027.30. The LBP also contended that it could not satisfy the demand for payment of
Lubrica, considering that the documents necessary for it to undertake a preliminary valuation of the property
were still with the Department of Agrarian Reform (DAR).

By way of answer, Lubrica filed a Motion to Deposit the Preliminary Valuation under Section 16(e) of Republic
Act No. (RA) 6657 and Ad Cautelam Answer dated June 18, 2004.8 In the said motion, Lubrica claimed that
since the DAR already took possession of the disputed property, the LBP is duty-bound to deposit the
compensation determined by the PARAD in a bank accessible to the landowner.

In an Order dated March 4, 2005, the RTC resolved Lubrica’s motion, as follows:

The foregoing considered and as prayed for by the respondent-movant The Land Compensation Department,
Land Bank of the Philipines, is hereby directed to deposit the preliminary compensation as determined by the
PARAD, in case and bonds in the total amount of Php 71,634,027.30, with the Land Bank of the Philippines,
Manila, within seven (7) days from receipt of this order, and to notify this Court of compliance within such
period.9

Thus, the LBP filed an Omnibus Motion dated March 17, 2005 praying for the reconsideration of the above
order, the admission of an amended petition impleading the DAR, and the issuance of summons to the new
defendants. In the Omnibus Motion, the LBP contended:

In this AMENDED PETITION, Land Bank impleaded the DAR as respondent because DAR is the lead agency
of the government in the implementation of the agrarian reform. It is the one which is responsible in identifying
the lands to be covered by agrarian reform program, placing/identifying the farmer beneficiaries, parcellary
mapping of the land, and determining the land value covered by PD 27/EO 228. The documents DAR prepares
is placed in a folder called "claim folder" which it forwards to Land Bank for processing and payment.

21. At present there is no claim folder prepared and submitted by DAR to Land Bank, and therefore Land Bank
has no claim folder to process and no basis to pay the landowner.10
In an Order dated December 8, 2005,11 the RTC denied the Omnibus Motion finding no reversible error in its
Order dated March 4, 2005 and denying the motion to amend the petition for being unnecessary towards land
valuation.

Thus, the LBP appealed the RTC Orders dated March 4, 2005 and December 8, 2005 to the CA through a
Petition for Certiorari dated February 13, 2006. The LBP argued that without the claim folder from the DAR, it
could not preliminarily determine the valuation of the covered lands and process the compensation claims.
Moreover, it said that the amount to be deposited under Sec. 16 of RA 6657, or the Agrarian Reform Law of
1988, is the offered purchase price of DAR for the land contained in the notice of acquisition and not the price
determined in an administrative proceeding before the PARAD.

Afterwards, on August 17, 2006, the CA issued the assailed decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE, and subsequently
DISMISSED for lack of merit.

SO ORDERED.12

The LBP moved for reconsideration of the CA Decision, but the CA did not reconsider it, as stated in its
Resolution dated March 27, 2007.

Hence, the LBP filed this petition.

The Issue

What is the proper amount to be deposited under Section 16 of Republic Act No. 6657? Is it the
PARAD/DARAB determined valuation or the preliminary valuation as determined by the DAR/LBP?13

The Ruling of the Court

The petition is meritorious.

Private respondent Lubrica argues that, under the doctrines of res judicata and stare decisis, the instant case
must be dismissed in light of the decision of this Court in Lubrica v. Land Bank of the Philippines, 14 the
dispositive portion of which reads:

WHEREFORE, premises considered, the petition is GRANTED. The assailed Amended Decision dated
October 27, 2005 of the Court of Appeals in CA-G.R. SP No. 77530 is REVERSED and SET ASIDE. The
Decision dated May 26, 2004 of the Court of Appeals affirming (a) the March 31, 2003 Order of the Special
Agrarian Court ordering the respondent Land Bank of the Philippines to deposit the just compensation
provisionally determined by the PARAD; (b) the May 26, 2003 Resolution denying respondent’s Motion for
Reconsideration; and (c) the May 27, 2003 Order directing Teresita V. Tengco, respondent’s Land
Compensation Department Manager to comply with the March 31, 2003 Order, is REINSTATED. The
Regional Trial Court of San Jose, Occidental Mindoro, Branch 46, acting as Special Agrarian Court is
ORDERED to proceed with dispatch in the trial of Agrarian Case Nos. R-1339 and R-1340, and to compute the
final valuation of the subject properties based on the aforementioned formula.

SO ORDERED. (Emphasis supplied.)

The principles of res judicata and stare decisis do not apply to the case at bar.
In Lanuza v. Court of Appeals,15 the Court discussed the principle of res judicata, to wit:

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by
judgment. The doctrine of res judicata provides that a final judgment, on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute
bar to subsequent actions involving the same claim, demand, or cause of action. The elements of res judicata are
(a) identity of parties or at least such as representing the same interest in both actions; (b) identity of rights
asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two (2)
particulars is such that any judgment which may be rendered in the other action will, regardless of which party
is successful, amount to res judicata in the action under consideration. (Emphasis supplied.)

In Lubrica, the issue was as follows:

Petitioners insist that the determination of just compensation should be based on the value of the expropriated
properties at the time of payment. Respondent LBP, on the other hand, claims that the value of the realties
should be computed as of October 21, 1972 when P.D. No. 27 took effect.16

While the Court directed that the valuation made by the PARAD be the amount to be deposited in favor of the
landowner, it was done only because the PARAD’s valuation was based on the time the payment was made.

The issue before Us is whether the RTC acted properly in ordering the deposit or payment to the landowner of
the preliminary valuation of the land made by the PARAD. This is considering that Sec. 16(e) of RA 6657
clearly requires the initial valuation made by the DAR and LBP be deposited or paid to the landowner before
taking possession of the latter’s property, not the preliminary valuation made by the PARAD.

Evidently, the second element of res judicata is not present. The relief prayed for in Lubrica is that the amount
for deposit in favor of the landowner be determined on the basis of the time of payment and not of the time of
taking. But here, the prayer of the LBP is for the deposit of the valuation of the LBP and DAR and not that of
the PARAD. These are two distinct and separate issues. Res judicata, therefore, cannot apply.

We cannot apply the principle of stare decisis to the instant case, too. The Court explained the principle in Ting
v. Velez-Ting:17

The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its
final decisions. It is based on the principle that once a question of law has been examined and decided, it should
be deemed settled and closed to further argument. Basically, it is a bar to any attempt to relitigate the same
issues, necessary for two simple reasons: economy and stability. In our jurisdiction, the principle is entrenched
in Article 8 of the Civil Code. (Emphasis supplied.)

To reiterate, Lubrica and the instant case have different issues. Hence, stare decisis is also inapplicable here.

The LBP posits that under Sec. 16(e) of RA 6657, and as espoused in Land Bank of the Philippines v. Court of
Appeals,18 it is the purchase price offered by the DAR in its notice of acquisition of the land that must be
deposited in an accessible bank in the name of the landowner before taking possession of the land, not the
valuation of the PARAD.

The Court agrees with the LBP. The RTC erred when it ruled:

Under Section 16 (e) the payment of the provisional compensation determined by the PARAD in the summary
administrative proceedings under Section 16 (d) should precede the taking of the land. In the present case, the
taking of the property even preceded the mere determination of a provisional compensation by more than 30
years.19
Sec. 16 of RA 6657 contains the procedure for the acquisition of private lands, viz:

SEC. 16. Procedure for Acquisition of Private Lands.¾For purposes of acquisition of private lands, the
following procedures shall be followed:

(a) After having identified the land, the landowners and the beneficiaries, the DAR shall send its notice
to acquire the land to the owners thereof, by personal delivery or registered mail, and post the same in a
conspicuous place in the municipal building and barangay hall of the place where the property is
located. Said notice shall contain the offer of the DAR to pay a corresponding value in accordance with
the valuation set forth in Sections 17, 18, and other pertinent provisions hereof.

(b) Within thirty (30) days from the date of receipt of written notice by personal delivery or registered
mail, the landowner, his administrator or representative shall inform the DAR of his acceptance or
rejection of the offer.

(c) If the landowner accepts the offer of the DAR, the LBP shall pay the landowner the purchase price of
the land within thirty (30) days after he executes and delivers a deed of transfer in favor of the
Government and surrenders the Certificate of Title and other muniments of title.

(d) In case of rejection or failure to reply, the DAR shall conduct summary administrative proceedings
to determine the compensation of the land by requiring the landowner, the LBP and other interested
parties to submit evidence as to the just compensation for the land, within fifteen (15) days from the
receipt of the notice. After the expiration of the above period, the matter is deemed submitted for
decision. The DAR shall decide the case within thirty (30) days after it is submitted for decision.

(e) Upon receipt by the landowner of the corresponding payment or in case of rejection or no response
from the landowner, upon the deposit with an accessible bank designated by the DAR of the
compensation in cash or LBP bonds in accordance with this Act, the DAR shall take immediate
possession of the land and shall request the proper Register of Deeds to issue a Transfer Certificate of
Title (TCT) in the name of the Republic of the Philippines. The DAR shall thereafter proceed with the
redistribution of the land to the qualified beneficiaries.

(f) Any party who disagrees with the decision may bring the matter to the court of proper jurisdiction for
final determination of just compensation. (Emphasis supplied.)

Conspicuously, there is no mention of the PARAD in the foregoing Sec. 16(e) when it speaks of "the deposit
with an accessible bank designated by the DAR of the compensation in cash or LBP bonds in accordance with
this Act." Moreover, it is only after the DAR has made its final determination of the initial valuation of the land
that the landowner may resort to the judicial determination of the just compensation for the land. Clearly,
therefore, it is the initial valuation made by the DAR and LBP that is contained in the letter-offer to the
landowner under Sec. 16(a), said valuation of which must be deposited and released to the landowner prior to
taking possession of the property.

This too was the Court’s interpretation of the above provision in Land Bank of the Philippines v. Heir of
Trinidad S. Vda. De Arieta:20

It was thus erroneous for the CA to conclude that the provisional compensation required to be deposited as
provided in Section 16 (e) is the sum determined by the DARAB/PARAD/RARAD in a summary
administrative proceeding merely because the word "deposit" appeared for the first time in the sub-paragraph
immediately succeeding that sub-paragraph where the administrative proceeding is mentioned (sub-paragraph
d). On the contrary, sub-paragraph (e) should be related to sub-paragraphs (a), (b) and (c) considering that the
taking of possession by the State of the private agricultural land placed under the CARP is the next step after the
DAR/LBP has complied with notice requirements which include the offer of just compensation based on the
initial valuation by LBP. To construe sub-paragraph (e) as the appellate court did would hamper the land
redistribution process because the government still has to wait for the termination of the summary
administrative proceeding before it can take possession of the lands. Contrary to the CA’s view, the deposit of
provisional compensation is made even before the summary administrative proceeding commences, or at least
simultaneously with it, once the landowner rejects the initial valuation ("offer") by the LBP. Such deposit
results from his rejection of the DAR offer (based on the LBP’s initial valuation). Both the conduct of summary
administrative proceeding and deposit of provisional compensation follow as a consequence of the landowner’s
rejection under both the compulsory acquisition and VOS. This explains why the words "rejection or failure to
reply" and "rejection or no response from the landowner" are found in sub-paragraphs (d) and (e). Such
"rejection"/"no response from the landowner" could not possibly refer to the award of just compensation in the
summary administrative proceeding considering that the succeeding sub-paragraph (f) states that the landowner
who disagrees with the same is granted the right to petition in court for final determination of just
compensation. As it is, the CA’s interpretation would have loosely interchanged the terms "rejected the offer"
and "disagrees with the decision", which is far from what the entire provision plainly conveys.

xxxx

Under the law, the LBP is charged with the initial responsibility of determining the value of lands placed under
land reform and the compensation to be paid for their taking. Once an expropriation proceeding or the
acquisition of private agricultural lands is commenced by the DAR, the indispensable role of LBP begins. EO
No. 405, issued on June 14, 1990, provides that the DAR is required to make use of the determination of the
land valuation and compensation by the LBP as the latter is primarily responsible for the determination of the
land valuation and compensation. In fact, the LBP can disagree with the decision of the DAR in the
determination of just compensation, and bring the matter to the RTC designated as [Special Agrarian Court] for
final determination of just compensation.

The amount of "offer" which the DAR gives to the landowner as compensation for his land, as mentioned in
Section 16 (b) and (c), is based on the initial valuation by the LBP. This then is the amount which may be
accepted or rejected by the landowner under the procedure established in Section 16. Perforce, such initial
valuation by the LBP also becomes the basis of the deposit of provisional compensation pending final
determination of just compensation, in accordance with sub-paragraph (e). (Emphasis supplied.)

It is clear from Sec. 16 of RA 6657 that it is the initial valuation made by the DAR and the LBP that must be
released to the landowner in order for DAR to take possession of the property. Otherwise stated, Sec. 16 of RA
6657 does not authorize the release of the PARAD’s determination of just compensation for the land which has
not yet become final and executory.

Moreover, it bears pointing out that, pursuant to DAR Administrative Order No. 02, Series of 1996, entitled
Revised Rules and Procedures Governing the Acquisition of Agricultural Lands subject of Voluntary Offer to
Sell and Compulsory Acquisition pursuant to Republic Act No. 6657, the DAR Municipal Office (DARMO)
first prepares a claim folder (CF) containing the necessary documents for the valuation of the land. The
DARMO then forwards this claim folder to the DAR Provincial Office (DARPO) which, in turn, has the
following duties: "Receives claim folder and forwards to the DAR-LBP Pre-Processing Unit (PPU) for
review/evaluation of documents. Gathers lacking documents, if any." 21 The DAR-LBP PPU then forwards the
CF to the LBP-Land Valuation and Landowner’s Compensation Office (LVLCO) which "receives and evaluates
the CF for completeness, consistency and document sufficiency. Gathers additional valuation documents." 22
Thereafter, the LBP-LVLCO "determines land valuation based on valuation inputs" and "prepares and sends
Memo of Valuation, Claim Folder Profile and Valuation Summary (MOV-CFPVS)" to the DARPO.23 The
DARPO then "sends Notice of Valuation and Acquisition to LO [landowner] by personal delivery with proof of
service or by registered mail with return card, attaching copy of MOV-CFPVS and inviting LO’s attention to
the submission of documents required for payment of claim." 24
Notably, DAR failed to prepare the claim folder which is necessary for the LBP to make a valuation of the land
to be expropriated. The proper remedy would have been to ask the DAR and LBP to determine such initial
valuation and to have the amount deposited to his account, in accordance with Sec. 16 of RA 6657.
Nevertheless, it was erroneous for private respondent to have filed a Petition for Determination of Just
Compensation with PARAD when the remedy that she was seeking was for the deposit of the initial valuation
that the DAR and LBP should have made.

Contrary to the CA’s ruling, the RTC’s failure to distinguish between the initial valuation that is contemplated
in Sec. 16 of RA 6657 and the just compensation subject of judicial determination is a gross and patent error
that can be considered as grave abuse of discretion. Gross abuse of discretion is defined, as follows:

A special civil action for certiorari, under Rule 65, is an independent action based on the specific grounds
therein provided and will lie only if there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law. A petition for certiorari will prosper only if grave abuse of discretion is alleged and
proved to exist. "Grave abuse of discretion," under Rule 65, has a specific meaning. It is the arbitrary or
despotic exercise of power due to passion, prejudice or personal hostility; or the whimsical, arbitrary, or
capricious exercise of power that amounts to an evasion or refusal to perform a positive duty enjoined by law or
to act at all in contemplation of law. For an act to be struck down as having been done with grave abuse of
discretion, the abuse of discretion must be patent and gross. 25 x x x (Emphasis supplied.)

It should also be pointed out that in the related Land Bank of the Philippines v. Pagayatan, 26 the Court had
found the presiding judge of the RTC, Branch 16 in San Jose, Occidental Mindoro, herein respondent Judge
Ernesto P. Pagayatan, guilty of Gross Ignorance of the Law or Procedure and Gross Misconduct for holding
Teresita V. Tengco, Acting Chief of the Land Compensation Department of the LBP, and Leticia Lourdes A.
Camara, Chief of the Land Compensation Department of the LBP, guilty of indirect contempt for allegedly
disobeying the very same Order dated March 4, 2005 of the RTC. In that case, Court ruled:

The partiality of respondent was highlighted when, out of his selective invocation of judicial courtesy, he
refused to resolve Leticia and Teresita’s February 14, 2007 Urgent Manifestation of Compliance and Motion
and other pending incidents in view of the pendency before the appellate court of the LBP’s Omnibus Motion
praying for, among other things, the quashal of the warrant of arrest, whereas he had earlier found Leticia and
Teresita guilty of contempt despite the pendency before the appellate court of LBP’s motion for reconsideration
of the dismissal of the petition in CA-G.R. SP No. 93206.

Evidently, the RTC had already acted with partiality in deciding the case and with grave abuse of discretion.

Moreover, in order to give life and breath to Sec. 16 of RA 6657, as well as DAR Administrative Order No. 02,
Series of 1996, the Court is constrained to direct the DAR and the LBP to make the initial valuation of the
subject land as of the time of its taking and to deposit the valuation in the name of the landowner or his estate,
in accordance with RA 6657 and the pertinent decisions of this Court on the matter.1avvphi1

The length of time that has elapsed that the landowner has not received any compensation for the land cannot
justify the release of the PARAD valuation to the landowner. Sec. 16 of RA 6657 only allows the release of the
initial valuation of the DAR and the LBP to the landowner prior to the determination by the courts of the final
just compensation due. Besides, it must be stressed that it was only sometime in 2003 that the assignee of the
landowner filed a petition for determination of just compensation with the PARAD. Clearly, the landowner
slept on his right to demand payment of the initial valuation of the land. Nevertheless, such lapse of time
demands that the DAR and the LBP act with dispatch in determining such initial valuation and to deposit it in
favor of the landowner at the soonest possible time.

WHEREFORE, the petition is GRANTED. The CA’s August 17, 2006 Decision and March 27, 2007
Resolution in CA-G.R. SP No. 93206 are hereby REVERSED and SET ASIDE. The DAR and the LBP are
hereby given three (3) months from receipt of notice that this Decision has become final and executory, within
which to determine the initial valuation of the subject lot and to deposit its initial value to the account of private
respondent Lubrica.

The PARAD Decision dated March 21, 2003 in Case No. DCN-0405-0022-02 is hereby ANNULLED and SET
ASIDE. The RTC Order dated March 4, 2005 in Agrarian Case No. 1390 is also ANNULLED and SET ASIDE.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 186289 June 29, 2010

ORIENTAL SHIPMANAGEMENT CO., INC., Petitioner,

vs.
ROMY B. BASTOL, Respondent.

DECISION

VELASCO, JR., J.:

The Case

In a Petition for Review1 on Certiorari under Rule 45 of the Rules of Court, petitioner Oriental Shipmanagement
Co., Inc. (OSCI) assails the Decision2 dated August 12, 2008 and the Resolutions dated January 7, 20093 and
February 6, 20094 of the Court of Appeals (CA) in CA-G.R. SP No. 100090, which annulled and set aside the
July 31, 2006 Decision5 and May 30, 2007 Resolution of the National Labor Relations Commission (NLRC),
and reinstated the January 28, 1999 Decision6 of the Labor Arbiter.

The Facts

OSCI is a domestic manning agency engaged in the recruitment and placement of Filipino seafarers abroad.
Paterco Shipping Ltd. (PSL) is a foreign shipping company which owned and operated the vessel MV Felicita
and a client of OSCI. Protection & Indemnity Club (PIC) was the insurer of PSL covering contingencies like
illness claims and benefits of seamen. Pandiman Philippines, Inc. (PPI) is the local representative of PIC.

As agent of PSL, OSCI hired Romy B. Bastol (Bastol) as bosun on November 29, 1995 evidenced by a Contract
of Employment.7 On December 5, 1995, Bastol was deployed on board the vessel MV Felicita.

The genesis of the instant case emerged when, on February 17, 1997, while on board the vessel, Bastol suffered
chest pains and cold clammy perspiration. He was hospitalized in Algiers and found to be suffering from
anterior myocardial infarction.8 In short, he had a heart attack. He was subsequently repatriated due to his
illness on March 7, 1997.

Upon arrival here in the Philippines, on March 8, 1997, he was referred to the Jose L. Gutierrez Clinic in
Malate, Manila for a follow-up examination where Dr. Achilles J. Peralta examined and found him to be
suffering from "T/C Ischemic Heart Disease. Ant. Myocardial Infection." Dr. Peralta issued a Medical Report9
certifying that he was "Unfit for Sea Duty." In a follow-up medical examination on April 1, 1997, Dr. Peralta
still found Bastol "Unfit for Sea Duty."10

Thus, PPI referred Bastol for medical treatment to the Metropolitan Hospital under the care of company-
designated physician Dr. Robert D. Lim, a Diplomate in Rehabilitation Medicine. On April 10, 1997, Bastol
was confined and treated at said hospital until May 7, 1997. Dr. Lim certified that Bastol had "Coronary artery
dse; S/P Ant. wall MP; Hypercholesterolemia; Hyperglycemia." 11 Thereafter, Bastol had regular laboratory and
medical examinations with the company-designated physician.
Unsatisfied with the treatment by Dr. Lim and seeking a second opinion, he went to Dr. Efren R. Vicaldo, a
Cardiologist and Congenital Heart Disease Specialist of the Philippine Heart Center, who diagnosed him to be
suffering from "Coronary Artery Disease and Extensive Anteriorseptalmia" with the corresponding remarks:
"For Disability, Impediment Grade 1 (120%)."12

Feeling abandoned and aggrieved with OSCI and PSL, Bastol, through counsel, sent a November 27, 1997 letter
on December 2, 1997 to Capt. Rosendo C. Herrera, the President of OSCI, for a possible settlement of his claim
for disability benefits.13 He attached the Medical Certificate issued by Dr. Vicaldo. His letter did not merit a
response from OSCI.

Thus, Bastol was compelled to file a Complaint 14 before the Labor Arbiter on May 8, 1988 for: (a) medical
disability benefit (Grade 1) of USD 60,000; (b) illness allowance until he is deemed fit to work again; (c)
medical benefits for the treatment of his ailment; (d) moral damages of PhP 100,000; and (e) attorney’s fee of
10% of the total monetary award.

OSCI countered that Bastol is not entitled to his indemnity claims, among others, for disability benefits on
account of non-compliance with the requirements of the 1994 revised Standard Employment Contract (SEC) by
failing to properly submit himself for treatment and examination by the company-designated physician who is
the only one authorized to set the degree of disability, i.e., disability grade. Submitting documentary evidence,
OSCI maintained that Bastol submitted to the examination and treatment by the company-designated physician
only on April 25, 1997,15 May 23, 1997,16 September 16, 1997,17 and October 28, 1997,18 but he voluntarily
discontinued said treatment and did not show up for the follow-up examination on December 2, 1997. Thus, the
company-designated physician was not given ample opportunity to properly treat Bastol’s ailment and did not
have sufficient chance to assess and determine his disability grade, if any.

On January 28, 1999, Labor Arbiter Mayor, Jr. rendered a Decision based on the parties’ respective position
papers19 and the documentary evidence presented in NLRC NCR OFW Case No. 98-05-0801, the decretal
portion reading:

WHEREFORE, in view of all the foregoing, respondents Oriental Shipmanagement Co., Inc. and Paterco
Shipping Ltd. are hereby ordered to jointly and severally pay complainant the sum of US$60,000.00 or its peso
equivalent at the time of payment plus the sum equivalent to ten (10%) percent of the award or in the amount of
US$6,000.00 as and by way of attorney’s fee.

SO ORDERED.20

The Labor Arbiter saw no need to conduct formal hearings. He found that Bastol was healthy when deployed in
December 1995 but subsequently contracted or suffered heart ailment during his period of employment with
OSCI and PSL. He also found that Bastol did not show any appreciable improvement despite treatment by the
company-designated physician, thus ruling that the fact that Dr. Lim had not issued a certification as to Bastol’s
condition did not negate his claim for disability indemnity, as the determination of the degree thereof by Dr.
Vicaldo of the Philippine Heart Center sufficed.

OSCI immediately assailed the above Labor Arbiter decision before the NLRC. 21 Subsequently, on July 30,
1999, the NLRC issued a Resolution22 in NLRC NCR CA No. 019238-99, vacating and setting aside the
January 28, 1999 Decision of the Labor Arbiter and remanding the case back to the Labor Arbiter for further
proceedings, the dispositive portion ordering, thus:

WHEREFORE, for the reasons [above discussed], the decision appealed from is hereby vacated and set aside
and the records of this case Remanded to the Labor Arbiter of origin for conduct of further approximate
proceedings and to terminate the same with dispatch.
SO ORDERED.23

In remanding the case back to the Labor Arbiter, the NLRC ruled that Bastol should have presented himself
before the Labor Arbiter for the latter to properly assess his condition, and that Dr. Lim and Dr. Vicaldo should
be presented to determine with certainty the status of Bastol’s heart ailment.

This prompted both parties to file their respective motions for reconsideration which were rejected by the
NLRC through its Resolution24 of October 29, 1999. With the remand, Labor Arbiter Mayor, Jr. proceeded to
hear the case. However, upon OSCI’s motion for inhibition, Labor Arbiter Mayor, Jr. inhibited himself, and the
case was re-raffled to Labor Arbiter Joel S. Lustria.

Subsequently, on May 10, 2001, the case was deemed submitted for decision. Thereafter, on July 25, 2001,
OSCI filed before the Labor Arbiter a Motion to Dismiss for failure to prosecute for an unreasonable length of
time and insufficiency of evidence. OSCI argued that through the July 30, 1999 Resolution, the NLRC found
that Bastol failed to prove his causes of action, and despite numerous hearings conducted before the Labor
Arbiter after the remand of the case, Bastol still failed to present further evidence.

On October 26, 2001, however, Bastol filed a Manifestation/ Compliance 25 submitting the following
documents: (1) Affidavit26 of Dr. Vicaldo executed on May 10, 2001; (2) Conforme27 for disability benefit
settlement in the amount of USD 25,000; (3) Special Power of Attorney (SPA)28 executed by Bastol in favor of
Martin Jarmin, Jr. of OSCI; (4) Medical Disability Grading 29 of Bastol issued by Dr. Lim, the company-
designated physician, on June 26, 1997; and (5) Assessment and disability grading determined by Dr. H.R.
Varwig,30 company-designated physician of PPI.

Bastol’s manifestation and the documents he presented showed that prior to filing the instant case on May 8,
1998, Bastol, assisted by counsel, entered into a settlement with PPI through Mrs. Corazon C. Tabuena in the
amount of USD 25,000 as disability indemnity. Said settlement was based on the suggested disability grading of
Grade 50–60% issued by the company-designated physician Dr. Lim on June 26, 1997 and that of Dr. H. R.
Varwig, company-designated physician of PPI, embodied in a letter dated August 7, 1997 sent to PPI with the
assessment of Bastol’s disability at Grade 6 according to the Department of Labor and Employment (DOLE)
and the Philippine Overseas Employment Administration (POEA) Schedule of Disability or Impediment.
Bastol, assisted by counsel, signed the settlement conforme with PPI on January 22, 1998. The settlement,
however, did not materialize due to the cancellation of the coverage by PIC of PSL’s vessel M/V Felicita.

Even after Bastol already filed the instant case on May 8, 1998, Jarmin, Jr. of OSCI instructed him to execute a
SPA to authorize them to represent him (Bastol) in the auction sale of SPL’s vessel M/V Felicita. Forthwith,
Bastol executed an SPA in favor of Jarmin, Jr. on August 12, 1998. Unfortunately, Bastol was later informed by
Jarmin, Jr. that the amount they recovered from the auction sale of PSL’s vessel was not enough to cover his
disability claim. Thus, with the collapse of the settlement agreement, Bastol was left with no option than to
pursue the instant action. And in support of his medical finding of Grade 1 (120%) disability, Dr. Vicaldo
executed an Affidavit on May 10, 2001.

OSCI vehemently objected31 to Bastol’s Manifestation/Compliance and the documentary evidence appended
thereto.

The Ruling of Labor Arbiter Lustria in

Case No. NLRC NRC OFW Case No. 95-05-0501

On January 31, 2003, Labor Arbiter Lustria rendered a Decision32 similar to that of Labor Arbiter Mayor, Jr.
The dispositive portion reads:
WHEREFORE, in view of all the foregoing, let a judgment be, as it is hereby rendered, ordering respondents
Oriental Shipmanagement Co., Inc. and Paterco Shipping, Ltd., to jointly and severally pay complainant Romy
Bastol, the sum of US$60,000.00 or its peso equivalent prevailing at the time of payment plus the sum
equivalent to ten (10%) percent of the award, or in the amount of US$6,000.00 or its peso equivalent prevailing
at the time of payment, as and by way of attorney’s fee.

SO ORDERED.33

Labor Arbiter Lustria found that Bastol indeed suffered from a heart ailment for which he is pursuing disability
indemnity which was duly proved by the concurring diagnosis of Dr. Peralta, Dr. Lim, Dr. Varwig and Dr.
Vicaldo. He found that the settlement agreement with PPI was pursuant to the medical findings and assessments
of both company-designated physicians, Dr. Lim and Dr. Varwig. Thus, the reiteration of the award of Labor
Arbiter Mayor, Jr.

Aggrieved, OSCI promptly filed its Memorandum of Appeal 34 before the NLRC.

The Ruling of the NLRC in NLR NCR CA No. 019238-99

(NLRC NCR OCW No. 98-05-0501)

On July 31, 2006, the NLRC First Division rendered its Decision reversing and setting aside Labor Arbiter
Lustria’s January 31, 2003 Decision and dismissed the instant case, the fallo reading:

WHEREFORE, the appeal is GRANTED. The Decision of Labor Arbiter Joel S. Lustria dated January 31, 2003
is hereby REVERSED AND SET ASIDE and a new one entered dismissing the complaint.

SO ORDERED.35

In dismissing the case, the NLRC held that the sworn affidavit of Dr. Vicaldo and the manifestations of Bastol
could not substitute for their presence and testimony, and that of Dr. Lim. It ruled that since not one
clarificatory hearing was conducted, the sworn affidavit of Dr. Vicaldo is reduced to mere hearsay sans a cross-
examination by OSCI. Moreover, it noted that the reliance by the LA on the certificates of Dr. Lim and Dr.
Varwig is misplaced, for the disability ratings indicated therein do not appear to be final for they were merely
suggested ones. Besides, it pointed out that the records show that Bastol was still under treatment and being re-
evaluated by Dr. Lim when the purported certificate was issued by Dr. Lim on June 26, 1997. It concluded that
the purpose for which the case was remanded had not been served and the true state of Bastol’s health not
adequately established. In fine, it ruled that even if Bastol’s disability has been determined with certainty, still it
will not serve to indemnify Bastol for his violation of the SEC when he prematurely sought the medical help of
Dr. Vicaldo, emphasizing that the 1994 revised SEC is clear in that it is only the company-designated physician
who could declare the fitness of the seafarer to work; or establish the degree of his disability.

Undaunted, Bastol went to the CA questioning the reversal of Labor Arbiter Lustria’s Decision via a Petition 36
for Certiorari under Rule 65 of the Rules of Court, which was docketed as CA-G.R. SP No. 100090.

The Ruling of the Court of Appeals

On August 12, 2008, the appellate court rendered the assailed Decision reversing the July 31, 2006 Decision
and May 30, 2007 Resolution of the NLRC, and reinstated the January 28, 1999 Decision of Labor Arbiter
Mayor, Jr. The decretal portion reads:

WHEREFORE, the premises considered, the petition is GRANTED. The Assailed Decision and Resolution of
the NLRC, First Division dated July 31, 2006 and May 30, 2007, respectively are hereby ANNULLED and SET
ASIDE for having been issued with grave abuse of discretion and the January 28, 1999 Decision of the Labor
Arbiter, REINSTATED.

SO ORDERED.37

In reinstating the Labor Arbiter’s January 28, 1999 Decision, the appellate court ruled, first, that the NLRC
gravely abused its discretion in remanding the case back to the Labor Arbiter on the mistaken notion that the
determination of Bastol’s health ailment and entitlement to disability benefits under the 1994 revised SEC
cannot be ascertained without conducting a formal trial. It ratiocinated that Art. 221 of the Labor Code as
amended by Sec. 11 of Republic Act No. (RA) 6715 in relation to Sec. 4, Rule V of the NLRC Rules of
Procedure then prevailing granted the Labor Arbiter discretion to determine the necessity for a formal hearing
or investigation. In the instant case, the CA found that the Labor Arbiter acted properly and ruled appropriately
on the evidence on record without need for formal hearings. Thus, the NLRC gravely abused its discretion when
it dismissed the instant case.

Second, relying on and applying the principles enunciated in Remigio v. National Labor Relations
Commission38 together with the application of Sec. 20 in relation to Secs. 30 and 30-A of the SEC, the appellate
court appreciated and found total and permanent disability of Bastol, considering the undisputed fact that he
could not pursue his usual work as a seaman for a period of more than 120 days. Moreover, it noted that no less
than four doctors—Dr. Peralta, Dr. Lim, Dr. Varwig and Dr. Vicaldo—found Bastol to be suffering from a heart
ailment which prevented him from being employed at his usual job as a seafarer or seaman.

Third, the CA viewed no violation of Sec. 20, B, 3 of the SEC, for said proviso in its third paragraph does not
prohibit a second medical opinion, but, in fact, provides for the seafarer the right to seek a second opinion and
even a third opinion in cases where the seafarer’s doctor disagrees with the assessment of the company-
designated doctor. Thus, the CA ruled that the NLRC gravely erred in construing the proviso that it is only the
company-designated physician who could declare the fitness of the seafarer to work or establish the degree of
his disability. In fine, the CA pointed out that the SEC does not serve to be a limitation but is a guarantee of
protection to overseas contract workers and must, therefore, be construed and applied fairly, reasonably and
liberally in favor of and for the benefit of seamen and their dependents.

OSCI moved for reconsideration39 of the above assailed CA Decision but the appellate court denied the same
through the first assailed January 7, 2009 Resolution. While affirming its Decision, the CA held in its
Resolution:

Finding no cogent or justifiable reason to set aside the Decision of this Court dated August 12, 2008 dismissing
the instant petition, the motion for reconsideration filed by the petitioners is hereby not given due course.

WHEREFORE, the aforementioned decision is hereby AFFIRMED and REITERATED.

SO ORDERED.40
 Republic of the Philippines
SUPREME COURT
Baguio City

SECOND DIVISION

G.R. No. 174160 April 20, 2010

HACIENDA BIGAA, INC., Petitioner,

vs.
EPIFANIO V. CHAVEZ (deceased), substituted by SANTIAGO V. CHAVEZ, Respondent.

DECISION

BRION, J.:

This petition for review on certiorari1 challenges the Court of Appeals (CA) decision of May 31, 20012 and
resolution of August 2, 20063 in CA-G.R. SP No. 46176, affirming in toto the judgments of both the Municipal
Trial Court (MTC) of Calatagan and the Regional Trial Court (RTC) of Batangas dismissing the complaint for
forcible entry in Civil Case No. 129.

THE FACTS

We summarize below the factual antecedents of the present case based on the records before us.

On June 5, 1996, petitioner Hacienda Bigaa, Inc. (Hacienda Bigaa) filed with the Municipal Trial Court (MTC)
of Calatagan, Batangas a complaint4 for ejectment (forcible entry) and damages with application for writ of
preliminary injunction against respondent Epifanio V. Chavez (Chavez), docketed as Civil Case No. 129. The
complaint alleged that Chavez, by force, strategy and/or stealth, entered on April 29, 1996 the premises of
Hacienda Bigaa's properties covered by Transfer Certificate of Title (TCT) Nos. 44695 and 56120 by cutting
through a section of the barbed wire fence surrounding the properties and destroying the lock of one of its gates,
subsequently building a house on the property, and occupying the lots without the prior consent and against the
will of Hacienda Bigaa.

The records show that the lots were originally covered by TCT No. 722 owned by Ayala y Cia5 and/or Alfonso,
Jacobo and Enrique Zobel, with an area of 9,652.583 hectares, known as Hacienda Calatagan. Ayala and/or the
Zobels expanded TCT No. 722 to cover an additional 2,000 hectares of land consisting, among others, of beach,
foreshore and bay areas, and navigable waters (excess areas), making it appear that these excess areas are part
of Hacienda Calatagan's TCT No. 722. The Ayalas and/or the Zobels later ordered the subdivision of the
hacienda, including these excess areas, and sold the subdivided lots to third parties. 6

Among the buyers or transferees of the expanded and subdivided areas was Hacienda Bigaa which caused the
issuance of titles – TCT Nos. 44695 and 56120 – under its name covering the purchased subdivided areas. Thus,
in his answer before the MTC of Calatagan, then defendant (now respondent) Epifanio V. Chavez alleged that
then plaintiff (now petitioner) Hacienda Bigaa is the successor-in-interest of Ayala y Cia, Hacienda Calatagan,
Alfonso Zobel, Jacobo Zobel and Enrique Zobel – the original titular owners of TCT No. 722.

Portions of the same lands – foreshore lands – were leased out by the Republic, through the Bureau of Fisheries,
to qualified applicants in whose favor fishpond permits were issued. The government-issued fishpond permits
pertaining to lands covered by titles derived from TCT No. 722 of Ayala y Cia and/or the Zobels, gave rise to
ownership and/or possessory disputes between the owners of Hacienda Calatagan and their privies and/or
successors-in-interest, on the one hand, and the Republic or its lessees or fishpond permittees, on the other.
Suits were filed in various courts in Batangas for the recovery of the areas in excess of the area originally
covered by TCT No. 722, which suits ultimately reached the Supreme Court. In the Court's 1965 decisions in
Dizon v. Rodriguez7 (for quieting of title) and Republic v. Ayala y Cia and/or Hacienda Calatagan, et al.8 (for
annulment of titles), the excess areas of TCT No. 722 were categorically declared as unregisterable lands of
the public domain such that any title covering these excess areas are necessarily null and void. In these cases,
the Ayalas and the Zobels were found to be mere usurpers of public domain areas, and all subdivision titles
issued to them or their privies and covering these areas were invalidated; the wrongfully registered public
domain areas reverted to the Republic. In Dizon, the Court declared as void the Zobels' TCT No. 2739 and its
derivative titles covering subdivision Lots 1 and 49 – areas sold to the Dizons – as areas in excess of TCT No.
722 and are properly part of the public domain. In Ayala y Cia, the Court invalidated TCT No. 9550 and "all
other subdivision titles" issued in favor of Ayala y Cia and/or the Zobels of Hacienda Calatagan over the areas
outside its private land covered by TCT No. 722. These areas, including the lots covered by TCT No. 9550,
reverted to public dominion.9

The pronouncement in the above cases led to the Court's 1988 decision in Republic v. De los Angeles,10 a case
covering the same excess areas under a reinvindicatory claim of the Republic aimed at recovering lands usurped
by the Ayalas and the Zobels and at placing the Republic’s lessees and fishpond permittees in possession. The
Court effectively held that as owner of the excess lands, the Republic has the right to place its lessees and
fishpond permittees – among them Zoila de Chavez, predecessor-in-interest of Chavez – in possession. The
Court invalidated TCT Nos. 3699 and 9262 for being among the "other subdivision titles" declared void and
ordered reverted to public dominion.

To return to the forcible entry case, then defendant (now respondent) Chavez alleged in his answer before the
MTC of Calatagan that his mother, Zoila de Chavez (who died intestate on September 14, 1979) was a fishpond
permittee/lessee under Fishpond Permit Nos. F-4572-0 and F-24735 issued by the Bureau of Fisheries on April
21, 1959 and June 3, 1966, respectively; that the areas covered by the permits are the same parcels of land
which he presently occupies as Zoila's successor-in-interest and which Hacienda Bigaa also claims.

Chavez likewise asserted that Hacienda Bigaa is the successor-in-interest of Ayala y Cia, Hacienda Calatagan,
Alfonso Zobel, Jacobo Zobel and Enrique Zobel who owned land with an area of 9,652.583 hectares, covered
by TCT No. 722 in the Registry of Deeds of Batangas; that Ayala y Cia, the Zobels, or Hacienda Calatagan,
illegally expanded the original area of TCT No. 722 by 2,000 hectares; that suits were filed to recover the
expanded area; that these suits reached the Supreme Court which declared that these excess areas are part of the
public domain and ordered their reversion to the Republic; that the Supreme Court likewise declared certain
TCTs covering the subdivision lots outside the area of TCT No. 722 and issued to transferees as null and void;
therefore, Hacienda Bigaa's titles – TCT Nos. 44695 and 56120 – carry no probative value as they are of
dubious origins and have been nullified by the Supreme Court.11

Chavez further argued that the suit is barred by prior judgment in two prior cases – (1) Civil Case No. 78, a suit
for unlawful detainer filed by the Zobels against Chavez’s predecessor-in-interest, Zoila de Chavez, before the
then Justice of the Peace Court (now Municipal Trial Court) of Calatagan, Batangas; and (2) Civil Case No.
653, a case of accion reinvindicatoria with prayer for preliminary mandatory injunction filed by the Republic,
Zoila de Chavez, and other lessees or fishpond permittees of the Republic, against Enrique Zobel (Hacienda
Bigaa's predecessor-in-interest) before the then Court of First Instance of Batangas. This case reached this Court
as G.R. No. L-30240 entitled "Republic of the Philippines v. De los Angeles, Enrique Zobel, et al."12 and was
decided in 1988. Chavez asserts that the subject matter and the issues involved in these cases are squarely
similar and/or identical to the subject matter and issues involved in the present forcible entry suit; the rulings in
these two cases, therefore constitute res judicata with respect to the present case.

The MTC held a preliminary conference where the parties stipulated and identified the issues in the forcible
entry case, viz: (1) who between the parties has a better right of possession over the premises in question; (2)
whether there is res judicata; and (3) whether the parties are entitled to damages. 13 These are essentially the
same basic issues that are before us in the present petition.

The MTC, the RTC and the CA’s Decision

The MTC rendered a decision14 dismissing Hacienda Bigaa's complaint, holding that the disputed lots form part
of the areas illegally expanded and made to appear to be covered by TCT No. 722 of Hacienda Bigaa's
predecessors-in-interest (Ayala y Cia and/or the Zobels of Hacienda Calatagan); hence, the Hacienda's title are
null and void. In so ruling, the MTC applied this Court's pronouncements in the antecedent cases of Dizon v.
Rodriguez,15 Republic v. Ayala y Cia and/or Hacienda Calatagan, Zobel, et al.,16 and Republic v. De los
Angeles.17

The MTC added that since Hacienda Bigaa did not present proof to counter Chavez's claim that the disputed
lots form part of the illegally expanded areas of Hacienda Calatagan, these lots are deemed to be the same lots
litigated in the previous cases. The MTC also found prior possession in favor of Chavez, as revealed by the
antecedent cases – particularly, De los Angeles where Chavez’s mother, Zoila de Chavez, had been ousted by
the Zobels from the fishpond lots she occupied. The MTC reasoned out that Zoila could not have been ousted
from the premises had she not been in prior possession. Since Epifanio succeeded Zoila in the possession of the
property, he inherited the latter’s prior possession and cannot now be ousted by Hacienda Bigaa.

The MTC likewise rejected Hacienda Bigaa's contention that the subdivision titles covering the disputed lots –
TCT Nos. 44695 and 56120 which were not specifically canceled by the previous decisions of the Court –
should be given probative value. The MTC ruled that the subsequent issuance of a certificate of title in favor of
the plaintiff does not vest title on it as the lands belong to the public domain and cannot be registered. 18 The
MTC stressed that the titles of Hacienda Bigaa were among the "other subdivision titles" declared void in the
case of Ayala y Cia as areas not legitimately covered by TCT No. 722 and which are therefore part of the public
domain. As ordered in the three antecedent cases of Dizon,19 Ayala y Cia,20 and De los Angeles,21 they should
revert to the Republic. The MTC opined that Hacienda Bigaa has the burden of proving that the subject lots are
not part of the illegally expanded areas; Hacienda Bigaa failed to discharge this duty when it did not present
proof to controvert Chavez's allegation that the lots covered by Hacienda’s TCTs are among the lots litigated in
the cited cases. The MTC reiterated the following ruling of the Court in Republic v. De los Angeles:

x x x [F]or almost 23 years now execution of the 1965 final judgment in G.R. No. L-20950, ordering the
cancellation of the subdivision titles covering the expanded areas outside the private lands of Hacienda
Calatagan, is being frustrated by respondent Zobel, the Ayala and/or Hacienda Calatagan. As a consequence,
the mass usurpation of lands of public domain consisting of portions of the territorial sea, the foreshore, beach
and navigable water bordering the Balayan Bay, Pagaspas Bay and the China Sea, still remain unabated. The
efforts of Ayala and Zobel to prevent execution of said final judgment are evident from the heretofore-
mentioned technical maneuvers they have resorted to.

Clearly, the burden of proof lies on respondent Zobel and other transferees to show that his subdivision titles are
not among the unlawful expanded subdivision titles declared null and void by the said 1965 judgment.
Respondent Zobel not only did not controvert the Republic's assertion that his titles are embraced within
the phrase "other subdivision titles" ordered canceled but failed to show that the subdivision titles in his
name cover lands within the original area covered by Ayala's TCT No. 722 (derived from OCT No. 20)
and not part of the beach, foreshore and territorial sea belonging and ordered reverted to public
dominion in the aforesaid 1965 judgment.22 x x x (Emphasis supplied.)

Based on the above disquisition and taking into account the consistent efforts of Hacienda Bigaa's predecessors-
in-interest in "thwarting the execution" of the Court's decision in the antecedent cases, the MTC declared that
the Chavezes, as the Republic’s lessees/permittees, should have been in possession long ago. The MTC held:
Thus, the court holds that the land now in litigation forms part of the public dominion which properly belongs to
the State. Suffice it to say that when the defendant [Epifanio V. Chavez] entered and occupied the same on
April 29, 1996, it was in representation of the State being the successor-in-interest of Zoila de Chavez, a
government fishpond permittee and/or lessee. It should be recounted that Zoila de Chavez was in actual
physical possession of the land until she was ousted by Enrique Zobel by bulldozing and flattening the area.

The recovery of this public land in favor of the State is long overdue. Zoila de Chavez or her successor-in-
interest should have been in actual and adequate possession and occupation thereof long time ago by
virtue of the Supreme Court decisions anent the matter in 1965 which were reiterated in 1988 had not the
plaintiff and its predecessors-in-interest succeeded in defeating the enforcement of the said decisions. To
allow the plaintiff to retain possession of these usurped public lands by ousting the government's fishpond
permittees and/or lessees such as the defendant is to further frustrate the decisions of the Supreme Court on the
matter. (Emphasis supplied.)

The MTC finally ruled that the elements of res judicata are present. The forcible entry case before it shared an
identity of parties with Civil Case No. 78 for unlawful detainer and Civil Case No. 653 (the Delos Angeles
case) of accion reinvindicatoria because all of these cases involve the predecessors-in-interest of the present
parties. In Civil Case No. 78, the plaintiff was Enrique Zobel, predecessor of Hacienda Bigaa, and the defendant
was Zoila de Chavez, mother and predecessor of Epifanio V. Chavez. In Civil Case No. 653 which reached and
was decided by this Court in 1988 as Republic vs. De los Angeles, Zoila de Chavez was one of the plaintiffs
and Enrique Zobel was one of the defendants.23 The MTC also found identity of subject matter because the
forcible entry case shared with the previous cases the same subject matter, i.e., the same lands adjudged by the
Supreme Court as part of the public domain usurped by the Zobels, et al. through their illegally expanded
titles.24 As to identity of causes of action, the MTC held that although the previous cases were for unlawful
detainer and accion reinvindicatoria while the case before it was for forcible entry, an identity of issues existed
because all these cases involved conflicting claims of ownership, occupation and possession of the property
which have long been settled by the Supreme Court. It recognized that under the concept of conclusiveness of
judgment, res judicata merely requires an identity of issue, not an absolute identity of causes of action. 25

On October 1, 1996, Hacienda Bigaa appealed the MTC's decision to the Regional Trial Court (RTC) of
Batangas26 which affirmed in toto the appealed decision.

On February 16, 1998, Hacienda Bigaa filed its petition for review27 with the Court of Appeals (CA), docketed
as CA-G.R. SP No. 46716. The CA in its decision of June 1, 2001 dismissed the petition for review, totally
affirming the RTC and MTC decisions.28 Hacienda Bigaa timely filed a motion for reconsideration. However,
while the motion was pending, Associate Justice Salvador J. Valdez, Jr., the ponente of the decision sought to
be reconsidered, retired from the Judiciary. As a result, the motion "slipped into hibernation" for five years. 29

The CA, on August 2, 2006, this time through Associate Justice Juan Q. Enriquez, Jr., rendered its resolution on
the motion for reconsideration.30 It denied reconsideration on the reasoning that the grounds and arguments
raised were mere iterations of those already raised in the petition for review.

THE PETITION

Hacienda Bigaa is now before us via a petition for review under Rule 45 of the Rules of Court to assail the CA
ruling. Among other things, it argues that the CA's Resolution is patently erroneous because the grounds and
arguments raised in its motion for reconsideration were not mere reiterations; it claims, as one of the grounds in
its motion for reconsideration, that the "final determination of the scope and extent" of the area allegedly in
excess of that covered by TCT No. 722 of Ayala y Cia – was made only after the petition for review was filed
on February 16, 1998.

In its petition, Hacienda Bigaa raises the following issues of law:

 I. WHETHER THE REGISTERED OWNER OF LAND IN POSSESSION OF A TORRENS
CERTIFICATE OF TITLE MUST ENJOY THE OWNERSHIP AND POSSESSION, AMONG
OTHERS, OF THE LAND COVERED THEREBY, WHERE THE SAID TITLE HAS NOT BEEN
DECLARED NULL AND VOID, SUCH THAT THE TITLE MUST BE GIVEN PROBATIVE
VALUE.

II. WHETHER IT IS PETITIONER HACIENDA BIGAA OR ZOILA DE CHAVEZ (OR HER

SUCCESSOR, RESPONDENT EPIFANIO V. CHAVEZ) WHO HAS A BETTER RIGHT OF
POSSESSION OVER THE SUBJECT LOTS.

THE COURT'S RULING

We find the petition unmeritorious.

We note at the outset that the objection on the delineation of the scope and extent of the excess areas of TCT
No. 722 came too late in the day; it is an issue that the Hacienda admits to have raised for the first time when it
sought reconsideration of the CA decision. We significantly note, too, that this issue involves a question of fact
whose determination is improper in a Rule 45 proceeding before this Court.

Thus, to our mind, the only real questions appropriate for resolution at this stage of the case are: (1) Do the
TCTs of Hacienda Bigaa have probative value in determining the issues of ownership and possession of the
disputed lots? (2) Is Chavez – as successor-in-interest of government lessee or fishpond permittee Zoila de
Chavez – entitled to possession of these lots? In these lights, the resolution of this case hinges on the question of
better title – who, between the petitioner and the respondent, has the better right of possession of the disputed
lots.

Are these issues misplaced in a forcible entry case?

To answer this, we hark back to the origins of the present case – a complaint for forcible entry that the MTC of
Calatagan, Batangas dismissed. Both the RTC and the CA subsequently affirmed this dismissal. As a forcible
entry suit, the threshold question presented is: was the prior possession of the then plaintiff (now petitioner)
Hacienda Bigaa over the disputed lots sufficiently established to give it cause for the ejectment of then
defendant (now respondent) Epifanio Chavez?

We recall in this regard that the MTC issued a pre-trial order identifying the issues of (1) who has the better
right of possession; and (2) res judicata.31 On the issue of possession, the MTC found the need to determine the
question of title or ownership in passing upon the question of possession after Chavez raised the issue of
ownership at that level. As a general rule in forcible entry cases, ownership or title is inconsequential; the
primordial issue is possession de facto and not possession de jure. The court, however, may tackle the issue of
ownership or title, if raised, if this issue is indispensable in resolving the issue of possession.32 Since Chavez
raised the question of ownership or title in his answer, the issue of ownership became a material consideration
in the lower court's inquiry into the character, nature and extent of the parties’ claimed possession.

The MTC tackled the issue of prior possession by taking judicial notice of our factual determination in De los
Angeles that Zobel of Hacienda Calatagan – Hacienda Bigaa's predecessor-in-interest – had ousted Zoila de
Chavez – Chavez's predecessor-in-interest – from the lots she occupied as a holder of government-issued
fishpond permits. The MTC in this regard held –

[T]he court holds that the land now in litigation forms part of the public dominion which properly belongs to the
State. Suffice it to say that when [respondent Chavez] entered and occupied the [premises] on April 29, 1996, it
was in representation of the State being the successor-in-interest of Zoila de Chavez, a government
fishpond permittee and/or lessee. It should be recounted that Zoila de Chavez was in actual physical
possession of the land until she was ousted by Enrique Zobel by bulldozing and flattening the area.
(Emphasis supplied.)

Zoila de Chavez's ouster from the premises became the basis of the MTC’s conclusion that she had prior
possession as she could not have been ousted from the premises had she not been in prior possession. This point
was reiterated in the present petition by Chavez who died pending the resolution of this case and has been
substituted by his brother, Santiago V. Chavez.33 The respondent’s comment before us states:34

Of note, as hereafter shown, [in the case of Republic vs. De los Angeles, G.R. No. L-30240, March 25, 1988],
the Supreme Court explicitly recognized the priority of possession of the respondent [Chavez] over the subject
lots:

[Respondent therein] Zobel had ousted Zoila de Chavez, a government fishpond permittee, from a
portion of subject fishpond lot described as Lot 33 of Plan Swo-30999 (also known as Lots 55 and 56 of
subdivision TCT No. 3699) by bulldozing the same, and [threatening] to eject fishpond permittees Zoila de
Chavez, Guillermo Mercado, Deogracias Mercado, and Rosendo Ibañez from their respective fishpond lots
described as Lots 4, 5, 6, and 7, and Lots 55 and 56, of Plan Swo-30999, embraced in the void subdivision titles
TCT No. 6399 and TCT No. 9262 claimed by said respondent. Thus, on August 2, 1967, the Republic filed an
Amended Complaint captioned "Accion Reinvindicatoria with Preliminary Injunction" against respondent
Zobel and the Register of Deeds of Batangas, docketed as Civil Case No. 653, for cancellation of Zobel's void
subdivision titles TCT No. 3699 and TCT No. 9262 and the reconveyance of the same to the government; to
place aforenamed fishpond permittees in peaceful and adequate possession thereof; to require respondent Zobel
to pay back rentals to the Republic, and to enjoin said respondent from usurping and exercising further acts of
dominion and ownership over the subject land of public domain.35 (Emphasis supplied.)

This argument on the direct issue of prior possession is separate from the issue of ownership that Chavez raised
as an issue determinative of possession. The issue of ownership shifts our determination to who, between the
parties, has title and the concomitant right of possession to the disputed lots.

The issue of possession, as it relates with the ownership of the disputed property, has been conclusively
resolved in the antecedent cases.

As framed above, the case before us inevitably brings to memory the antecedent decided cases touching on the
ownership of the vast tract of land in Calatagan, Batangas, covered by Transfer Certificate of Title (TCT) No.
722 in the name/s of Ayala y Cia, Alfonso Zobel, Jacobo Zobel and Enrique Zobel and/or Hacienda Calatagan –
the predecessors-in-interest of petitioner Hacienda Bigaa. We ruled in the antecedent cases of Dizon,36 Ayala y
Cia,37 and De los Angeles,38 that: (1) all expanded subdivision titles issued in the name of Ayala y Cia, the
Zobels and/or Hacienda Calatagan covering areas beyond the true extent of TCT No. 722 are null and void
because they cover areas belonging to the public domain; (2) Ayala y Cia and the Zobels of Hacienda Calatagan
are mere usurpers of these public domain areas; and that (3) these areas must revert to the Republic.
Significantly, we declared in De los Angeles that the Republic, as the rightful owner of the expanded areas –
portions of the public domain – has the right to place its lessees and permittees (among them Zoila de Chavez)
in possession of the fishpond lots whose ownership and possession were in issue in the case.

These antecedent cases lay to rest the issues of ownership and of possession as an attribute thereof, which we
both ruled to be in favor of the Republic and its lessees or permittees.

The present case is a stark repetition of scenarios in these cases. The protagonists remain virtually the same –
with petitioner Hacienda Bigaa taking the place of its predecessors-in-interest Ayala y Cia and/or the Zobels of
Hacienda Calatagan, and respondent Epifanio V. Chavez taking the place of his predecessor-in-interest Zoila de
Chavez whose possession was under bona fide authority from the Republic. Considering that in this case the
disputed lots are among those litigated in the antecedent cases and the issues of ownership and possession are
again in issue, the principle of res judicata inevitably must be considered and applied, if warranted.

The doctrine of res judicata is set forth in Section 47 of Rule 39 of the Rules of Court, which in its relevant part
reads:

Sec. 47. Effect of judgments or final orders. — The effect of a judgment or final order rendered by a court of
the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

xxxx

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any
other matter that could have been raised in relation thereto, conclusive between the parties and their
successors in interest by title subsequent to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and in the same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to
have been adjudged in a former judgment or final order which appears upon its face to have been so
adjudged, or which was actually and necessarily included therein or necessary thereto.

This provision comprehends two distinct concepts of res judicata: (1) bar by former judgment and (2)
conclusiveness of judgment. Under the first concept, res judicata absolutely bars any subsequent action when
the following requisites concur: (a) the former judgment or order was final; (b) it adjudged the pertinent issue or
issues on their merits; (c) it was rendered by a court that had jurisdiction over the subject matter and the parties;
and (d) between the first and the second actions, there was identity of parties, of subject matter, and of causes of
action.39

Where no identity of causes of action but only identity of issues exists, res judicata comes under the second
concept – i.e., under conclusiveness of judgment. Under this concept, the rule bars the re-litigation of particular
facts or issues involving the same parties even if raised under different claims or causes of action. 40
Conclusiveness of judgment finds application when a fact or question has been squarely put in issue, judicially
passed upon, and adjudged in a former suit by a court of competent jurisdiction. The fact or question settled by
final judgment or order binds the parties to that action (and persons in privity with them or their successors-in-
interest), and continues to bind them while the judgment or order remains standing and unreversed by proper
authority on a timely motion or petition; the conclusively settled fact or question furthermore cannot again be
litigated in any future or other action between the same parties or their privies and successors-in-interest, in the
same or in any other court of concurrent jurisdiction, either for the same or for a different cause of action. Thus,
only the identities of parties and issues are required for the operation of the principle of conclusiveness of
judgment.41

While conclusiveness of judgment does not have the same barring effect as that of a bar by former judgment
that proscribes subsequent actions, the former nonetheless estops the parties from raising in a later case the
issues or points that were raised and controverted, and were determinative of the ruling in the earlier case. 42 In
other words, the dictum laid down in the earlier final judgment or order becomes conclusive and continues to be
binding between the same parties, their privies and successors-in-interest, as long as the facts on which that
judgment was predicated continue to be the facts of the case or incident before the court in a later case; the
binding effect and enforceability of that earlier dictum can no longer be re-litigated in a later case since the
issue has already been resolved and finally laid to rest in the earlier case. 43

a. Identity of Parties
As already stated above, the parties to the present case are virtually the same as those in the antecedent cases.
Specifically in De los Angeles, the parties were Enrique Zobel, the predecessor-in-interest of petitioner
Hacienda Bigaa, and Zoila de Chavez, the mother and predecessor-in-interest of Chavez.

b. Identity of Subject Matter

Hacienda Bigaa and Chavez are litigating the same properties subject of the antecedent cases inasmuch as they
claim better right of possession to parcels of land covered by subdivision titles derived from Hacienda
Calatagan's TCT No. 722 and by government-issued fishpond permits. Specifically in De los Angeles, the
Zobels and Zoila de Chavez litigated the disputed lots covered by subdivision titles in Zobel’s name and by
fishpond permits the Republic issued in favor of de Chavez.

In ruling that the subject lots are the same lots litigated in the previously decided cases, the courts below based
their findings on De los Angeles that in turn was guided by our rulings in Dizon and Ayala y Cia. For emphasis,
we reiterate our ruling in De los Angeles: all areas the Ayalas and/or the Zobels made to appear to be covered
by TCT No. 722 are owned by the Republic because they form part of the public domain; specifically, portions
of the navigable water or of the foreshores of the bay converted into fishponds are parts of the public domain
that cannot be sold by the Ayalas and/or the Zobels to third parties.

In his answer before the MTC, Chavez asserted that the areas covered by the fishpond permits of Zoila de
Chavez are the same parcels of land that he now occupies as Zoila's successor-in-interest. Given the rulings in
the antecedent cases that Chavez invoked, Hacienda Bigaa never bothered to object to or to rebut this allegation
to show that the presently disputed lots are not part of the expanded areas that, apart from the specifically
described titles, Ayala y Cia described as "other subdivision titles" covering unregisterable lands of the public
domain that must revert to the Republic.44 Hacienda Bigaa should have objected as we held in De los Angeles
that the onus is on Ayala and the Zobels – Hacienda Bigaa’s predecessors-in-interest – to show that their titles
do not cover the expanded areas whose titles were declared null and void. 45 We find no cogent reason to depart
from our past rulings in the antecedent cases, and from the ruling of the courts below in this case that the lots
claimed by Hacienda Bigaa are the same lots covered by our rulings in the antecedent cases.

c. Identity of Issues

This case and the antecedent cases all involve the issue of ownership or better right of possession. In Ayala y
Cia, we affirmed an RTC decision that decreed:

WHEREFORE, judgment is hereby rendered as follows:

(a) Declaring as null and void Transfer Certificate of Title No. T-9550 (or Exhibit "24") of the Register of
Deeds of the Province of Batangas and other subdivision titles issued in favor of Ayala y Cia and;or Hacienda
de Calatagan over the areas outside its private land covered by TCT No. 722, which, including the lots in T-
9550 (lots 360, 362, 363 and 182) are hereby reverted to public dominion.46 (Emphasis supplied, italics in the
original.)

Consequently, lots and their titles derived from the Ayala’s and the Zobels’ TCT No. 722 not shown to be
within the original coverage of this title are conclusively public domain areas and their titles will be struck
down as nullities.

Thus, De los Angeles47 effectively annulled the subdivision titles disputed in the case for being among the
"other subdivision titles" declared void for covering public domain areas, and ordered their reversion to the
Republic. De los Angeles recognized, too, the right of the Republic's lessees and public fishpond permittees
(among them Zoila de Chavez, mother and predecessor-in-interest of Chavez) to possess the fishpond lots
in question because they derive their right of possession from the Republic – the rightful owner of these
lots.

We reject, based on these discussions, Hacienda Bigaa's position that there could be no res judicata in this case
because the present suit is for forcible entry while the antecedent cases adverted were based on different causes
of action – i.e., quieting of title, annulment of titles and accion reinvindicatoria. For, res judicata, under the
concept of conclusiveness of judgment, operates even if no absolute identity of causes of action exists. Res
judicata, in its conclusiveness of judgment concept, merely requires identity of issues. We thus agree with the
uniform view of the lower courts – the MTC, RTC and the CA – on the application of res judicata to the present
case.

Hacienda Bigaa's Titles Carry No Probative Value

Hacienda Bigaa contends that the rulings in the antecedent cases on the nullity of its subdivision titles should
not apply to the present case because the titles – TCT Nos. 44695 and 56120 – have not been specifically
declared void by court order and must be given probative value. It likewise posits that Chavez failed to
introduce evidence before the MTC that the land subject matter of the suit is the same land covered by the
decision of the Supreme Court in the antecedent cases.

We reject this contention in light of our holding in the Ayala y Cia and De los Angeles cases that apart from
those expressly litigated and annulled, all "other subdivision titles" over the excess areas of Hacienda Calatagan
must be nullified for covering unregisterable lands of the public domain that must revert to the Republic.48 To
reiterate, lots and their titles derived from the Ayala’s and the Zobels’ TCT No. 722 not shown to be within the
original coverage of this title are conclusively public domain areas and their titles will be struck down as
nullities. What could have saved Hacienda Bigaa, as successor-in-interest of the Ayalas and the Zobels, is
competent evidence that the subdivision titles in its possession do not fall within the excess areas of TCT No.
722 that are null and void because they are lands of the public domain. Hacienda Bigaa however failed to
discharge this burden.

Therefore, the Court of Appeals, citing Ayala y Cia and De los Angeles, correctly held that –

x x x [S]uffice it to state that as heretofore shown, the Supreme Court took cognizance of the fact that Zoila de
Chavez's fishpond permit is within the land covered by the cited decision. Moreover, the Supreme Court has
shifted the burden of proof in this regard to Zobel or Ayala y Cia when it declared that, "Clearly, the burden
of proof lies on respondent Zobel and other transferees to show that his subdivision titles are not among
the unlawful expanded subdivision titles declared null and void by the said 1965 judgment."49 (Emphasis
supplied.)

In any event, Hacienda Bigaa can never have a better right of possession over the subject lots above that of the
Republic because the lots pertain to the public domain. All lands of the public domain are owned by the State –
the Republic. Thus, all attributes of ownership, including the right to possess and use these lands, accrue to the
Republic. Granting Hacienda Bigaa the right to possess the subject premises would be equivalent to "condoning
an illegal act" by allowing it to perpetuate an "affront and an offense against the State" – i.e., occupying and
claiming as its own lands of public dominion that are not susceptible of private ownership and appropriation.50
Hacienda Bigaa – like its predecessors-in-interests, the Ayalas and the Zobels – is a mere usurper in these
public lands. The registration in Hacienda Bigaa's name of the disputed lots does not give it a better right than
what it had prior to the registration;51 the issuance of the titles in its favor does not redeem it from the status of a
usurper. We so held in Ayala y Cia and we reiterated this elementary principle of law in De los Angeles.52 The
registration of lands of the public domain under the Torrens system, by itself, cannot convert public lands into
private lands.531avvphi1
As our last word, we find it particularly relevant to state here that we issued on October 6, 2008 a Resolution in
relation with the execution of our decision in the antecedent cases of Ayala y Cia and De los Angeles. 54 In this
Resolution, we emphasized that the decision we consistently affirmed ordered the following: (1) the
nullification of all subdivision titles that were issued in favor of Ayala y Cia and/or Hacienda Calatagan (and
their successors-in-interest) over the areas outside its private land covered by TCT No. 722; and (2) the
declaration that all lands or areas covered by these nullified titles are reverted to the public domain. This
should write finis to Hacienda Bigaa’s claim that its titles are beyond the reach of our decision in the antecedent
cases.

In sum, we find no reversible errors of law in the appealed decision of the Court of Appeals.

WHEREFORE, we DENY the present petition and AFFIRM the Court of Appeals’ decision of May 31, 2001
and resolution of August 2, 2006. We accordingly DISMISS WITH FINALITY the complaint for forcible
entry in Civil Case No. 129 before the Municipal Trial Court of Calatagan.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 149624 September 29, 2010

SPOUSES CONRADO ANTONIO and AVELYN ANTONIO, Petitioners,

vs.
JULITA SAYMAN VDA. DE MONJE, substituted by her heirs, namely: ANGELINA MONJE-
VILLAMOR, LUZVISMINDA MONJE-CORTEL, MARRIETA MONJE-ORTICO, LEOPOLDO
MONJE, CONCEPCION SAYMAN-MONJE, and ROLINDA MONJE-CALO, Respondents.

DECISION

PERALTA, J.:

Assailed in the present petition are the Decision 1 and Resolution2 of the Court of Appeals (CA) dated May 4,
2001 and August 3, 2001, respectively.

The facts of the case, as summarized by the CA, are as follows:

Spouses Catalino Manguiob and Andrea Pansaon were the original owners of the subject parcel of coconut land,
consisting of 15,903 square meters, particularly known as Lot No. 1 covered by Original Certificate of Title No.
1020 of the Register of Deeds of Davao.

On 02 September 1962, Andrea Pansaon who survived her husband Catalino Manguiob, together with some
other heirs, sold to Macedonio Monje Seven Thousand Five Hundred (7,500) square meters only of the
aforesaid property. The said deed of absolute sale was duly notarized by Notary Public Ricardo Reyes and
entered in his notarial book as Doc. No. 48; page 10; Book No. 5; Series of 1962.

Macedonio Monje immediately took possession thereof and constructed a house worth ₱30,000.00.

On 16 January 1967, the heirs of spouses Catalino Manguiob and Andrea Pansaon who also died, sold the
subject property which was already sold to Macedonio Monje in 1962, in favor of Nicanor Manguiob and
Carolina V. Manguiob.

Immediately thereafter, spouses Nicanor Manguiob and Carolina V. Manguiob had executed an absolute deed
of sale in favor of the former’s sister-in-law, Avelyn B. Antonio, the entire Lot No. [1] consisting of 15,903
square meters. The sale was entered in the notarial book of Notary Public Juanito T. Hernandez as Doc. No.
645; Page 31; Book 5, Series of 1967.

Macedonio Monje knew it only on 11 August 1967 when he received a letter from Avelyn B. Antonio,
informing him that she is now the registered owner of the subject property under a new Transfer Certificate of
Title No. TCT No. T-9643.

Aggrieved, Macedonio Monje filed on 12 October 1967 before the CFI of Baganga, Davao Oriental, a
complaint for the annulment of the deed of sale between the heirs of Catalino Manguiob and Carolina
Balanay/Nicanor Manguiob, as well as the subsequent deed of absolute sale by the latter in favor [of] Avelyn
Antonio and the cancellation of TCT No. T-9643, docketed as Civil Case No. 007-125.
On 27 August 1981, the aforesaid court rendered a decision the decretal portion thereof reads as follows:

WHEREFORE, judgment is hereby rendered, declaring the 2nd and 3rd deeds of sale of the property in
question null and void and transfer certificate of title No. 9643 likewise null and void; ordering the defendants
jointly and solidarily to pay the plaintiff moral damages of ₱30,000.00 and actual damages of ₱20,000.00, with
legal interest until the amount is fully paid; and to pay the costs.

Let a copy of this decision be served on the Register of Deeds at Mati, Davao Oriental, for appropriate action.

SO ORDERED.

Plaintiff-appellants, Spouses Antonio appealed the above-mentioned decision all the way to the Supreme Court.
On 07 December 1992, the Supreme Court in G.R. No. 69696, rendered a decision, the pertinent portion of
which states as follows:

We find that while the principle of res judicata is better disregarded if its application would involve the sacrifice
of justice to technicality; to so disregard it now and reopen the case would further delay its disposition.
However, the lower court should take note of its erroneous order to deliver to Monje an area larger than what he
bought from the heirs of Manguiob and claimed in the action he had filed, in the eventual execution of its
decision. In the same way that the power of the court in the execution of its judgment extends only over
properties belonging to the judgment debtor, the court below may not, in the execution of its decision of August
27, 1981, deliver to Monje the entire area covered by TCT No. T-9643 as it is more than double that of the
property he had bought. (pp. 15-16, rollo).

Prescinding from the decision of the Supreme Court, plaintiff-appellants [herein petitioners] filed a case for a
sum of money, accounting of the proceeds of the copra, damages and attorney’s fees against herein defendant-
appellees, docketed as Civil Case No. 506 before the Regional Trial Court of Baganga, Davao Oriental, Branch
7.

In the aforesaid complaint, plaintiffs-appellants alleged, among others that:

8. That the late Macedonio Monje has been in possession of this 15,903 square meters coconut land covered by
TCT No. T-9643 since 1967 which possession and enjoyment thereof has been continued by the herein
defendants when Monje died;

9. That as earlier pointed out, Monje is only entitled to 7,500 square meters of this subject property, hence,
plaintiffs were deprived of the possession and proceeds of the copra of their property consisting of 8,403 square
meters since 1967 (the year plaintiffs became the owner of this property) continuously up to the present.

10. That the possession by Macedonio Monje and the defendants of the whole 15,903 square meters of the
aforesaid land and their appropriation of the proceeds of the copra was made in bad faith for they know very
well that they are only entitled to 7,500 square meters portion of the land which is the only area they bought
from the heirs of Catalino Manguiob. (Please refer to Annex 'B')

xxxx

12. That since 1967 up to the present or a period of 27 years, Monje and the defendants appropriated unto
themselves the proceeds of the copra of the land belonging to the plaintiffs (8,403 square meters area) in the
estimated net amount of ₱420,714.00);

xxxx
Defendants-appellees [herein respondents], instead of filing an answer to the aforesaid complaint had opted to
file a motion to dismiss on the grounds of res judicata and violation of Supreme Court Circular No. 04-94 on
non-forum shopping. x x x3

On December 16, 1994, the Regional Trial Court (RTC) issued an Order dismissing herein petitioners'
complaint on the ground of res judicata.4

Aggrieved by the Order of the RTC, petitioners filed an appeal with the CA. Despite due notice, respondents
failed to file their appellees' brief. Consequently, the CA deemed the case submitted for decision without the
said brief.

On May 4, 2001, the CA rendered its presently assailed Decision affirming the judgment of the RTC and
dismissing the appeal of herein petitioners.1avvphi1

Petitioners filed a Motion for Reconsideration, but the same was dismissed by the CA in its Resolution dated
August 3, 2001.

Hence, the instant petition raising the lone issue of whether or not the CA erred in applying the principle of res
judicata with respect to Civil Case No. 007-125 and Civil Case No. 506.5

At the outset, the Court notes that respondents failed to file their comment on the present petition. As borne by
the records, several Court resolutions addressed to the respondents were returned either unserved or unheeded.
Thus, the Court dispensed with the filing of respondents' comment.

Going to the merits of the case, res judicata is defined as "a matter adjudged; a thing judicially acted upon or
decided; a thing or matter settled by judgment." 6 According to the doctrine of res judicata, an existing final
judgment or decree rendered on the merits, and without fraud or collusion, by a court of competent jurisdiction,
upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other
actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in
issue in the first suit.7 To state simply, a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies in all later suits on all points and matters
determined in the former suit.8

The principle of res judicata is applicable by way of (1) "bar by prior judgment" and (2) "conclusiveness of
judgment." This Court had occasion to explain the difference between these two aspects of res judicata as
follows:

There is "bar by prior judgment" when, as between the first case where the judgment was rendered and the
second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. In this
instance, the judgment in the first case constitutes an absolute bar to the second action. Otherwise put, the
judgment or decree of the court of competent jurisdiction on the merits concludes the litigation between the
parties, as well as their privies, and constitutes a bar to a new action or suit involving the same cause of action
before the same or other tribunal.

But where there is identity of parties in the first and second cases, but no identity of causes of action, the first
judgment is conclusive only as to those matters actually and directly controverted and determined and not as to
matters merely involved therein. This is the concept of res judicata known as "conclusiveness of judgment."
Stated differently, any right, fact or matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which judgment is rendered on the merits is
conclusively settled by the judgment therein and cannot again be litigated between the parties and their
privies whether or not the claim, demand, purpose, or subject matter of the two actions is the same.9
Stated differently, conclusiveness of judgment finds application when a fact or question has been squarely
put in issue, judicially passed upon, and adjudged in a former suit by a court of competent jurisdiction.10
The fact or question settled by final judgment or order binds the parties to that action (and persons in privity
with them or their successors-in-interest), and continues to bind them while the judgment or order remains
standing and unreversed by proper authority on a timely motion or petition; the conclusively-settled fact or
question cannot again be litigated in any future or other action between the same parties or their privies and
successors-in-interest, in the same or in any other court of concurrent jurisdiction, either for the same or for a
different cause of action.11 Thus, only the identities of parties and issues are required for the operation of the
principle of conclusiveness of judgment.12

In the present case, there is no question that there is identity of parties in Civil Case No. 007-125 and Civil Case
No. 506.

However, as to identity of issues, a perusal of the records and other pleadings would show that the issue raised
in Civil Case No. 007-125 is whether the sale to petitioners of the 7,500 square meter portion of Lot No. 1 being
contested by respondents is valid. On the other hand, in Civil Case No. 506, the issues are whether petitioners
were deprived of possession of the remaining 8,403 square meter portion of Lot No. 1 which was validly sold to
them and whether they are entitled to an accounting of the proceeds of the copra harvested from their property
which was supposedly appropriated by respondents. The Court finds that there is no identity of issues as the
issue raised in Civil Case No. 007-125 is different from, and does not overlap with, the issue raised in Civil
Case No. 506.

Respondents insist in their Motion to Dismiss filed with the RTC that the cause of action in Civil Case No. 506
is barred by the prior judgment rendered in Civil Case No. 007-125.

The Court agrees, however, with the CA that the causes of action in these cases are not identical.

The Court has previously employed various tests in determining whether or not there is identity of causes of
action as to warrant the application of the principle of res judicata. One test of identity is the "absence of
inconsistency test" where it is determined whether the judgment sought will be inconsistent with the prior
judgment.13 If no inconsistency is shown, the prior judgment shall not constitute a bar to subsequent actions.14
In the instant case, the reliefs prayed for in Civil Case No. 506 are the payment of a sum representing the
proceeds of the copra supposedly harvested from petitioners' property and purportedly misappropriated by
respondents. Petitioners also pray for the award of moral and exemplary damages, as well as attorney's fees and
litigation expenses. In the event that a judgment is rendered in favor of herein petitioners, who are the
complainants in Civil Case No. 506, the Court finds no possible inconsistency in the judgment sought in Civil
Case No. 506 with the judgment rendered in Civil Case No. 007-125.

The more common approach in ascertaining identity of causes of action is the "same evidence test," whereby
the following question serves as a sufficient criterion: "would the same evidence support and establish both the
present and former causes of action?" If the answer is in the affirmative, then the prior judgment is a bar to the
subsequent action; conversely, it is not.15 In the instant case, it is unmistakable that the pieces of evidence that
would back up the cause of action in Civil Case No. 007-125 are different from the set of evidence that would
prove the cause of action in Civil Case No. 506.

Aside from the "absence of inconsistency test" and "same evidence test," we have also ruled that a previous
judgment operates as a bar to a subsequent one when it had "touched on [a] matter already decided," or if the
parties are in effect "litigating for the same thing."16 A reading of the decisions of the lower and appellate courts
in Civil Case No. 007-125 would show that there were neither discussions nor disposition of the issues raised in
Civil Case No. 506.
The Court, nevertheless, does not agree with the conclusion of the RTC and the CA that Civil Case No. 007-125
and Civil Case No. 506 involve the same subject matter.

The final and executory judgment in Civil Case No. 007-125 cannot bar the filing of Civil Case No. 506, since
these cases involve entirely different subject matters. The bone of contention in Civil Case No. 007-125 is
confined to the 7,500 square meter portion of Lot No. 1 bought by the predecessor-in-interest of respondents,
while the subject matter in Civil Case No. 506 is the remaining 8,403 square meter parcel of the same lot. Since
there is no identity of subject matter between the two cases, it is but logical to conclude that there is likewise no
identity of causes of action.17

Both the questioned rulings of the RTC and the CA may have arisen from an apparent confusion that the whole
of Lot No. 1, consisting of 15,903 square meters, is owned by respondents. It is clear, however, from the
December 7, 1992 ruling of this Court in G.R. No. 6969618 that respondents' predecessor-in-interest acquired
only a 7,500 square meter portion of Lot No. 1 and not the entirety thereof and that the remaining 8,403 square
meters are still owned by petitioners.

In sum, the Court finds that there is no res judicata in the present case.

Lastly, petitioners' claims for accounting and recovery of the proceeds of the sale of copra, as well as for
damages, do not take the nature of a compulsory counterclaim that should have been barred if not set up in the
action. These claims do not arise out of, or are necessarily connected with, the transaction or occurrence
constituting the subject matter of the respondents' claim. Thus, petitioners' claims may be filed in a separate
action, which they did.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated May 4, 2001
and its Resolution dated August 3, 2001 in CA-G.R. CV No. 49356 are REVERSED and SET ASIDE. The
case is REMANDED for appropriate proceedings to the court of origin, Regional Trial Court, Branch 7, of
Baganga, Davao Oriental, which is DIRECTED to decide on the merits WITH REASONABLE DISPATCH.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 182720 March 2, 2010

G.G. SPORTSWEAR MFG. CORP., Petitioner,

vs.
WORLD CLASS PROPERTIES, INC., Respondent.

DECISION

BRION, J.:

Through its petition for review on certiorari, the petitioner G.G. Sportswear Mfg. Corp. (GG Sportswear) seeks
to reverse the December 19, 2007 decision1 and the January 2, 2008 resolution2 of the Court of Appeals (CA)
denying: (1) the rescission of its Reservation Agreement with the respondent, World Class Properties, Inc.
(World Class) and (2) a refund of the payments made pursuant to this Agreement.

The facts, as culled from the records, are briefly summarized below.

World Class is the owner/developer of Global Business Tower (now Antel Global Corporate Center), an office
condominium project located on Julia Vargas Avenue and Jade Drive, Ortigas Center, Pasig City slated for
completion on December 15, 1998.

GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse unit and 16 parking slots
for 32 cars in World Class's condominium project for the discounted, pre-selling price of ₱89,624,272.82. After
GG Sportswear paid the ₱500,000.00 reservation fee, the parties, on May 15, 1996, signed a Reservation
Agreement (Agreement)3 that provides for the schedule of payments, including the stipulated monthly
installments on the down payment and the balance on the purchase price, as follows:4

Item Amount to be paid Monthly Installment Duration

20% Down Payment ₱ 17,924,854.56 ₱ 1,742,485.45 May 1996 to Feb 1997
less: 500,000.00
(Reservation Fee)
₱ 17,424,854.56
60% Payment 53,774,563.69 1,792,485.45 Mar 1997 to Aug 1999
20% Final Payment 17,924,854.56 Upon turn-over
TOTAL PRICE ₱ 89,624,272.82

Based on the Agreement, the contract to sell pertaining to the entire 38th floor Penthouse unit and the parking
slots would be executed upon the payment of thirty percent (30%) of the total purchase price.5 It also
stipulated that all its provisions would be deemed incorporated in the contract to sell and other documents to be
executed by the parties thereafter. The Agreement also specified that the failure of the buyer to pay any of the
installments on the stipulated date would give the developer the right either to: (1) charge 3% interest per month
on all unpaid receivables, or (2) rescind and cancel the Agreement without the need of any court action and,
upon cancellation, automatically forfeit the reservation fee and other payments made by the buyer.6
From May to December 1996, GG Sportswear timely paid the installments due; the eight monthly installment
payments amounted to a total of ₱19,717,339.50, or 21% of the total contract price.

In a letter dated January 30, 1997,7 GG Sportswear requested the return of the outstanding postdated checks it
previously delivered to World Class because it (GG Sportswear) intended to replace these old checks with new
ones from the corporation’s new bank. World Class acceded, but suggested the execution of a new Reservation
Agreement to reflect the arrangement involving the replacement checks, with the retention of the other terms
and conditions of the old Agreement.8 GG Sportswear did not object to the execution of a new Reservation
Agreement, but requested that World Class defer the deposit of the replacement checks for 90 days.9 World
Class denied this request, contending that a deferment would delay the subsequent monthly installment
payments.10 It likewise demanded that GG Sportswear immediately pay its overdue January 1997 installment
to avoid the penalties11 provided in the Agreement.12

On March 5, 1997, GG Sportswear delivered the replacement checks and paid the January 1997 installment
payment which had been delayed by two months. World Class in turn issued a second Reservation
Agreement, which it transmitted to GG Sportswear for the latter’s conformity. World Class also sent GG
Sportswear a provisional Contract to Sell,13 which stated that the condominium project would be ready for
turnover to the buyer not later than December 15, 1998.

GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter 14 to World Class,
requesting that its check dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing
financial difficulties. When World Class rejected GG Sportswear’s request, GG Sportswear sent another letter
informing World Class that the second Reservation Agreement was incomplete because it did not expressly
provide the time of completion of the condominium unit.15 World Class countered that the provisional
Contract to Sell it previously submitted to GG Sportswear expressly provided for the completion date
(December 15, 1998) and insisted that GG Sportswear pay its overdue account.16

On June 10, 1997, GG Sportswear filed a Complaint17 with the Housing and Land Use Regulatory Board
(HLURB) claiming a refund of the installment payments made to World Class because it was dissatisfied with
the completion date found in the Contract to Sell.

In its Answer,18 World Class countered that: (1) it is not guilty of breach of contract since it is the petitioner that
committed a breach; (2) the complaint is an afterthought since GG Sportswear is suffering from financial
difficulties; (3) the petitioner’s dissatisfaction with the expected date of completion of the unit as indicated in
the proposed Contract to Sell is not a valid and sufficient ground for refund; (4) a refund is justified only in
cases where the owner/developer fails to develop the project within the specified period of time under
Presidential Decree (P.D.) No. 957,19 which period has not yet arrived; and (5) the petitioner was already in
default when it filed the complaint and therefore came to court with unclean hands.

On September 12, 2005, HLURB Arbiter Atty. Dunstan T. San Vicente (Arbiter) rendered a decision20
rescinding the Agreement, after finding that World Class violated Sections 4 and 5 of P.D. No. 957 by entering
into the Agreement without the required Certificate of Registration and License to Sell (CR/LS).21 He also
implied that a refund is proper in this case under Article 1416 of the Civil Code. As a consequence, he ordered
World Class to refund the amount of ₱19,717,339.50 paid by GG Sportswear with 6% legal interest thereon,
and to pay 10% of the principal amount as attorney’s fees. He likewise found World Class administratively
liable and ordered it to pay a fine of ₱10,000.00.

World Class appealed to the HLURB Board of Commissioners (Board). On January 31, 2006, the Board
modified the Arbiter’s decision by ruling that the Agreement could no longer be rescinded for lack of a CR/LS
because World Class had already been issued a License to Sell on August 1, 1996, or before the complaint was
filed.22 Notwithstanding this pronouncement, the Board still awarded a refund in GG Sportswear’s favor. The
Board reasoned that World Class had only until August 1998 to complete the project under its first License to
Sell. However, World Class, by its own actions, impliedly admitted that it would be incapable of completing
its project by this time; it repackaged the project and had applied for and been issued a new License to Sell,
which granted World Class until December 1999 to complete the project. 23 In essence, the Board equated World
Class’s "incapability" to finish the project within the time specified in its first License to Sell with a developer’s
"failure to develop" a condominium project – an omission sanctioned under P.D. No. 957 and entitled a buyer to
a refund of all payments made.24

In its decision25 of September 11, 2006, the Office of the President (OP) denied World Class’s appeal by
quoting extensively from the Arbiter’s decision. The OP subsequently denied World Class’s motion for
reconsideration in its November 13, 2006 order.26

In its petition for review27 before the CA, World Class essentially argued that the OP committed a grave abuse
of discretion when it upheld the Board’s ruling that GG Sportswear was entitled to a refund.

The CA, in its decision28 of December 19, 2007, reversed the OP decision and denied GG Sportswear’s prayers
for rescission of the Agreement and refund of the payments made. It explained that the OP should have given
weight to the Board’s modified finding that "the absence of the certificate of registration and license to sell no
longer existed at the time of the filing of the complaint and could no longer be used as basis to demand
rescission." Since GG Sportswear never appealed this finding, it had already attained finality and must bind the
OP.

On the awarded refund, the CA held that the OP erroneously based GG Sportswear’s right to recovery of
payments on Article 1416 of the Civil Code (as what the Arbiter’s decision 29 suggested), which entitles a
plaintiff to recover the amounts paid under a contract that violates mandatory or prohibitory laws. Since World
Class already had a CR/LS when GG Sportswear filed its complaint, GG Sportswear could no longer demand
rescission and refund under Sections 4 and 5 of P.D. No. 957.

The appellate court also found no merit in GG Sportswear’s argument that it was entitled to rescind the
Agreement and demand a refund because World Class failed to provide a Contract to Sell for the subject units.
Under the Agreement, the Contract to Sell would be executed only upon payment of thirty (30%) of the total
value of the sale; since GG Sportswear had only paid 21% of the total contract price, it could not demand the
execution of the Contract to Sell. The CA likewise denied GG Sportswear’s motion for reconsideration.30

Hence, GG Sportswear filed with this Court the present petition for review on certiorari,31 claiming that the CA
erred when: (1) it relied heavily on the Board’s finding that the Agreement could no longer be rescinded
because the CR/LS had already been issued at the time the complaint was filed, which was a mere obiter
dictum; and (2) it held that GG Sportswear was not entitled to the execution of a Contract to Sell because it had
not yet paid 30% of the total value of the sale.

THE RULING OF THE COURT

We find the petition devoid of merit.

The Board ruling that the Agreement could not be rescinded based on lack of a CR/LS had already attained
finality.

We explained the concept of an obiter dictum in Villanueva v. Court of Appeals 32 by saying:

It has been held that an adjudication on any point within the issues presented by the case cannot be considered
as obiter dictum, and this rule applies to all pertinent questions, although only incidentally involved, which are
presented and decided in the regular course of the consideration of the case, and led up to the final conclusion,
and to any statement as to matter on which the decision is predicated. Accordingly, a point expressly decided
does not lose its value as a precedent because the disposition of the case is, or might have been, made on some
other ground, or even though, by reason of other points in the case, the result reached might have been the same
if the court had held, on the particular point, otherwise than it did. A decision which the case could have turned
on is not regarded as obiter dictum merely because, owing to the disposal of the contention, it was necessary to
consider another question, nor can an additional reason in a decision, brought forward after the case has been
disposed of on one ground, be regarded as dicta. So, also, where a case presents two (2) or more points, any one
of which is sufficient to determine the ultimate issue, but the court actually decides all such points, the case as
an authoritative precedent as to every point decided, and none of such points can be regarded as having the
status of a dictum, and one point should not be denied authority merely because another point was more dwelt
on and more fully argued and considered, nor does a decision on one proposition make statements of the court
regarding other propositions dicta.33 [emphasis supplied.]

The Board’s pronouncement in its January 31, 2006 decision – that the Agreement could no longer be rescinded
because the CR/LS had already been issued at the time the complaint was filed – cannot be considered a mere
obiter dictum because it touched upon a matter squarely raised by World Class in its petition for review,
specifically, the issue of whether GG Sportswear was entitled to a refund on the ground that it did not have a
CR/LS at the time the parties entered into the Agreement.

With this ruling, the Board reversed the Arbiter’s ruling on this particular issue, expressly stating that "the
absence of the certificate of registration and license to sell no longer existed at the time of the filing of the
complaint and could no longer be used as basis to demand rescission." This ruling became final when GG
Sportswear chose not to file an appeal with the OP. Thus, even if the Board ultimately awarded a refund to GG
Sportswear based entirely on another ground, the Board’s ruling on the non-rescissible character of the
Agreement is binding on the parties.

Consequently, the OP had no jurisdiction to revert to the Arbiter’s earlier declaration that the Agreement was
void due to World Class’s lack of a CR/LS, a finding that clearly contradicted the Board’s final and executory
ruling.

There was no breach on the part of World Class to justify the rescission and refund.

GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or the refund of
payments it made to World Class under the Agreement.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation. 34 Whether the breach is slight or substantial is largely
determined by the attendant circumstances.35

GG Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with the completion date;
and (b) the lack of a Contract to Sell. As to the first ground, World Class makes much of the fact that the
completion date is not indicated in the Agreement, maintaining that this lack of detail renders the Agreement
void on the ground that the intention of the parties cannot be ascertained. We disagree with this contention.

In the first place, GG Sportswear cannot claim that it did not know the time-frame for the project’s completion
when it entered into the Agreement with World Class. As World Class points out, it is absurd and unbelievable
that Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did not have an idea of the
expected completion date of the condominium project before he bought the condominium units for
₱89,624,272.82. Even assuming that GG Sportswear was not aware of the exact completion date, we note that
GG Sportswear signed the Agreement despite the Agreement’s omission to expressly state a specific completion
date. This directly implies that a specific completion date was not a material consideration for GG Sportswear
when it executed the Agreement. Thus, even if we believe GG Sportswear’s contention that it was dissatisfied
with the completion date subsequently indicated in the provisional Contract to Sell, we cannot consider this
dissatisfaction a breach so substantial as to render the Agreement rescissible. The grant, too, to World Class of a
first License to Sell up to August 1998 and a second License to Sell up to December 1999, to our mind, served
as a clear notice of when the project was to be completed. As we discussed above, the initial lack of a License to
Sell is not a basis to cancel the Agreement and has in fact effectively been cured even if it may be considered an
initial defect.

Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement explicitly
provided that the condominium project would be ready for turnover no later than December 15, 1998, a clear
expression of the project’s completion date. While GG Sportswear claims dissatisfaction with this completion
date, it never alleged that the given December 15, 1998 completion date violates the completion date previously
agreed upon by the parties. In fact, nowhere does GG Sportswear allege that the parties ever agreed upon an
earlier completion date. We therefore find no reason for GG Sportswear to be dissatisfied with the indicated
completion date. Even if it had been unhappy with the completion date, this ground, standing alone, is not
sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in law as a basis
to rescind a contract.

As a last point on this topic, we cannot help but view with suspicion GG Sportswear’s decision to question the
second Reservation Agreement’s lack of an express completion date as this question only came up after World
Class had rejected GG Sportswear’s request to defer the deposit of its check in light of the financial difficulties
it was then encountering. Also by this time, GG Sportswear had already defaulted on its monthly installment
payments to World Class. Under these circumstances, we are more inclined to believe World Class’s contention
that GG Sportswear’s complaint was simply an attempt to evade its obligations to World Class under the
Agreement. This is a ploy we cannot accept.

On the second ground, we note that the Agreement expressly provides that GG Sportswear shall be entitled to a
Contract to Sell only upon its payment of at least 30% of the total contract price. 36 Since GG Sportswear had
only paid 21% of the total contract price, World Class’s obligation to execute a Contract to Sell had not yet
arisen. Accordingly, GG Sportswear had no basis to claim that World Class breached this obligation.

Even if we apply Article 1191 of the Civil Code, which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. x x x x.

no reason still exists to rescind the contract. Under the Agreement, World Class’s obligation was to finish the
project and turn over the purchased units to GG Sportswear on or before the completion date. Notably, at the
time GG Sportswear filed its complaint on June 10, 1997, the agreed completion date of December 15, 1998, or
even August 1998, the date appearing on World Class’s first License to Sell, was still a long way out. In other
words, when GG Sportswear filed its complaint, World Class had not yet breached its obligation, and rescission
under this provision of the Civil Code was premature.

Rescission of contracts of sale of commercial condominium units on installment is governed by P.D. No. 957.

Neither can GG Sportswear find recourse through P.D. No. 957, or the "Subdivision and Condominium Buyers’
Protective Decree." This law covers all sales and purchases of subdivision or condominium units, and provides
that the buyer’s installment payments shall not be forfeited in favor of the developer or owner if the latter fails
to develop the subdivision or condominium project. Section 23 of P.D. No. 957 provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or

condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer, desists from further payment due to the
failure of the owner or developer to develop the subdivision or condominium project according to the approved
plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency interests, with interest thereon at
the legal rate. [Emphasis supplied.]

Upon the developer’s failure to develop, the buyer may choose either: (1) to continue with the contract but
suspend payments until the developer complies with its obligation to finish the project; or (2) to cancel the
contract and demand a refund of all payments made, excluding delinquency interests. Notably, a buyer’s cause
of action against a developer for failure to develop ripens only when the developer fails to complete the project
on the lapse of the completion period stated on the sale contract or the developer’s License to Sell.

To recall, the completion date of the Antel Global Corporate Center was either in August 1998 (based on World
Class's first License to Sell), on December 15, 1998 (based on the provisional Contract to Sell), or on December
1999 (based on World Class’s second License to Sell). At the time GG Sportswear filed its complaint against
World Class on June 10, 1997, the Antel Global Corporate Center was still in the course of development 37 and
none of these projected completion dates had arrived. Hence, any complaint for refund was premature.

Significantly, World Class completed the project in August 1999, or within the time period granted by the
HLURB for the completion of the condominium project under the second License to Sell. This completion,
undertaken while the case was pending before the Arbiter, rendered the issue of World Class’s failure to
develop the condominium project moot and academic.1avvphi1

As a side note, we observe that GG Sportswear, not World Class, substantially breached its obligations under
the Agreement when it was remiss in the timely payment of its obligations, such that its January 1997
installment was paid only in March 1997, or two months after due date. GG Sportswear did not pay the
succeeding installment dated April 1997 (presumably for February 1997) until it had filed its complaint in June
1997. A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by
the contract, entitles the injured party to rescind the obligation.38 Under this contractual term, it was World
Class, not GG Sportswear, which had the ground to demand the rescission of the Agreement, as well as the
prerogative to secure the forfeiture of all the payments already made by GG Sportswear. However, whether the
Agreement between World Class and Sportswear should now be rescinded is a question we do not decide, as
this is not a matter before us.

The lack of a Certificate of Registration/License to Sell merely subjects the developer to administrative
sanctions.

On a final note, we choose to reiterate, for the benefit of the HLURB, our ruling in Co Chien v. Sta. Lucia
Realty & Development, Inc.,39 that the requirements of Sections 4 and 5 of P.D. No. 957 are intended merely
for administrative convenience in order to allow for a more effective regulation of the industry and do not go
into the validity of the contract such that the absence thereof would automatically render the contract null and
void. We said:

A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of subdivision
lots and condominium units without prior issuance of a Certificate of Registration and License to Sell by the
HLURB, it does not provide that the absence thereof will automatically render a contract, otherwise validly
entered, void. The penalty imposed by the decree is the general penalty provided for the violation of any of its
provisions. It is well-settled in this jurisdiction that the clear language of the law shall prevail. This principle
particularly enjoins strict compliance with provisions of law which are penal in nature, or when a penalty is
provided for the violation thereof. With regard to P.D. 957, nothing therein provides for the nullification of a
contract to sell in the event that the seller, at the time the contract was entered into, did not possess a certificate
of registration and license to sell. Absent any specific sanction pertaining to the violation of the questioned
provisions (Sections 4 and 5), the general penalties provided in the law shall be applied. The general penalties
for the violation of any provisions in P.D. 957 are provided for in Sections 38 and 39. As can clearly be seen in
the cited provisions, the same do not include the nullification of contracts that are otherwise validly entered.

xxxx

The lack of certificate and registration, without more, while penalized under the law, is not in and of itself
sufficient to render a contract void.40 (Emphasis supplied.)

We see no reason to depart from this ruling, and so hold that the Arbiter erred in declaring the Agreement void
due to the absence of a CR/LS at the time the Agreement was executed.

WHEREFORE, we DENY the present petition for review on certiorari and AFFIRM the assailed CA Decision
and Resolution dated December 19, 2007 and January 2, 2008, respectively. Accordingly, the complaint of G.G.
Sportswear Mfg. Corp. is DISMISSED. Costs against petitioner G.G. Sportswear Mfg. Corp.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 171092 March 15, 2010

EDNA DIAGO LHUILLIER, Petitioner,

vs.
BRITISH AIRWAYS, Respondent.

DECISION

DEL CASTILLO, J.:

Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a power introduced for the public good, on account of the
necessity of dispensing justice.1

Factual Antecedents

On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint 2 for damages against respondent British Airways before the Regional Trial
Court (RTC) of Makati City. She alleged that on February 28, 2005, she took respondent’s flight 548 from London, United Kingdom to Rome, Italy.
Once on board, she allegedly requested Julian Halliday (Halliday), one of the respondent’s flight attendants, to assist her in placing her hand-carried
luggage in the overhead bin. However, Halliday allegedly refused to help and assist her, and even sarcastically remarked that "If I were to help all
300 passengers in this flight, I would have a broken back!"

Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan), singled her out
from among all the passengers in the business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the other passengers to
be ignorant, uneducated, stupid, and in need of lecturing on the safety rules and regulations of the plane. Affronted, petitioner assured Kerrigan that
she knew the plane’s safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his face a mere few centimeters away from
that of the petitioner and menacingly told her that "We don’t like your attitude."

Upon arrival in Rome, petitioner complained to respondent’s ground manager and demanded an apology. However, the latter declared that the flight
stewards were "only doing their job."

Thus, petitioner filed the complaint for damages, praying that respondent be ordered to pay ₱5 million as moral damages, ₱2 million as nominal
damages, ₱1 million as exemplary damages, ₱300,000.00 as attorney’s fees, ₱200,000.00 as litigation expenses, and cost of the suit.

On May 16, 2005, summons, together with a copy of the complaint, was served on the respondent through Violeta Echevarria, General Manager of
Euro-Philippine Airline Services, Inc.3

On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion to Dismiss 4 on grounds of lack of jurisdiction over the
case and over the person of the respondent. Respondent alleged that only the courts of London, United Kingdom or Rome, Italy, have jurisdiction
over the complaint for damages pursuant to the Warsaw Convention, 5 Article 28(1) of which provides:

An action for damages must be brought at the option of the plaintiff, either before the court of domicile of the carrier or his principal place of
business, or where he has a place of business through which the contract has been made, or before the court of the place of destination.

Thus, since a) respondent is domiciled in London; b) respondent’s principal place of business is in London; c) petitioner bought her ticket in Italy
(through Jeepney Travel S.A.S, in Rome); 6 and d) Rome, Italy is petitioner’s place of destination, then it follows that the complaint should only be
filed in the proper courts of London, United Kingdom or Rome, Italy.

Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person of the respondent because the summons was
erroneously served on Euro-Philippine Airline Services, Inc. which is not its resident agent in the Philippines.

On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her Comment/Opposition on the Motion to Dismiss within 10 days
from notice thereof, and for respondent to file a Reply thereon.7 Instead of filing a Comment/Opposition, petitioner filed on June 27, 2005, an Urgent
Ex-Parte Motion to Admit Formal Amendment to the Complaint and Issuance of Alias Summons. 8 Petitioner alleged that upon verification with the
Securities and Exchange Commission, she found out that the resident agent of respondent in the Philippines is Alonzo Q. Ancheta. Subsequently, on
September 9, 2005, petitioner filed a Motion to Resolve Pending Incident and Opposition to Motion to Dismiss.9

Ruling of the Regional Trial Court

On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order10 granting respondent’s Motion to Dismiss. It ruled that:

The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our Courts have to apply the principles of international law,
and are bound by treaty stipulations entered into by the Philippines which form part of the law of the land. One of this is the Warsaw Convention.
Being a signatory thereto, the Philippines adheres to its stipulations and is bound by its provisions including the place where actions involving
damages to plaintiff is to be instituted, as provided for under Article 28(1) thereof. The Court finds no justifiable reason to deviate from the indicated
limitations as it will only run counter to the provisions of the Warsaw Convention. Said adherence is in consonance with the comity of nations and
deviation from it can only be effected through proper denunciation as enunciated in the Santos case (ibid). Since the Philippines is not the place of
domicile of the defendant nor is it the principal place of business, our courts are thus divested of jurisdiction over cases for damages. Neither was
plaintiff’s ticket issued in this country nor was her destination Manila but Rome in Italy. It bears stressing however, that referral to the court of proper
jurisdiction does not constitute constructive denial of plaintiff’s right to have access to our courts since the Warsaw Convention itself provided for
jurisdiction over cases arising from international transportation. Said treaty stipulations must be complied with in good faith following the time
honored principle of pacta sunt servanda.

The resolution of the propriety of service of summons is rendered moot by the Court’s want of jurisdiction over the instant case.

WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and this case is hereby ordered DISMISSED.

Petitioner filed a Motion for Reconsideration but the motion was denied in an Order 11 dated January 4, 2006.

Petitioner now comes directly before us on a Petition for Review on Certiorari on pure questions of law, raising the following issues:

Issues

I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO
CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF
ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION.

II. WHETHER x x x RESPONDENT AIR CARRIER OF PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON LACK OF
JURISDICTION OVER THE SUBJECT MATTER OF THE CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT AND
IN LAW SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER COURT, ESPECIALLY SO, WHEN THE VERY LAWYER
ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER.

Petitioner’s Arguments

Petitioner argues that her cause of action arose not from the contract of carriage, but from the tortious conduct committed by airline personnel of
respondent in violation of the provisions of the Civil Code on Human Relations. Since her cause of action was not predicated on the contract of
carriage, petitioner asserts that she has the option to pursue this case in this jurisdiction pursuant to Philippine laws.

Respondent’s Arguments

In contrast, respondent maintains that petitioner’s claim for damages fell within the ambit of Article 28(1) of the Warsaw Convention. As such, the
same can only be filed before the courts of London, United Kingdom or Rome, Italy.

Our Ruling

The petition is without merit.

The Warsaw Convention has the force and effect of law in this country.

It is settled that the Warsaw Convention has the force and effect of law in this country. In Santos III v. Northwest Orient Airlines,12 we held that:

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to International Transportation by Air,
otherwise known as the Warsaw Convention. It took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950, and was
deposited with the Polish government on November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951. On
September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence thereto, "to the end that the same
and every article and clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof."

The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and, as such, has the force and effect of law in this
country.13
The Warsaw Convention applies because the air travel, where the alleged tortious conduct occurred, was between the United Kingdom and Italy,
which are both signatories to the Warsaw Convention.

Article 1 of the Warsaw Convention provides:

1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to
gratuitous carriage by aircraft performed by an air transport undertaking.

2. For the purposes of this Convention the expression "international carriage" means any carriage in which, according to the contract made
by the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are
situated either within the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an
agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authority of another Power, even though that
Power is not a party to this Convention. A carriage without such an agreed stopping place between territories subject to the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party is not deemed to be international for the purposes of this Convention.
(Emphasis supplied)

Thus, when the place of departure and the place of destination in a contract of carriage are situated within the territories of two High Contracting
Parties, said carriage is deemed an "international carriage". The High Contracting Parties referred to herein were the signatories to the Warsaw
Convention and those which subsequently adhered to it.14

In the case at bench, petitioner’s place of departure was London, United Kingdom while her place of destination was Rome, Italy.15 Both the United
Kingdom16 and Italy17 signed and ratified the Warsaw Convention. As such, the transport of the petitioner is deemed to be an "international carriage"
within the contemplation of the Warsaw Convention.

Since the Warsaw Convention applies in the instant case, then the jurisdiction over the subject matter of the action is governed by the provisions of
the Warsaw Convention.

Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before –

1. the court where the carrier is domiciled;

2. the court where the carrier has its principal place of business;

3. the court where the carrier has an establishment by which the contract has been made; or

4. the court of the place of destination.

In this case, it is not disputed that respondent is a British corporation domiciled in London, United Kingdom with London as its principal place of
business. Hence, under the first and second jurisdictional rules, the petitioner may bring her case before the courts of London in the United Kingdom.
In the passenger ticket and baggage check presented by both the petitioner and respondent, it appears that the ticket was issued in Rome, Italy.
Consequently, under the third jurisdictional rule, the petitioner has the option to bring her case before the courts of Rome in Italy. Finally, both the
petitioner and respondent aver that the place of destination is Rome, Italy, which is properly designated given the routing presented in the said
passenger ticket and baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Italy. We thus find that the RTC of
Makati correctly ruled that it does not have jurisdiction over the case filed by the petitioner.

Santos III v. Northwest Orient Airlines18 applies in this case.

Petitioner contends that Santos III v. Northwest Orient Airlines19 cited by the trial court is inapplicable to the present controversy since the facts
thereof are not similar with the instant case.

We are not persuaded.

In Santos III v. Northwest Orient Airlines,20 Augusto Santos III, a resident of the Philippines, purchased a ticket from Northwest Orient Airlines in
San Francisco, for transport between San Francisco and Manila via Tokyo and back to San Francisco. He was wait-listed in the Tokyo to Manila
segment of his ticket, despite his prior reservation. Contending that Northwest Orient Airlines acted in bad faith and discriminated against him when
it canceled his confirmed reservation and gave his seat to someone who had no better right to it, Augusto Santos III sued the carrier for damages
before the RTC. Northwest Orient Airlines moved to dismiss the complaint on ground of lack of jurisdiction citing Article 28(1) of the Warsaw
Convention. The trial court granted the motion which ruling was affirmed by the Court of Appeals. When the case was brought before us, we denied
the petition holding that under Article 28(1) of the Warsaw Convention, Augusto Santos III must prosecute his claim in the United States, that place
being the (1) domicile of the Northwest Orient Airlines; (2) principal office of the carrier; (3) place where contract had been made (San Francisco);
and (4) place of destination (San Francisco).21

We further held that Article 28(1) of the Warsaw Convention is jurisdictional in character. Thus:
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a venue provision. First, the wording of Article
32, which indicates the places where the action for damages "must" be brought, underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the Convention, which is to "regulate in a uniform manner the conditions of international
transportation by air." Third, the Convention does not contain any provision prescribing rules of jurisdiction other than Article 28(1), which means
that the phrase "rules as to jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals
with the exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the parties regardless of the time when
the damage occurred.

xxxx

In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual concept. Jurisdiction in the international sense
must be established in accordance with Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court must be
established pursuant to the applicable domestic law. Only after the question of which court has jurisdiction is determined will the issue of venue be
taken up. This second question shall be governed by the law of the court to which the case is submitted. 22

Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines 23 is analogous to the instant case because (1) the domicile of
respondent is London, United Kingdom; 24 (2) the principal office of respondent airline is likewise in London, United Kingdom; 25 (3) the ticket was
purchased in Rome, Italy;26 and (4) the place of destination is Rome, Italy.27 In addition, petitioner based her complaint on Article 2176 28 of the Civil
Code on quasi-delict and Articles 1929 and 2130 of the Civil Code on Human Relations. In Santos III v. Northwest Orient Airlines,31 Augusto Santos
III similarly posited that Article 28 (1) of the Warsaw Convention did not apply if the action is based on tort. Hence, contrary to the contention of the
petitioner, the factual setting of Santos III v. Northwest Orient Airlines 32 and the instant case are parallel on the material points.

Tortious conduct as ground for the petitioner’s complaint is within the purview of the Warsaw Convention.

Petitioner contends that in Santos III v. Northwest Orient Airlines,33 the cause of action was based on a breach of contract while her cause of action
arose from the tortious conduct of the airline personnel and violation of the Civil Code provisions on Human Relations.34 In addition, she claims that
our pronouncement in Santos III v. Northwest Orient Airlines 35 that "the allegation of willful misconduct resulting in a tort is insufficient to exclude
the case from the comprehension of the Warsaw Convention," is more of an obiter dictum rather than the ratio decidendi.36 She maintains that the
fact that said acts occurred aboard a plane is merely incidental, if not irrelevant.37

We disagree with the position taken by the petitioner. Black defines obiter dictum as "an opinion entirely unnecessary for the decision of the case"
and thus "are not binding as precedent."38 In Santos III v. Northwest Orient Airlines,39 Augusto Santos III categorically put in issue the applicability
of Article 28(1) of the Warsaw Convention if the action is based on tort.

In the said case, we held that the allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the realm of the Warsaw
Convention. In fact, our ruling that a cause of action based on tort did not bring the case outside the sphere of the Warsaw Convention was our ratio
decidendi in disposing of the specific issue presented by Augusto Santos III. Clearly, the contention of the herein petitioner that the said ruling is an
obiter dictum is without basis.

Relevant to this particular issue is the case of Carey v. United Airlines, 40 where the passenger filed an action against the airline arising from an
incident involving the former and the airline’s flight attendant during an international flight resulting to a heated exchange which included insults and
profanity. The United States Court of Appeals (9th Circuit) held that the "passenger's action against the airline carrier arising from alleged
confrontational incident between passenger and flight attendant on international flight was governed exclusively by the Warsaw Convention, even
though the incident allegedly involved intentional misconduct by the flight attendant."41

In Bloom v. Alaska Airlines,42 the passenger brought nine causes of action against the airline in the state court, arising from a confrontation with the
flight attendant during an international flight to Mexico. The United States Court of Appeals (9th Circuit) held that the "Warsaw Convention governs
actions arising from international air travel and provides the exclusive remedy for conduct which falls within its provisions." It further held that the
said Convention "created no exception for an injury suffered as a result of intentional conduct" 43 which in that case involved a claim for intentional
infliction of emotional distress.

It is thus settled that allegations of tortious conduct committed against an airline passenger during the course of the international carriage do not bring
the case outside the ambit of the Warsaw Convention.

Respondent, in seeking remedies from the trial court through special appearance of counsel, is not deemed to have voluntarily submitted itself to the
jurisdiction of the trial court.

Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial court when the latter stated in its Comment/Opposition
to the Motion for Reconsideration that "Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous impression that it is/was Euro-
Philippines Airlines Services, Inc. that has been making a special appearance since x x x British Airways x x x has been clearly specifying in all the
pleadings that it has filed with this Honorable Court that it is the one making a special appearance." 44
In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court of Appeals 45 where we held that even if a party
"challenges the jurisdiction of the court over his person, as by reason of absence or defective service of summons, and he also invokes other grounds
for the dismissal of the action under Rule 16, he is not deemed to be in estoppel or to have waived his objection to the jurisdiction over his person."46

This issue has been squarely passed upon in the recent case of Garcia v. Sandiganbayan,47 where we reiterated our ruling in La Naval Drug
Corporation v. Court of Appeals 48 and elucidated thus:

Special Appearance to Question a Court’s Jurisdiction Is Not

Voluntary Appearance

The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly provides:

Sec. 20. Voluntary appearance. – The defendant’s voluntary appearance in the action shall be equivalent to service of summons. The inclusion in a
motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance.

Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his person, together with other grounds raised therein, is
not deemed to have appeared voluntarily before the court. What the rule on voluntary appearance – the first sentence of the above-quoted rule –
means is that the voluntary appearance of the defendant in court is without qualification, in which case he is deemed to have waived his defense of
lack of jurisdiction over his person due to improper service of summons.

The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she voluntarily appeared without qualification. Petitioner
filed the following pleadings in Forfeiture I: (a) motion to dismiss; (b) motion for reconsideration and/or to admit answer; (c) second motion for
reconsideration; (d) motion to consolidate forfeiture case with plunder case; and (e) motion to dismiss and/or to quash Forfeiture I. And in Forfeiture
II: (a) motion to dismiss and/or to quash Forfeiture II; and (b) motion for partial reconsideration.

The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for special appearance with the purpose of challenging
the jurisdiction of the SB over her person and that of her three children. Petitioner asserts therein that SB did not acquire jurisdiction over her person
and of her three children for lack of valid service of summons through improvident substituted service of summons in both Forfeiture I and Forfeiture
II. This stance the petitioner never abandoned when she filed her motions for reconsideration, even with a prayer to admit their attached Answer Ex
Abundante Ad Cautelam dated January 22, 2005 setting forth affirmative defenses with a claim for damages. And the other subsequent pleadings,
likewise, did not abandon her stance and defense of lack of jurisdiction due to improper substituted services of summons in the forfeiture cases.
Evidently, from the foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner and her sons did not voluntarily appear
before the SB constitutive of or equivalent to service of summons.

Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said case elucidates the current view in our jurisdiction
that a special appearance before the court––challenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other
grounds––is not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a
voluntary submission to the jurisdiction of the court.1avvphi1

Thus, it cannot be said that petitioner and her three children voluntarily appeared before the SB to cure the defective substituted services of summons.
They are, therefore, not estopped from questioning the jurisdiction of the SB over their persons nor are they deemed to have waived such defense of
lack of jurisdiction. Consequently, there being no valid substituted services of summons made, the SB did not acquire jurisdiction over the persons of
petitioner and her children. And perforce, the proceedings in the subject forfeiture cases, insofar as petitioner and her three children are concerned,
are null and void for lack of jurisdiction. (Emphasis supplied)

In this case, the special appearance of the counsel of respondent in filing the Motion to Dismiss and other pleadings before the trial court cannot be
deemed to be voluntary submission to the jurisdiction of the said trial court. We hence disagree with the contention of the petitioner and rule that
there was no voluntary appearance before the trial court that could constitute estoppel or a waiver of respondent’s objection to jurisdiction over its
person.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order of the Regional Trial Court of Makati City, Branch 132, dismissing the
complaint for lack of jurisdiction, is AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-33628 December 29, 1987

BIENVENIDO A. EBARLE, SANTIAGO EISMA, MIRUFO CELERIAN, JOSE SAYSON, CESAR

TABILIRAN, and MAXIMO ADLAWAN, petitioners,
vs.
HON. JUDGE MELQUIADES B. SUCALDITO, RUFINO LABANG, MENELEO MESINA, ARTURO
GUILLERMO, IN THEIR RESPECTIVE CAPACITIES AS JUDGE OF THE COURT OF FIRST
INSTANCE OF ZAMBOANGA DEL SUR, CITY FISCAL OF PAGADIAN CITY AND STATE
PROSECUTOR, and ANTI-GRAFT LEAGUE OF THE PHILIPPINES, INC., respondents.

No. L-34162 December 29, 1987

BIENVENIDO A. EBARLE, petitioner,

vs.
HON. JUDGE ASAALI S. ISNANI, RUFINO LABANG, ALBERTO S. LIM, JR., JESUS ACEBES, IN
THEIR RESPECTIVE CAPACITIES AS JUDGE OF THE COURT OF FIRST INSTANCE OF
ZAMBOANGA DEL SUR, CITY FISCAL OF PAGADIAN CITY AND STATE PROSECUTORS,
ANTI-GRAFT LEAGUE OF THE PHILIPPINES, INC., and ARTEMIO ROMANILLOS, respondents.

SARMIENTO, J.:

The petitioner, then provincial Governor of Zamboanga del Sur and a candidate for reelection in the
local elections of 1971, seeks injunctive relief in two separate petitions, to enjoin further proceedings
in Criminal Cases Nos. CCC XVI-4-ZDS, CCC XVI-6-ZDS, and CCC XVI-8-ZDS of the then Circuit
Criminal Court sitting in Pagadian City, as well as I.S. Nos. 1-70, 2-71, 4-71, 5-71, 6-71, and 7-71 of
the respondent Fiscal's office of the said city, all in the nature of prosecutions for violation of certain
provisions of the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) and various provisions
of the Revised Penal Code, commenced by the respondent Anti-Graft League of the Philippines, Inc.

On June 16, 1971 and October 8, 1971, respectively, we issued temporary restraining orders
directing the respondents (in both petitions) to desist from further proceedings in the cases in
question until further orders from the Court. At the same time, we gave due course to the petitions
and accordingly, required the respondents to answer.

The petitions raise pure question of law. The facts are hence, undisputed.

On September 26, 1970, the private respondent Anti-Graft League of the Philippines, Inc., filed a
complaint with the respondent City Fiscal, docketed as Criminal Case No. 1-70 thereof, for violation of
the provisions of the Anti-Graft Law as well as Article 171 of the Revised Penal Code, as follows:

xxx xxx xxx

SPECIFICATION NO. I —
 That on or about October 10, 1969, above-named respondents, conspiring and
confabulating together, allegedly conducted a bidding for the supply of gravel and sand
for the Province of Zamboanga del Sur: that it was made to appear that Tabiliran
Trucking Company won the bidding; that, thereafter, the award and contract pursuant to
the said simulated bidding were effected and executed in favor of Tabiliran Trucking
Company; that, in truth and in fact, the said bidding was really simulated and the papers
on the same were falsified to favor Tabiliran Trucking Company, represented by the
private secretary of respondent Bienvenido Ebarle, formerly confidential secretary of the
latter; that said awardee was given wholly unwarranted advantage and preference by
means of manifest partiality; that respondent officials are hereby also charged with
interest for personal gain for approving said award which was manifestly irregular and
grossly unlawful because the same was facilitated and committed by means of
falsification of official documents.

SPECIFICATION NO. II

That after the aforecited award and contract, Tabiliran Trucking Company, represented
by respondent Cesar Tabiliran, attempted to collect advances under his trucking
contract in the under his trucking contract in the amount of P4,823.95 under PTA No.
3654; that the same was not passed in audit by the Provincial Auditor in view of the then
subsisting contract with Tecson Trucking Company; which was to expire on November
2, 1969; that nevertheless the said amount was paid and it was made to appear that it
was collected by Tecson Trucking Company, although there was nothing due from tile
latter and the voucher was never indorsed or signed by the operator of Tecson
Trucking; and that in facilitating and consummating the aforecited collection, respondent
officials, hereinabove cited, conspired and connived to the great prejudice and damage
of the Provincial Government of Zamboanga del Sur. 1
xxx xxx xxx

On the same date, the private respondent commenced Criminal Case No. 2-71 of the respondent City Fiscal, another proceeding for violation of Republic Act No.
3019 as well as Article 171 of the Revised Penal Code. The complaint reads as follows:

xxx xxx xxx

That on or about April 8, 1970, a bidding was held for the construction of the right wing portion of the Capitol Building of the Province of
Zamboanga del Sur, by the Bidding Committee composed of respondents cited hereinabove; that the said building was maliciously
manipulated so as to give wholly unwarranted advantage and preference in favor of the, supposed winning bidder, Codeniera Construction,
allegedly owned and managed by Wenceslao Codeniera, brother-in-law of the wife of respondent Bienvenido Ebarle; that respondent official
is interested for personal gain because he is responsible for the approval of the manifestly irregular and unlawful award and contract
aforecited; and that, furthermore, respondent, being a Member of the Bidding Committee, also violated Article 171 of the Revised Penal
Code, by making it appear in the very abstract of bids that another interested bidder, was not interested in the bidding, when in truth and in
fact, it was not so. 2

xxx xxx xxx

On January 26, 1971, the private respondent instituted I.S. No. 4-71 of the respondent Fiscal, a prosecution for violation of Articles 182, 183, and 318 of the
Revised Penal Code, as follows:

xxx xxx xxx

That on or about April 4, 1967, in Pagadian City, said respondent testified falsely under oath in Cadastral Case No. N-17, LRC CAD REC.
NO. N-468, for registration of title to Lot No. 2545 in particular;

That respondent BIENVENIDO EBARLE testified falsely under oath during the hearing and reception of evidence that he acquired said lot by
purchase from a certain Brigido Sanchez and that he is the owner, when in truth and in fact Lot 2545 had been previously acquired and is
owned by the provincial Government of Zamboanga del Sur, where the provincial jail building is now located.

2. That aforesaid deceit, false testimony and untruthful statement of respondent in said Cadastral case were made knowingly to the great
damage and prejudice of the Provincial Government of Zamboanga del Sur in violation of aforecited provisions of the Revised Penal Code. 3
On February 10, 1971, finally, the private respondent filed a complaint, docketed as I.S. No. 5-71 of the respondent Fiscal, an action for violation of Republic Act
No. 3019 and Articles 171 and 213 of the Revised Penal Code, as follows:

xxx xxx xxx

We hereby respectfully charge the above-named respondents for violation of Sec. 3, R.A. No. 3019, otherwise known as the Anti-Graft and
Corrupt Practices Act, Articles 171 and 213, Revised Penal Code and the rules and regulations of public bidding, committed as follows:

1. That on June 16, 1970, without publication, respondents conducted the so-called "bidding" for the supply of gravel
and sand for the province of Zamboanga del Sur; that said respondents, without any valid or legal ground, did not
include or even open the bid of one Jesus Teoson that was seasonably submitted, despite the fact that he is a
registered duly qualified operator of "Teoson Trucking Service," and notwithstanding his compliance with all the rules
and requirements on public bidding; that, instead, aforecited respondents illegally and irregularly awarded said contract
to Cesar Tabiliran, an associate of respondent Governor Bienvenido Ebarle; and

2. That in truth and in fact, aforesaid "bidding" was really simulated and papers were falsified or otherwise "doctored" to
favor respondent Cesar Tabiliran thereby giving him wholly unwarranted advantage, preference and benefits by means
of manifest partiality; and that there is a statutory presumption of interest for personal gain because the transaction and
award were manifestly irregular and contrary to applicable law, rules and regulations.4

xxx xxx xxx

The petitioner initially moved to dismiss the aforesaid preliminary investigations, but the same having been denied, he went to the respondent Court of First
Instance of Zamboanga del Sur, the Honorable Melquiades Sucaldito presiding, on prohibition and mandamus (Special Case No. 1000) praying at the same time,
for a writ of preliminary injunction to enjoin further proceedings therein. The court granted preliminary injunctive relief (restraining order) for which the Anti-Graft
League filed a motion to have the restraining order lifted and to have the petition itself dismissed.

On May 14, 1971, the respondent, Judge Sucaldito, handed down the first of the two challenged orders, granting Anti-Graft League's motion and dismissing
Special Case No. 1000.

On June 11, 1971, the petitioner came to this Court on certiorari with prayer for a temporary restraining order (G.R. No. 33628). As we said, we issued a temporary
restraining order on June 16, 1971.

Meanwhile, and in what would begin yet another series of criminal prosecutions, the private respondent, on April 26, 1971, filed three complaints, subsequently
docketed as Criminal Cases Nos. CCC XVI-4-ZDS, CCC XVI-6-ZDS, and CCC XVI-8-ZDS of the Circuit Criminal Court of Pagadian City for violation of various
provisions of the Anti-Graft Law as well as Article 171(4) of the Revised Penal Code, as follows:

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction of this Honorable Court, BIENVENIDO A. EBARLE,
Provincial Governor of Zamboanga del Sur, did then and there unlawfully and feloniously extended and gave ELIZABETH EBARLE
MONTESCLAROS, daughter of his brother, his relative by consanguinity within the third degree, and appointment as Private Secretary in the
Office of the Provincial Governor of Zamboanga del Sur, although he well know that the latter is related with him within the third degree by
consanguinity.

CONTRARY TO LAW. 5

xxx xxx xxx

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction of this Honorable Court, BIENVENIDO A. EBARLE, then
and there unlawfully and feloniously made untruthful statements in a narration of facts by accomplishing and issuing a certificate, to wit: ,

c. That the provisions of law and rules on promotion, seniority and nepotism have been observed.

required by law in such cases, in support of the appointment he extended to ELIZABETH EBARLE-MONTESCLAROS as Private Secretary
in the Office of the Provincial Governor of Zamboanga del Sur, although he well know that the latter is related with him within the third degree
of consanguinity.

CONTRARY TO LAW.6

xxx xxx xxx

xxx xxx xxx

That on or about December 18, 1969, in Pagadian City, and within the jurisdiction of this Honorable Court, BIENVENIDO A. EBARLE, then
and there unlawfully and feloniously made untruthful statements in a narration of facts by accomplishing and issuing a certificate, to wit:
 c. That the provisions of law and rules on promotion, seniority and nepotism have been observed.

required by law in such cases, in support of the appointment he extended to TERESITO MONTESCLAROS, husband of his niece Elizabeth
Ebarle, as Motor Pool Dispatcher, Office of the Provincial Engineer of Zamboanga del Sur, although he well knew that the latter is related
with him within the third degree affinity.

CONTRARY TO LAW. 7

xxx xxx xxx

Subsequently, on August 23, 1971, the private respondent brought I.S. No. 6-71 of the respondent Pagadian City Fiscal against the petitioner, still another
proceeding for violation of Republic Act No. 3019 and Article 171 (4) of the Revised Penal Code, thus:

xxx xxx xxx

First Count.

That on or about December 1, 1969, in Pagadian City, BIENVENIDO A. EBARLE, Provincial Governor of Zamboanga del Sur, did then and
there unlawfully and feloniously extended and gave MARIO EBARLE, son of his brother, his relative by consanguinity within the third degree,
an appointment as SECURITY GUARD in the Office of the Provincial Engineer of Zamboanga del Sur although he well knew that the latter is
related with him in the third degree by consanguinity and is not qualified under the Civil Service Law.

Second Count.

That in January, 1970, at Pagadian City, Gov. BIENVENIDO A. EBARLE replaced JOHNNY ABABON who was then the incumbent Motor
Pool Dispatcher in the Office of the Provincial Engineer of Zamboanga del Sur with his nephew-in-law TERESITO MONTESCLAROS relative
by affinity within the third Civil degree, in violation of the Civil Service Law, this knowingly causing undue injury in the discharge of his
administrative function through manifest partiality against said complaining employee.

Third Count:

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A. EBARLE, Provincial Governor of Zamboanga del Sur, did then and
there unlawfully and feloniously extended and gave ELIZABETH EBARLE MONTESCLAROS, daughter of his brother, his relative by
consanguinity within the third degree, an appointment as Private Secretary in the Office of the Provincial Governor of Zamboanga del Sur,
although he well know that the latter is related with him within the third degree of consanguinity, and said appointment is in violation of the
Civil Service Law.

Fourth Count.

That on or about January 22, 1970, in Pagadian City, BIENVENIDO A. EBARLE, Provincial Governor of Zamboanga del Sur, did then and
there unlawfully and feloniously extended and gave ZACARIAS UGSOD, JR., son of the younger sister of Governor Ebarle, his relative by
consanguinity within the third degree, an appointment as Architectural Draftsman in the Office of the Provincial Engineer of Zamboanga del
Sur although he well know that the latter is related with him in the third degree of consanguinity.

Fifth Count.

That on February 5, 1970, at Pagadian City, BIENVENIDO A. EBARLE, Provincial Governor of Zamboanga del Sur, did then and there
unlawfully and feloniously extended and gave TERESITO MONTESCLAROS, husband of his niece ELIZABETH EBARLE, his relative by
affinity within the third degree, an appointment as Motor Pool Dispatcher, Office of the Provincial Engineer of Zamboanga del Sur, although
he wen knew then that the latter was not qualified to such appointment as it was in violation of the Civil Service Law, thereby knowingly
granting and giving unwarranted advantage and preference in the discharge of his administrative function through manifest partiality.

II. SPECIFICATION FOR VIOLATION OF SECTION 4 (b), R.A. 3019

That on August 19, 1967, respondent BIENVENIDO A. EBARLE, Governor of Zamboanga del Sur, taking advantage of his position caused,
persuaded, induced, or influence the Presiding Judge to perform irregular and felonious act in violation of applicable law or constituting an
offense into awarding and decreeing Lot 2645 of the Pagadian Public Lands subdivision to him who, according to the records of the case,
failed to establish his rights of ownership pursuant to the provisions of the Land Registration law and the Public Land Act, it appearing that
the Provincial Government of Zamboanga del Sur as and is a claimant and in adverse possession of Lot 2545 whereon the Provincial Jail
Building thereon still stands.

III. SPECIFICATION FOR VIOLATION OF ARTICLE 171 (4), REVISED PENAL CODE

First Count.

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A. EBARLE, then and there unlawfully and feloniously made untruthful
statement in a narration of facts by accomplishing and issuing a certificate, to wit:

c. That the provisions of law and rules on promotion, seniority and nepotism have been observed.
 required by law in such cases, in support of the appointment he extended to TERESITO MONTESCLAROS, husband of his niece
ELIZABETH EBARLE, as Motor Pool Dispatcher, Office of the Provincial Engineer of Zamboanga del Sur, although he wen knew that the
latter is related with him within the third degree of affinity and is in violation of the Civil Service Law.

Second Count.

That on or about December 18, 1969, in Pagadian City, BIENVENIDO A. EBARLE, then and there unlawfully and feloniously made untruthful
statements a certificate, to wit:

c. That the provisions of the law and rules on promotion, seniority and nepotism have been observed.

required by law in such cases, in support of the appointment he extended to ELIZABETH EBARLE-MONTESCLAROS as Private Secretary
in the Office of the Provincial Governor of Zamboanga del Sur, although he well knew that the latter is related with him within the third degree
of consanguinity, and is in violation of the Civil Service Law. CONTRARY to aforecited laws. 8

xxx xxx xxx

On September 21, 1971, the private respondent instituted I.S. No. 7-71 of the said City Fiscal, again charging the petitioner with further violations of Republic Act
No. 3019 thus:

xxx xxx xxx

First Count.

That on or about December 2, 1969, in Pagadian City, BIENVENIDO EBARLE, Provincial Governor of Zamboanga del Sur, did then and
there unlawfully and feloniously extend and give unwarranted benefits and privileges BONINDA EBARLE, wife of his brother Bertuldo Ebarle,
the former being his relative by affinity within the second civil degree, an appointment as LABORATORY TECHNICIAN in Pagadian City,
although he well knew that the latter is related to him in the second degree by affinity and is not qualified under the Civil Service Law.

Second Count.

That on or about January 1, 1970, at Pagadian City, BIENVENIDO EBARLE, Provincial Governor of Zamboanga del Sur, did then and there
unlawfully and feloniously extend and give unwarranted benefits and privileges JESUS EBARLE, nephew of said respondent, an
appointment as DRIVER of the Provincial Engineer's Office, Pagadian City, although he well knew that Jesus Ebarle is related to him within
the third civil degree by consanguinity and is not qualified under the Civil Service Law.

Third Count.

That on or about November 1, 1969, at Pagadian City, BIENVENIDO EBARLE, Provincial Governor of Zamboanga del Sur, did then and
there unlawfully and feloniously extend and give unwarranted benefits and privileges PHENINA CODINERA, sister-in-law of said respondent,
an appointment as CONFIDENTIAL ASSISTANT in the Office of the Provincial Governor, Pagadian City, although he well knew that Phenina
Codinera is related to him in the second civil degree of consanguinity and is not qualified under the Civil Service Law.

ALL CONTRARY TO AFORECITED LAW.

Please give due course to the above complaint and please set the case for immediate preliminary investigation pursuant to the First
Indorsement dated August 27, 1971 of the Secretary of Justice, and in the paramount interest of good government. 9

xxx xxx xxx

The petitioner thereafter went to the respondent Court of First Instance of Zamboanga del Sur, the Honorable Asaali Isnani presiding, on a special civil action
(Special Civil Case No. 1048) for prohibition and certiorari with preliminary injunction. The respondent Court issued a restraining order. The respondent Anti-Graft
League moved to have the same lifted and the case itself dismissed.

On September 27, 1971, Judge Isnani issued an order, dismissing the case.

On October 6, 1971, the petitioner instituted G.R. No. 34162 of this Court, a special civil action for certiorari with preliminary injunction. As earlier noted, we on
October 8, 1971, stayed the implementation of dismissal order.

Subsequently, we consolidated both petitions and considered the same submitted for decision.

Principally, the petitioner relies (in both petitions) on the failure of the respondents City Fiscal and the Anti-Graft League to comply with the provisions of Executive
Order No. 264, "OUTLINING THE PROCEDUE BY WHICH COMPLAINANTS CHARGING GOVERNMENT OFFICIALS AND EMPLOYEES WITH COMMISSION
OF IRREGULARITIES SHOULD BE GUIDED," 10 preliminary to their criminal recourses. At the same time, he assails the standing of the respondent Anti-Graft
League to commence the series of prosecutions below (G.R. No. 33628). He likewise contends that the respondent Fiscal (in G.R. No. 34162), in giving due
course to the complaints notwithstanding the restraining order we had issued (in G.R. No. 33628), which he claims applies as well thereto, committed a grave
abuse of discretion.
He likewise submits that the prosecutions in question are politically motivated, initiated by his rivals, he being, as we said, a candidate for reelection as Governor of
Zamboanga del Sur.

We dismiss these petitions.

The petitioner's reliance upon the provisions of Executive Order No. 264 has no merit. We reproduce the Order in toto:

MALACAÑANG

RESIDENCE OF THE PRESIDENT

OF THE PHILIPPINES

MANILA

BY THE PRESIDENT OF THE PHILIPPINES

EXECUTIVE ORDER NO. 264

OUTLINING THE PROCEDURE BY WHICH COMPLAINANTS CHARGING GOVERNMENT OFFICIALS AND EMPLOYEES WITH
COMMISSION OF IRREGULARITIES SHOULD BE GUIDED.

WHEREAS, it is necessary that the general public be duly informed or reminded of the procedure provided by law and regulations by which
complaints against public officials and employees should be presented and prosecuted.

WHEREAS, actions on complaints are at times delayed because of the failure to observe the form.91 requisites therefor, to indicate with
sufficient clearness and particularity the charges or offenses being aired or denounced, and to file the complaint with the proper office or
authority;

WHEREAS, without in any way curtailing the constitutional guarantee of freedom of expression, the Administration believes that many
complaints or grievances could be resolved at the lower levels of government if only the provisions of law and regulations on the matter are
duly observed by the parties concerned; and

WHEREAS, while all sorts of officials misconduct should be eliminated and punished, it is equally compelling that public officials and
employees be given opportunity afforded them by the constitution and law to defend themselves in accordance with the procedure prescribed
by law and regulations;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby
order:

1. Complaints against public officials and employees shall be in writing, subscribed and sworn to by the complainants, describing in sufficient
detail and particularity the acts or conduct complained of, instead of generalizations.

2. Complaints against presidential appointees shag be filed with the Office of the President or the Department Head having direct supervision
or control over the official involved.

3. Those against subordinate officials and employees shall be lodged with the proper department or agency head.

4. Those against elective local officials shall be filed with the Office of the President in case of provincial and city officials, with the provincial
governor or board secretary in case of municipal officials, and with the municipal or city mayor or secretary in case of barrio officials.

5. Those against members of police forces shall be filed with the corresponding local board of investigators headed by the city or municipal
treasurer, except in the case of those appointed by the President which should be filed with the Office of the President.

6. Complaints against public officials and employees shall be promptly acted upon and disposed of by the officials or authorities concerned in
accordance with pertinent laws and regulations so that the erring officials or employees can be soonest removed or otherwise disciplined and
the innocent, exonerated or vindicated in like manner, and to the end also that other remedies, including court action, may be pursued
forthwith by the interested parties after administrative remedies shall have been exhausted.

Done in the City of Manila, this 6th day of October, in the year of Our Lord, nineteen hundred and seventy.

(Sgd.) FERDINAND E. MARCOS

President of the Philippines

By the President:
 (Sgd.) ALEJANDRO MELCHOR

Executive Secretary 11

It is plain from the very wording of the Order that it has exclusive application to administrative, not criminal complaints. The Order itself shows why.

The very title speaks of "COMMISSION OF IRREGULARITIES." There is no mention, not even by implication, of criminal "offenses," that is to say, "crimes." While
"crimes" amount to "irregularities," the Executive Order could have very well referred to the more specific term had it intended to make itself applicable thereto.

The first perambulatory clause states the necessity for informing the public "of the procedure provided by law and regulations by which complaints against public
officials and employees should be presented and prosecuted. 12 To our mind, the "procedure provided by law and regulations" referred to pertains to existing
procedural rules with respect to the presentation of administrative charges against erring government officials. And in fact, the aforequoted paragraphs are but
restatements thereof. That presidential appointees are subject to the disciplinary jurisdiction of the President, for instance, is a reecho of the long-standing doctrine
that the President exercises the power of control over his appointees. 13 Paragraph 3, on the other hand, regarding subordinate officials, is a mere reiteration of
Section 33 of Republic Act No. 2260, the Civil Service Act (of 1959) then in force, placing jurisdiction upon "the proper Head of Department, the chief of a bureau
or office" 14 to investigate and decide on matters involving disciplinary action.

Paragraph 4, which refers to complaints filed against elective local officials, reiterates, on the other hand, the Decentralization Act of 1967, providing that "charges
against any elective provincial and city officials shall be preferred before the President of the Philippines; against any elective municipal official before the
provincial governor or the secretary of the provincial board concerned; and against any elective barrio official before the municipal or secretary concerned. 15

Paragraph 5, meanwhile, is a reproduction of the provisions of the Police Act of 1966, vesting upon a "Board of Investigators" 16 the jurisdiction to try and decide
complaints against members of the Philippine police.

Clearly, the Executive Order simply consolidates these existing rules and streamlines the administrative apparatus in the matter of complaints against public
officials. Furthermore, the fact is that there is no reference therein to judicial or prejudicial (like a preliminary investigation conducted by the fiscal) recourse, not
because it makes such a resort a secondary measure, but because it does not intend to serve as a condition precedent to, much less supplant, such a court resort.

To be sure, there is mention therein of "court action[s] [being] pursued forthwith by the interested parties, " 17 but that does not, so we hold, cover proceedings
such as criminal actions, which do not require a prior administrative course of action. It will indeed be noted that the term is closely shadowed by the qualification,
"after administrative remedies shall have been exhausted," 18 which suggests civil suits subject to previous administrative action.

It is moreover significant that the Executive Order in question makes specific reference to "erring officials or employees ... removed or otherwise vindicated. 19 If it
were intended to apply to criminal prosecutions, it would have employed such technical terms as "accused", "convicted," or "acquitted." While this is not
necessarily a controlling parameter for all cases, it is here material in construing the intent of the measure.

What is even more compelling is the Constitutional implications if the petitioner's arguments were accepted. For Executive Order No. 264 was promulgated under
the 1935 Constitution in which legislative power was vested exclusively in Congress. The regime of Presidential lawmaking was to usher in yet some seven years
later. If we were to consider the Executive Order law, we would be forced to say that it is an amendment to Republic Act No. 5180, the law on preliminary
investigations then in effect, a situation that would give rise to a Constitutional anomaly. We cannot accordingly countenace such a view.

The challenge the petitioner presents against the personality of the Anti-Graft League of the Philippines to bring suit is equally without merit. That the Anti-Graft
League is not an "offended party" within the meaning of Section 2, Rule 110, of the Rules of Court (now Section 3 of the 1985 Rules on Criminal Procedure),
cannot abate the complaints in question.

A complaint for purposes of preliminary investigation by the fiscal need not be filed by the "offended party." The rule has been that, unless the offense subject
thereof is one that cannot be prosecuted de oficio, the same may be filed, for preliminary investigation purposes, by any competent person. 20 The "complaint"
referred to in the Rule 110 contemplates one filed in court, not with the fiscal, In that case, the proceeding must be started by the aggrieved party himself. 21

For as a general rule, a criminal action is commenced by complaint or information, both of which are filed in court. In case of a complaint, it must be filed by the
offended party; with respect to an information, it is the fiscal who files it. But a "complaint" filed with the fiscal prior to a judicial action may be filed by any person.

The next question is whether or not the temporary restraining order we issued in G.R. No. 33628 embraced as well the complaint subject of G.R. No. 34162.

It is noteworthy that the charges levelled against the petitioner — whether in G.R. No. 33628 or 34162 — refer invariably to violations of the Anti-Graft Law or the
Revised Penal Code. That does not, however, make such charges Identical to one another.

The complaints involved in G.R. No. 34162 are, in general, nepotism under Sections 3(c) and (j) of Republic Act No. 3019; exerting influence upon the presiding
Judge of the Court of First Instance of Zamboanga del Sur to award a certain parcel of land in his favor, over which the provincial government itself lays claims,
contrary to the provisions of Section 4(b) of Republic Act No. 3019; and making untruthful statements in the certificates of appointment of certain employees in his
office. On the other hand, the complaints subject matter of G.R. No. 33628 involve charges of simulating bids for the supply of gravel and sand for certain public
works projects, in breach of Section 3 of the Anti-Graft statute; manipulating bids with respect to the construction of the capitol building; testifying falsely in
connection with Cadastral Case No. N-17, LRC Cad. Rec. N-468, in which the petitioner alleged that he was the owner of a piece of land, in violation of Articles
182, 183, and 318 of the Revised Penal Code; and simulating bids for the supply of gravel and sand in connection with another public works project.

It is clear that the twin sets of complaints are characterized by major differences. When, therefore, we restrained further proceedings in I.S. Nos. 1-71, 2-71, and 4-
71, subject of G.R. No. 33628. we did not consequently stay the proceedings in CCC-XVI-4-ZDS, CCC XVI-6-ZDS, CCC XVI-8-ZDS, and I.S. Nos. 6-71 and 7-71,
the same proceedings we did restrain in G.R. No. 34162.

This brings us to the last issue: whether or not the complaints in question are tainted with a political color.
It is not our business to resolve complaints the disposition of which belongs to another agency, in this case, the respondent Fiscal. But more than that, and as a
general rule, injunction does not lie to enjoin criminal prosecutions. 22 The rule is subject to exceptions, to wit: (1) for the orderly administration of justice; (2) to
prevent the use of the strong arm of the law in an oppressive and vindictive manner; (3) to avoid multiplicity of actions; (4) to afford adequate protection to
constitutional rights; and (5) because the statute relied on is constitutionally infirm or otherwise void. 23 We cannot perceive any of the exceptions applicable here.
The petitioner cries foul, in a manner of speaking, with respect to the deluge of complaints commenced by the private respondent below, but whether or not they
were filed for harassment purposes is a question we are not in a position to decide. The proper venue, we believe, for the petitioner's complaint is precisely in the
preliminary investigations he wishes blocked here.

WHEREFORE, the petitions are DISMISSED. The temporary restraining orders are LIFTED and SET ASIDE. Costs against the petitioners.

It is so ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-52306 October 12, 1981

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

MELENCIO-HERRERA, J.:

This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in C.T.A. Case
No. 2809, dated November 29, 1979, which affirmed the assessment by the Commissioner of Internal
Revenue, dated April 16, 1971, of a deficiency withholding income tax against petitioner, ABS-CBN
Broadcasting Corporation, for the years 1965, 1966, 1967 and 1968 in the respective amounts of
P75,895.24, P99,239.18, P128,502.00 and P222, 260.64, or a total of P525,897.06.

During the period pertinent to this case, petitioner corporation was engaged in the business of
telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or
business within the Philippines. for which petitioner paid rentals after withholding income tax of 30%of
one-half of the film rentals.

In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the National
Internal Revenue Code, as amended by Republic Act No. 2343 dated June 20, 1959, used to provide:

(b) Tax on foreign corporations.—(1) Non-resident corporations.— There shall be

levied, collected, and paid for each taxable year, in lieu of the tax imposed by the
preceding paragraph, upon the amount received by every foreign corporation not
engaged in trade or business within the Philippines, from an sources within the
Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, a tax equal to thirty per centum of such amount.
(Emphasis supplied)

On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal
Revenue issued General Circular No. V-334 reading thus:

In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic
Act No. 2343, under which an income tax equal to 30% is levied upon the amount
received by every foreign corporation not engaged in trade or business within the
Philippines from all sources within this country as interest, dividends, rents, salaries,
wages, premiums, annuities, compensations, remunerations, emoluments, or other
fixed or determinable annual or periodical gains, profits, and income, it has been
determined that the tax is still imposed on income derived from capital, or labor, or both
combined, in accordance with the basic principle of income taxation (Sec. 39, Income
Tax Regulations), and that a mere return of capital or investment is not income (Par.
5,06, 1 Mertens Law of Federal 'Taxation). Since according to the findings of the Special
 Team who inquired into business of the non-resident foreign film distributors, the
distribution or exhibition right on a film is invariably acquired for a consideration, either
for a lump sum or a percentage of the film rentals, whether from a parent company or
an independent outside producer, apart of the receipts of a non-resident foreign film
distributor derived from said film represents, therefore, a return of investment.

xxx xxx xxx

4. The local distributor should withhold 30% of one-half of the film rentals paid to the
non-resident foreign film distributor and pay the same to this office in accordance with
law unless the non- resident foreign film distributor makes a prior settlement of its
income tax liability. (Emphasis ours).

Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal
Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations not
engaged in trade or business within the Philippines. The last year that petitioner withheld taxes
pursuant to the foregoing Circular was in 1968.

On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax
rate from 30 % to 35 % and revising the tax basis from "such amount" referring to rents, etc. to "gross
income," as follows:

(b) Tax on foreign corporations.—(1) Non-resident corporations.—A foreign corporation

not engaged in trade or business in the Philippines including a foreign life insurance
company not engaged in the life insurance business in the Philippines shall pay a tax
equal to thirty-five per cent of the gross income received during each taxable year from
all sources within the Philippines, as interests, dividends, rents, royalties, salaries,
wages, premiums, annuities, compensations, remunerations for technical services or
otherwise, emoluments or other fixed or determinable annual, periodical or casual
gains, profits, and income, and capital gains, Provided however, That premiums shah
not include reinsurance premiums. (Emphasis supplied)

On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular
No. 4-71, revoking General Circular No. V-334, and holding that the latter was "erroneous for lack of
legal basis," because "the tax therein prescribed should be based on gross income without deduction
whatever," thus:

After a restudy and analysis of Section 24 (b) of the National Internal Revenue Code, as
amended by Republic Act No. 5431, and guided by the interpretation given by tax
authorities to a similar provision in the Internal Revenue Code of the United States, on
which the aforementioned provision of our Tax Code was patterned, this Office has
come to the conclusion that the tax therein prescribed should be based on gross income
without t deduction whatever. Consequently, the ruling in General Circular No. V-334,
dated April 12, 1961, allowing the deduction of the proportionate cost of production or
exhibition of motion picture films from the rental income of non- resident foreign
corporations, is erroneous for lack of legal basis.

In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked
and henceforth, local films distributors and exhibitors shall deduct and withhold 35% of
the entire amount payable by them to non-resident foreign corporations, as film rental or
royalty, or whatever such payment may be denominated, without any deduction
 whatever, pursuant to Section 24 (b), and pay the withheld taxes in accordance with
Section 54 of the Tax Code, as amended.

All rulings inconsistent with this Circular is likewise revoked. (Emphasis ours)

On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against
petitioner a letter of assessment and demand dated April 15, 1971, but allegedly released by it and
received by petitioner on April 12, 1971, requiring them to pay deficiency withholding income tax on
the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in the
total amount of P525,897.06 computed as follows:

1965

Total amount remitted P 511,059.48

Withholding tax due thereon 153,318.00

Less: Amount already assessed 89,000.00

Balance P64,318.00

Add: 1/2% mo. int. fr. 4-16-66 to 4- 11,577.24

16-69

Total amount due & collectible P 75,895.24

1966

Total amount remitted P373,492.24

Withholding tax due thereon 112,048.00

Less: Amount already assessed 27,947.00

Balance 84,101.00

Add: 11/2%mo. int. fr. 4-16-67 to 4- 15,138.18

116-70

Total amount due & collectible P99,239.18

1967

Total amount remitted P601,160.65

Withholding tax due thereon 180,348.00

Less: Amount already assessed 71,448.00

Balance 108,900.00

Add: 1/2% mo. int. fr. 4-16-68 to 19,602.00

4-16-71

Total amount due & collectible P128,502.00

1968

Total amount remitted P881,816.92

Withholding tax due thereon 291,283.00

 Less: Amount already assessed 92,886.00

Balance P198,447.00

Add: 1/2% mo. int. fr. 4-16-69 to 23,813.64

4-29-71

Total amount due & collectible P222,260.44 1

On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment.
However, without acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy
over petitioner's personal as well as real properties. The petitioner then filed its Petition for Review
with the Court of Tax Appeals whose Decision, dated November 29, 1979, is, in turn, the subject of
this review. The Tax Court held:

For the reasons given, the Court finds the assessment issued by respondent on April
16, 1971 against petitioner in the amounts of P75,895.24, P 99,239.18, P128,502.00
and P222,260.64 or a total of P525,897.06 as deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968, respectively, in accordance with law. As prayed for,
the petition for review filed in this case is dismissed, and petitioner ABS-CBN
Broadcasting Corporation is hereby ordered to pay the sum of P525,897.06 to
respondent Commissioner of Internal Revenue as deficiency withholding income tax for
the taxable years 1965 thru 1968, plus the surcharge and interest which have accrued
thereon incident to delinquency pursuant to Section 51 (e) of the National Internal
Revenue Code, as amended.

WHEREFORE, the decision appealed from is hereby affirmed at petitioner's cost.

SO ORDERED. 2

The issues raised are two-fold:

I. Whether or not respondent can apply General Circular No. 4-71 retroactively and
issue a deficiency assessment against petitioner in the amount of P 525,897.06 as
deficiency withholding income tax for the years 1965, 1966, 1967 and 1968.

II. Whether or not the right of the Commissioner of Internal Revenue to assess the
deficiency withholding income tax for the year 196,5 has prescribed. 3

Upon the facts and circumstances of the case, review is warranted.

In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on
August 9, 1969, it provides:

Sec. 338-A. Non-retroactivity of rulings. — Any revocation, modification, or reversal of

and of the rules and regulations promulgated in accordance with the preceding section
or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue
shall not be given retroactive application if the relocation, modification, or reversal will
be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer
deliberately mis-states or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith. (italics for emphasis)
It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive application where to so apply them would be prejudicial to taxpayers.
The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond
question. It was issued only in 1971, or three years after 1968, the last year that petitioner had
withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay
deficiency withholding income tax was also made three years after 1968 for a period of time
commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign
corporations because it had already remitted all film rentals and no longer had any control over them
when the new Circular was issued. And in so far as the enumerated exceptions are concerned,
admittedly, petitioner does not fall under any of them.

Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present
case in that General Circular No. V-334 is a nullity because in effect, it changed the law on the
matter. The Court of Tax Appeals sustained this position holding that: "Deductions are wholly and
exclusively within the power of Congress or the law-making body to grant, condition or deny; and
where the statute imposes a tax equal to a specified rate or percentage of the gross or entire amount
received by the taxpayer, the authority of some administrative officials to modify or change, much less
reduce, the basis or measure of the tax should not be read into law." 4 Therefore, the Tax Court
concluded, petitioner did not acquire any vested right thereunder as the same was a nullity.

The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha(d) been
determined that the tax is still imposed on income derived from capital, or labor, or both combined, in
accordance with the basic principle of income taxation ...and that a mere return of capital or
investment is not income ... ." "A part of the receipts of a non-resident foreign film distributor derived
from said film represents, therefore, a return of investment." The Circular thus fixed the return of
capital at 50% to simplify the administrative chore of determining the portion of the rentals covering
the return of capital." 5

Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court
could be upheld. It should be noted, however, that said Section was not too plain and simple to
understand. The fact that the issuance of the General Circular in question was rendered necessary
leads to no other conclusion than that it was not easy of comprehension and could be subjected to
different interpretations.

In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular
No. V-334, was just one in a series of enactments regarding Sec. 24 (b) of the Tax Code. Republic
Act No. 3825 came next on June 22, 1963 without changing the basis but merely adding a proviso (in
bold letters).

(b) Tax on foreign corporation.—(1) Non-resident corporations. — There shall be levied,

collected and paid for each taxable year, in lieu of the tax imposed by the preceding
paragraph, upon the amount received by every foreign corporation not engaged in trade
or business within the Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums annuities, compensations, remunerations,
emoluments, or other fixed or determinable annual or periodical gains, profits, and
income, a tax equal to thirty per centum of such amount: PROVIDED, HOWEVER,
THAT PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS. (double
emphasis ours).

Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and
inserting some words (also in bold letters).
 (b) Tax on foreign corporations.—(1) Non-resident corporations.—There shall be levied,
collected and paid for each taxable year, in lieu of the tax imposed by the preceding
paragraph, upon the amount received by every foreign corporation not engaged in trade
or business within the Philippines, from all sources within the Philippines, as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations,
emoluments, or other fixed or determinable annual or periodical OR CASUAL gains,
profits and income, AND CAPITAL GAINS, a tax equal to thirty per centum of such
amount. 6 (double emphasis supplied)

The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in

this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive
indication of the adoption by Congress of a prior executive construction. 7 Note should be taken of
the fact that this case involves not a mere opinion of the Commissioner or ruling rendered on a mere
query, but a Circular formally issued to "all internal revenue officials" by the then Commissioner of
Internal Revenue.

It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of
Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35%
of the "gross income."

This Court is not unaware of the well-entrenched principle that the Government is never estopped
from collecting taxes because of mistakes or errors on the part of its
agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other principles of law, this
also admits of exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A into the
National Internal Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, 10 is indicative of
legislative intention to support the principle of good faith. In fact, in the United States, from where
Sec. 24 (b) was patterned, it has been held that the Commissioner of Collector is precluded from
adopting a position inconsistent with one previously taken where injustice would result therefrom, 11
or where there has been a misrepresentation to the taxpayer. 12

We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner to
pay interest and surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the deficiency
withholding tax of P 525,897.06. This additional requirement is much less called for because the
petitioner relied in good faith and religiously complied with no less than a Circular issued "to all
internal revenue officials" by the highest official of the Bureau of Internal Revenue and approved by
the then Secretary of Finance. 13

With the foregoing conclusions arrived at, resolution of the issue of prescription becomes
unnecessary.

WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned
assessment set aside. No costs.

SO ORDERED.
 THIRD DIVISION

G.R. No. 152609 June 29, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

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

DECISION

PANGANIBAN, J.:

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

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision2 of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as follows:

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

The Facts

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

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

"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office No. 47
(East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT Registration
Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For the period January 1, 1997 to
December 31, 1997, [respondent] filed with the BIR its quarterly VAT returns as follows:
 Exhibit Period Covered Date Filed
D 1997 1st Qtr. April 18, 1997
F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997
H 4th Qtr. January 20, 1998

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

Exh 1997 Taxable Sales Output Zero-rated Domestic Input

VAT Sales Purchases VAT
I 1st qtr ₱59,597.20 ₱5,959.72 ₱17,513,801.11 ₱6,778,182.30 ₱677,818.23
J 2nd qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
K 3rd qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
L 4th qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21

Total ₱247,045.30 ₱24,704.53 ₱80,309,633.20 ₱37,630,604.30 ₱3,763,060.43

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

‘Section 110. Tax Credits. -

xxxxxxxxx

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

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

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

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

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

(1) x x x

(2) Services other than those mentioned in the preceding subparagraph, the consideration is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the BSP. x x x.’

In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent portion of which
reads as follows:

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

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

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

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

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

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

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

8. Taxes paid and collected are presumed to have been made in accordance with laws and regulations, hence,
not refundable. Claims for tax refund are construed strictly against the claimant as they partake of the nature of
tax exemption from tax and it is incumbent upon the [respondent] to prove that it is entitled thereto under the
law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statu[t]e
law. An exemption from the common burden [cannot] be permitted to exist upon vague implications;
9. Moreover, [respondent] must prove that it has complied with the governing rules with reference to tax
recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as amended, which are quoted
as follows:

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

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

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

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

"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a decision 7 in favor of
the herein respondent holding that its services are subject to zero-rate pursuant to Section 108(b) of the Tax
Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96, the decretal portion of which
reads as follows:

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

Ruling of the Court of Appeals

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

Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring that
respondent’s services be consumed abroad in order to be zero-rated, petitioner went beyond the sphere of
interpretation and into that of legislation. Even granting that it is valid, the ruling cannot be given retroactive
effect, for it will be harsh and oppressive to respondent, which has already relied upon VAT Ruling No. 080-89
for zero rating.
Hence, this Petition.9

The Issue

Petitioner raises this sole issue for our consideration:

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

The Court’s Ruling

The Petition is unmeritorious.

Sole Issue:

Entitlement to Tax Refund

Section 102 of the Tax Code11 provides:

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

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

xxxxxxxxx

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

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

xxxxxxxxx

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

xxxxxxxxx

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

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

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

xxxxxxxxx

Zero Rating of "Other" Services

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

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

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

The Credit Card System and Its Components

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

Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in particular, refers to
"any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on
credit;"19 and is being used "usually on a revolving basis." 20 This means that the consumer-credit arrangement
that exists between the issuer and the holder of the credit card enables the latter to procure goods or services "on
a continuing basis as long as the outstanding balance does not exceed a specified limit." 21 The card holder is,
therefore, given "the power to obtain present control of goods or service on a promise to pay for them in the
future."22

Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit
card company to avoid the risk of uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts23 that arise from the credit sales.
Instead, they merely record their receivables from the credit card company and periodically send the drafts
evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business establishments, but it does not
redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the
company upon its redemption of the drafts.24 At the end of each month, it then bills its credit card holders for
their respective drafts redeemed during the previous month. If the holders fail to pay the amounts owed, the
company sustains the loss.25

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

The parent company -- to which the ROCs and respondent belong -- takes charge not only of redeeming the
drafts from the ROCs and sending the checks to the service establishments, but also of billing the credit card
holders for their respective drafts that it has redeemed. While it usually imposes finance charges 27 upon the
holders, none may be exacted by respondent upon either the ROCs or the card holders.

Branch and Home Office

By designation alone, respondent and the ROCs are operated as branches. This means that each of them is a
unit, "an offshoot, lateral extension, or division" 28 located at some distance from the home office 29 of the parent
company; carrying separate inventories; incurring their own expenses; and generating their respective incomes.
Each may conduct sales operations in any locality as an extension of the principal office.30

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

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

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

VAT Requirements for the Supply of Service

The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or services" 42
purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main object is the transaction46
itself or, more concretely, the performance of all kinds of services47 conducted in the course of trade or business
in the Philippines.48 These services must be regularly conducted in this country; undertaken in "pursuit of a
commercial or an economic activity;" 49 for a valuable consideration; and not exempt under the Tax Code, other
special laws, or any international agreement.50

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

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

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

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

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

Services Subject to Zero VAT

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

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

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

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

Respondent’s Services Exempt from the Destination Principle

However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT
rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the [BSP]." 57 Thus, for the supply of service to be zero-rated
as an exception, the law merely requires that first, the service be performed in the Philippines; second, the
service fall under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable
foreign currency accounted for in accordance with BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent. Its
facilitation service is performed in the Philippines. It falls under the second category found in Section 102(b) of
the Tax Code, because it is a service other than "processing, manufacturing or repacking of goods" as
mentioned in the provision. Undisputed is the fact that such service meets the statutory condition that it be paid
in acceptable foreign currency duly accounted for in accordance with BSP rules. Thus, it should be zero-rated.

Performance of Service versus Product Arising from Performance

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

Tax Situs of a Zero-Rated Service

The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service.
Under this criterion, the place where the service is rendered determines the jurisdiction 60 to impose the VAT.61
Performed in the Philippines, such service is necessarily subject to its jurisdiction,62 for the State necessarily has
to have "a substantial connection" 63 to it, in order to enforce a zero rate.64 The place of payment is immaterial;65
much less is the place where the output of the service will be further or ultimately used.

Statutory Construction or Interpretation Unnecessary

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

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

No Qualifications Under RR 5-87

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

"SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction for value-added tax
purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not result in any
output tax. The input tax on his purchases of goods or services related to such zero-rated sale shall be available
as tax credit or refundable in accordance with Section 16 of these Regulations.

xxxxxxxxx

" (c) Zero-rated sales of services. -- The following services rendered by VAT-registered persons are zero-rated:
‘(1) Services in connection with the processing, manufacturing or repacking of goods for persons doing
business outside the Philippines, where such goods are actually shipped out of the Philippines to said persons or
their assignees and the services are paid for in acceptable foreign currency inwardly remitted and duly
accounted for under the regulations of the Central Bank of the Philippines.

xxxxxxxxx

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

RR 7-95 Broad Enough

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

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

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

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

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

xxxxxxxxx

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

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

"Section 4.102-2(b)(2) -- ‘Services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported, as well as services by a resident to
a non-resident foreign client such as project studies, information services, engineering and architectural designs
and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.’"
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the amendment
introduced by RR 5-96 further enumerates specific services entitled to zero rating. Although superfluous, these
sample services are meant to be merely illustrative. In this provision, the use of the term "as well as" is not
restrictive. As a prepositional phrase with an adverbial relation to some other word, it simply means "in addition
to, besides, also or too."70

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

Ejusdem Generis
Inapplicable

The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not apply to
Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.

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

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

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

VAT Ruling Nos. 040-98 and 080-89

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

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

In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its zero
rating. Changing this status will certainly deprive respondent of a refund of the substantial amount of excess
input taxes to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation
could not be given retroactive effect if the application of the latter ruling would only be prejudicial to
respondent.83 Section 246 of the Tax Code categorically declares that "[a]ny revocation x x x of x x x any of the
rulings x x x promulgated by the Commissioner shall not be given retroactive application if the revocation x x x
will be prejudicial to the taxpayers." 84

It is also basic in law that "no x x x rule x x x shall be given retrospective effect85 unless explicitly stated."86 No
indication of such retroactive application to respondent does the Court find in VAT Ruling No. 040-98. Neither
do the exceptions enumerated in Section 24687 of the Tax Code apply.

Though vested with the power to interpret the provisions of the Tax Code 88 and not bound by predecessors’ acts
or rulings, the BIR commissioner may render a different construction to a statute 89 only if the new interpretation
is in congruence with the law. Otherwise, no amount of interpretation can ever revoke, repeal or modify what
the law says.

"Consumed Abroad" Not Required by Legislature

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

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

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

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

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

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

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

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

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

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

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

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

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

xxxxxxxxx

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

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

"Senator Maceda: That is right."90

Legislative Approval By Reenactment

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

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

In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the former’s
entitlement to the refund as determined by the appellate court. Moreover, there is no conflict between the
decisions of the CTA and CA. This Court respects the findings and conclusions of a specialized court like the
CTA "which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax cases
and has necessarily developed an expertise on the subject."93
Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely freed from
the VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange. 94 "[T]he tax paid or withheld is not
deducted from the tax base."95 Having been applied for within the reglementary period,96 respondent’s refund is
in order.

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 106719 September 21, 1993

DRA. BRIGIDA S. BUENASEDA, Lt. Col. ISABELO BANEZ, JR., ENGR. CONRADO
REY MATIAS, Ms. CORA S. SOLIS and Ms. ENYA N. LOPEZ, petitioners,
vs.
SECRETARY JUAN FLAVIER, Ombudsman CONRADO M. VASQUEZ, and NCMH
NURSES ASSOCIATION, represented by RAOULITO GAYUTIN, respondents.

Renato J. Dilag and Benjamin C. Santos for petitioners.

Danilo C. Cunanan for respondent Ombudsman.

Crispin T. Reyes and Florencio T. Domingo for private respondent.

QUIASON, J.:

This is a Petition for Certiorari, Prohibition and Mandamus, with Prayer for Preliminary
Injunction or Temporary Restraining Order, under Rule 65 of the Revised Rules of Court.

Principally, the petition seeks to nullify the Order of the Ombudsman dated January 7,
1992, directing the preventive suspension of petitioners,
Dr. Brigida S. Buenaseda, Chief of Hospital III; Isabelo C. Banez, Jr., Administrative
Officer III; Conrado Rey Matias, Technical Assistant to the Chief of Hospital; Cora C.
Solis, Accountant III; and Enya N. Lopez, Supply Officer III, all of the National Center for
Mental Health. The petition also asks for an order directing the Ombudsman to disqualify
Director Raul Arnaw and Investigator Amy de Villa-Rosero, of the Office of the
Ombudsman, from participation in the preliminary investigation of the charges against
petitioner (Rollo, pp. 2-17; Annexes to Petition, Rollo, pp. 19-21).

The questioned order was issued in connection with the administrative complaint filed with
the Ombudsman (OBM-ADM-0-91-0151) by the private respondents against the
petitioners for violation of the Anti-Graft and Corrupt Practices Act.

According to the petition, the said order was issued upon the recommendation of Director
Raul Arnaw and Investigator Amy de Villa-Rosero, without affording petitioners the
opportunity to controvert the charges filed against them. Petitioners had sought to
disqualify Director Arnaw and Investigator Villa-Rosero for manifest partiality and bias
(Rollo, pp. 4-15).
On September 10, 1992, this Court required respondents' Comment on the petition.

On September 14 and September 22, 1992, petitioners filed a "Supplemental Petition

(Rollo, pp. 124-130); Annexes to Supplemental Petition; Rollo pp. 140-163) and an
"Urgent Supplemental Manifestation" (Rollo,
pp. 164-172; Annexes to Urgent Supplemental Manifestation; Rollo, pp. 173-176),
respectively, averring developments that transpired after the filing of the petition and
stressing the urgency for the issuance of the writ of preliminary injunction or temporary
restraining order.

On September 22, 1992, this Court ". . . Resolved to REQUIRE the respondents to
MAINTAIN in the meantime, the STATUS QUO pending filing of comments by said
respondents on the original supplemental manifestation" (Rollo, p. 177).

On September 29, 1992, petitioners filed a motion to direct respondent Secretary of

Health to comply with the Resolution dated September 22, 1992 (Rollo, pp. 182-192,
Annexes, pp. 192-203). In a Resolution dated October 1, 1992, this Court required
respondent Secretary of Health to comment on the said motion.

On September 29, 1992, in a pleading entitled "Omnibus Submission," respondent NCMH

Nurses Association submitted its Comment to the Petition, Supplemental Petition and
Urgent Supplemental Manifestation. Included in said pleadings were the motions to hold
the lawyers of petitioners in contempt and to disbar them (Rollo, pp. 210-267). Attached to
the "Omnibus Submission" as annexes were the orders and pleadings filed in
Administrative Case No. OBM-ADM-0-91-1051 against petitioners (Rollo, pp. 268-480).

The Motion for Disbarment charges the lawyers of petitioners with:

(1) unlawfully advising or otherwise causing or inducing their clients — petitioners
Buenaseda, et al., to openly defy, ignore, disregard, disobey or otherwise violate,
maliciously evade their preventive suspension by Order of July 7, 1992 of the
Ombudsman . . ."; (2) "unlawfully interfering with and obstructing the implementation of the
said order (Omnibus Submission, pp. 50-52; Rollo, pp. 259-260); and (3) violation of the
Canons of the Code of Professional Responsibility and of unprofessional and unethical
conduct "by foisting blatant lies, malicious falsehood and outrageous deception" and by
committing subornation of perjury, falsification and fabrication in their pleadings (Omnibus
Submission, pp. 52-54; Rollo, pp. 261-263).

On November 11, 1992, petitioners filed a "Manifestation and Supplement to 'Motion to

Direct Respondent Secretary of Health to Comply with 22 September 1992 Resolution'"
(Manifestation attached to Rollo without pagination between pp. 613 and 614 thereof).

On November 13, 1992, the Solicitor General submitted its Comment dated November 10,
1992, alleging that: (a) "despite the issuance of the September 22, 1992 Resolution
directing respondents to maintain the status quo, respondent Secretary refuses to hold in
abeyance the implementation of petitioners' preventive suspension; (b) the clear intent
and spirit of the Resolution dated September 22, 1992 is to hold in abeyance the
implementation of petitioners' preventive suspension, the status quo obtaining the time of
the filing of the instant petition; (c) respondent Secretary's acts in refusing to hold in
abeyance implementation of petitioners' preventive suspension and in tolerating and
approving the acts of Dr. Abueva, the OIC appointed to replace petitioner Buenaseda, are
in violation of the Resolution dated September 22, 1992; and
(d) therefore, respondent Secretary should be directed to comply with the Resolution
dated September 22, 1992 immediately, by restoring the status quo ante contemplated by
the aforesaid resolution" (Comment attached to Rollo without paginations between pp.
613-614 thereof).

In the Resolution dated November 25, 1992, this Court required respondent Secretary to
comply with the aforestated status quo order, stating inter alia, that:

It appearing that the status quo ante litem motam, or the last peaceable
uncontested status which preceded the present controversy was the situation
obtaining at the time of the filing of the petition at bar on September 7, 1992
wherein petitioners were then actually occupying their respective positions,
the Court hereby ORDERS that petitioners be allowed to perform the duties of
their respective positions and to receive such salaries and benefits as they
may be lawfully entitled to, and that respondents and/or any and all persons
acting under their authority desist and refrain from performing any act in
violation of the aforementioned Resolution of September 22, 1992 until further
orders from the Court (Attached to Rollo after p. 615 thereof).

On December 9, 1992, the Solicitor General, commenting on the Petition, Supplemental

Petition and Supplemental Manifestation, stated that (a) "The authority of the Ombudsman
is only to recommend suspension and he has no direct power to suspend;" and (b)
"Assuming the Ombudsman has the power to directly suspend a government official or
employee, there are conditions required by law for the exercise of such powers; [and] said
conditions have not been met in the instant case" (Attached to Rollo without pagination).

In the pleading filed on January 25, 1993, petitioners adopted the position of the Solicitor
General that the Ombudsman can only suspend government officials or employees
connected with his office. Petitioners also refuted private respondents' motion to disbar
petitioners' counsel and to cite them for contempt (Attached to Rollo without pagination).

The crucial issue to resolve is whether the Ombudsman has the power to suspend
government officials and employees working in offices other than the Office of the
Ombudsman, pending the investigation of the administrative complaints filed against said
officials and employees.

In upholding the power of the Ombudsman to preventively suspend petitioners,

respondents (Urgent Motion to Lift Status Quo, etc, dated January 11, 1993, pp. 10-11),
invoke Section 24 of R.A. No. 6770, which provides:

Sec. 24. Preventive Suspension. — The Ombudsman or his Deputy may

preventively suspend any officer or employee under his authority pending an
investigation, if in his judgment the evidence of guilt is strong, and (a) the
 charge against such officer or employee involves dishonesty, oppression or
grave misconduct or neglect in the performance of duty; (b) the charge would
warrant removal from the service; or (c) the respondent's continued stay in
office may prejudice the case filed against him.

The preventive suspension shall continue until the case is terminated by the
Office of Ombudsman but not more than six months, without pay, except
when the delay in the disposition of the case by the Office of the Ombudsman
is due to the fault, negligence or petition of the respondent, in which case the
period of such delay shall not be counted in computing the period of
suspension herein provided.

Respondents argue that the power of preventive suspension given the Ombudsman under
Section 24 of R.A. No. 6770 was contemplated by Section 13 (8) of Article XI of the 1987
Constitution, which provides that the Ombudsman shall exercise such other power or
perform such functions or duties as may be provided by law."

On the other hand, the Solicitor General and the petitioners claim that under the 1987
Constitution, the Ombudsman can only recommend to the heads of the departments and
other agencies the preventive suspension of officials and employees facing administrative
investigation conducted by his office. Hence, he cannot order the preventive suspension
himself.

They invoke Section 13(3) of the 1987 Constitution which provides that the Office of the
Ombudsman shall have inter alia the power, function, and duty to:

Direct the officer concerned to take appropriate action against a public official
or employee at fault, and recommend his removal, suspension, demotion,
fine, censure or prosecution, and ensure compliance therewith.

The Solicitor General argues that under said provision of the Constitutions, the
Ombudsman has three distinct powers, namely: (1) direct the officer concerned to take
appropriate action against public officials or employees at fault; (2) recommend their
removal, suspension, demotion fine, censure, or prosecution; and (3) compel compliance
with the recommendation (Comment dated December 3, 1992, pp. 9-10).

The line of argument of the Solicitor General is a siren call that can easily mislead, unless
one bears in mind that what the Ombudsman imposed on petitioners was not a punitive
but only a preventive suspension.

When the constitution vested on the Ombudsman the power "to recommend the
suspension" of a public official or employees (Sec. 13 [3]), it referred to "suspension," as a
punitive measure. All the words associated with the word "suspension" in said provision
referred to penalties in administrative cases, e.g. removal, demotion, fine, censure. Under
the rule of Noscitor a sociis, the word "suspension" should be given the same sense as
the other words with which it is associated. Where a particular word is equally susceptible
of various meanings, its correct construction may be made specific by considering the
company of terms in which it is found or with which it is associated (Co Kim Chan v.
Valdez Tan Keh, 75 Phil. 371 [1945]; Caltex (Phils.) Inc. v. Palomar, 18 SCRA 247
[1966]).

Section 24 of R.A. No. 6770, which grants the Ombudsman the power to preventively
suspend public officials and employees facing administrative charges before him, is a
procedural, not a penal statute. The preventive suspension is imposed after compliance
with the requisites therein set forth, as an aid in the investigation of the administrative
charges.

Under the Constitution, the Ombudsman is expressly authorized to recommend to the

appropriate official the discipline or prosecution of erring public officials or employees. In
order to make an intelligent determination whether to recommend such actions, the
Ombudsman has to conduct an investigation. In turn, in order for him to conduct such
investigation in an expeditious and efficient manner, he may need to suspend the
respondent.

The need for the preventive suspension may arise from several causes, among them, the
danger of tampering or destruction of evidence in the possession of respondent; the
intimidation of witnesses, etc. The Ombudsman should be given the discretion to decide
when the persons facing administrative charges should be preventively suspended.

Penal statutes are strictly construed while procedural statutes are liberally construed
(Crawford, Statutory Construction, Interpretation of Laws, pp. 460-461; Lacson v. Romero,
92 Phil. 456 [1953]). The test in determining if a statute is penal is whether a penalty is
imposed for the punishment of a wrong to the public or for the redress of an injury to an
individual (59 Corpuz Juris, Sec. 658; Crawford, Statutory Construction, pp. 496-497). A
Code prescribing the procedure in criminal cases is not a penal statute and is to be
interpreted liberally (People v. Adler, 140 N.Y. 331; 35 N.E. 644).

The purpose of R.A. No. 6770 is to give the Ombudsman such powers as he may need to
perform efficiently the task committed to him by the Constitution. Such being the case,
said statute, particularly its provisions dealing with procedure, should be given such
interpretation that will effectuate the purposes and objectives of the Constitution. Any
interpretation that will hamper the work of the Ombudsman should be avoided.

A statute granting powers to an agency created by the Constitution should be liberally

construed for the advancement of the purposes and objectives for which it was created
(Cf. Department of Public Utilities v. Arkansas Louisiana Gas. Co., 200 Ark. 983, 142 S.W.
(2d) 213 [1940]; Wallace v. Feehan, 206 Ind. 522, 190 N.E., 438 [1934]).

In Nera v. Garcia, 106 Phil. 1031 [1960], this Court, holding that a preventive suspension
is not a penalty, said:

Suspension is a preliminary step in an administrative investigation. If after

such investigation, the charges are established and the person investigated is
 found guilty of acts warranting his removal, then he is removed or dismissed.
This is the penalty.

To support his theory that the Ombudsman can only preventively suspend respondents in
administrative cases who are employed in his office, the Solicitor General leans heavily on
the phrase "suspend any officer or employee under his authority" in Section 24 of R.A. No.
6770.

The origin of the phrase can be traced to Section 694 of the Revised Administrative Code,
which dealt with preventive suspension and which authorized the chief of a bureau or
office to "suspend any subordinate or employee in his bureau or under his authority
pending an investigation . . . ."

Section 34 of the Civil Service Act of 1959 (R.A. No. 2266), which superseded Section
694 of the Revised Administrative Code also authorized the chief of a bureau or office to
"suspend any subordinate officer or employees, in his bureau or under his authority."

However, when the power to discipline government officials and employees was extended
to the Civil Service Commission by the Civil Service Law of 1975 (P.D. No. 805),
concurrently with the President, the Department Secretaries and the heads of bureaus
and offices, the phrase "subordinate officer and employee in his bureau" was deleted,
appropriately leaving the phrase "under his authority." Therefore, Section 41 of said law
only mentions that the proper disciplining authority may preventively suspend "any
subordinate officer or employee under his authority pending an investigation . . ." (Sec.
41).

The Administrative Code of 1987 also empowered the proper disciplining authority to
"preventively suspend any subordinate officer or employee under his authority pending an
investigation" (Sec. 51).

The Ombudsman Law advisedly deleted the words "subordinate" and "in his bureau,"
leaving the phrase to read "suspend any officer or employee under his authority pending
an investigation . . . ." The conclusion that can be deduced from the deletion of the word
"subordinate" before and the words "in his bureau" after "officer or employee" is that the
Congress intended to empower the Ombudsman to preventively suspend all officials and
employees under investigation by his office, irrespective of whether they are employed "in
his office" or in other offices of the government. The moment a criminal or administrative
complaint is filed with the Ombudsman, the respondent therein is deemed to be "in his
authority" and he can proceed to determine whether said respondent should be placed
under preventive suspension.

In their petition, petitioners also claim that the Ombudsman committed grave abuse of
discretion amounting to lack of jurisdiction when he issued the suspension order without
affording petitioners the opportunity to confront the charges against them during the
preliminary conference and even after petitioners had asked for the disqualification of
Director Arnaw and Atty. Villa-Rosero (Rollo, pp. 6-13). Joining petitioners, the Solicitor
General contends that assuming arguendo that the Ombudsman has the power to
preventively suspend erring public officials and employees who are working in other
departments and offices, the questioned order remains null and void for his failure to
comply with the requisites in Section 24 of the Ombudsman Law (Comment dated
December 3, 1992, pp. 11-19).

Being a mere order for preventive suspension, the questioned order of the Ombudsman
was validly issued even without a full-blown hearing and the formal presentation of
evidence by the parties. In Nera, supra, petitioner therein also claimed that the Secretary
of Health could not preventively suspend him before he could file his answer to the
administrative complaint. The contention of petitioners herein can be dismissed
perfunctorily by holding that the suspension meted out was merely preventive and
therefore, as held in Nera, there was "nothing improper in suspending an officer pending
his investigation and before tho charges against him are heard . . . (Nera v. Garcia.,
supra).

There is no question that under Section 24 of R.A. No. 6770, the Ombudsman cannot
order the preventive suspension of a respondent unless the evidence of guilt is strong and
(1) the charts against such officer or employee involves dishonesty, oppression or grave
misconduct or neglect in the performance of duty; (2) the charge would warrant removal
from the service; or (3) the respondent's continued stay in office may prejudice the case
filed against him.

The same conditions for the exercise of the power to preventively suspend officials or
employees under investigation were found in Section 34 of R.A. No. 2260.

The import of the Nera decision is that the disciplining authority is given the discretion to
decide when the evidence of guilt is strong. This fact is bolstered by Section 24 of R.A.
No. 6770, which expressly left such determination of guilt to the "judgment" of the
Ombudsman on the basis of the administrative complaint. In the case at bench, the
Ombudsman issued the order of preventive suspension only after: (a) petitioners had filed
their answer to the administrative complaint and the "Motion for the Preventive
Suspension" of petitioners, which incorporated the charges in the criminal complaint
against them (Annex 3, Omnibus Submission, Rollo, pp. 288-289; Annex 4, Rollo,
pp. 290-296); (b) private respondent had filed a reply to the answer of petitioners,
specifying 23 cases of harassment by petitioners of the members of the private
respondent (Annex 6, Omnibus Submission, Rollo, pp. 309-333); and (c) a preliminary
conference wherein the complainant and the respondents in the administrative case
agreed to submit their list of witnesses and documentary evidence.

Petitioners herein submitted on November 7, 1991 their list of exhibits (Annex 8 of

Omnibus Submission, Rollo, pp. 336-337) while private respondents submitted their list of
exhibits (Annex 9 of Omnibus Submission, Rollo, pp. 338-348).

Under these circumstances, it can not be said that Director Raul Arnaw and Investigator
Amy de Villa-Rosero acted with manifest partiality and bias in recommending the
suspension of petitioners. Neither can it be said that the Ombudsman had acted with
grave abuse of discretion in acting favorably on their recommendation.

The Motion for Contempt, which charges the lawyers of petitioners with unlawfully causing
or otherwise inducing their clients to openly defy and disobey the preventive suspension
as ordered by the Ombudsman and the Secretary of Health can not prosper (Rollo, pp.
259-261). The Motion should be filed, as in fact such a motion was filed, with the
Ombudsman. At any rate, we find that the acts alleged to constitute indirect contempt
were legitimate measures taken by said lawyers to question the validity and propriety of
the preventive suspension of their clients.

On the other hand, we take cognizance of the intemperate language used by counsel for
private respondents hurled against petitioners and their counsel (Consolidated: (1)
Comment on Private Respondent" "Urgent Motions, etc.;
(2) Adoption of OSG's Comment; and (3) Reply to Private Respondent's Comment and
Supplemental Comment, pp. 4-5).

A lawyer should not be carried away in espousing his client's cause. The language of a
lawyer, both oral or written, must be respectful and restrained in keeping with the dignity of
the legal profession and with his behavioral attitude toward his brethren in the profession
(Lubiano v. Gordolla, 115 SCRA 459 [1982]). The use of abusive language by counsel
against the opposing counsel constitutes at the same time a disrespect to the dignity of
the court of justice. Besides, the use of impassioned language in pleadings, more often
than not, creates more heat than light.

The Motion for Disbarment (Rollo, p. 261) has no place in the instant special civil action,
which is confined to questions of jurisdiction or abuse of discretion for the purpose of
relieving persons from the arbitrary acts of judges and quasi-judicial officers. There is a
set of procedure for the discipline of members of the bar separate and apart from the
present special civil action.

WHEREFORE, the petition is DISMISSED and the Status quo ordered to be maintained in
the Resolution dated September 22, 1992 is LIFTED and SET ASIDE.

SO ORDERED.
 SECOND DIVISION

G.R. No. 137677 May 31, 2000

ADALIA B. FRANCISCO, petitioner,

vs.
ZENAIDA F. BOISER, respondent.

MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No. 55518 which affirmed
in toto the decision of the Regional Trial Court, Branch 122, Caloocan City, dismissing petitioner's complaint
for redemption of property against respondent.

The facts are as follows:

Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and Adeluisa, were co-owners of four
parcels of registered lands1 on which stands the Ten Commandments Building at 689 Rizal Avenue Extension,
Caloocan City. On August 6, 1979, they sold 1/5 of their undivided share in the subject parcels of land to their
mother, Adela Blas, for P10,000.00, thus making the latter a co-owner of said real property to the extent of the
share sold.

On August 8, 1986, without the knowledge of the other co-owners, Adela Blas sold her 1/5 share for
P10,000.00 to respondent Zenaida Boiser who is another sister of petitioner.

On August 5, 1992, petitioner received summons, with a copy of the complaint in Civil Case No. 15510, filed
by respondent demanding her share in the rentals being collected by petitioner from the tenants of the building.
Petitioner then informed respondent that she was exercising her right of redemption as a co-owner of the subject
property. On August 12, 1992, she deposited the amount of P10,000.00 as redemption price with the Clerk of
Court. This move to redeem the property was interposed as a permissive counterclaim in Civil Case No. 15510.
However, said case was dismissed after respondent was declared non-suited with the result that petitioner's
counterclaim was likewise dismissed.

On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the Regional Trial Court in
Caloocan City. She alleged that the 30-day period for redemption under Art. 1623 of the Civil Code had not
begun to run against her since the vendor, Adela Blas, never informed her and the other owners about the sale to
respondent. She learned about the sale only on August 5, 1992, after she received the summons in Civil Case
No. 15510, together with the complaint.

Respondent, on the other hand, contended that petitioner knew about the sale as early as May 30, 1992, because,
on that date, she wrote petitioner a letter2 informing the latter about the sale, with a demand that the rentals
corresponding to her 1/5 share of the subject property be remitted to her. Said letter was sent with a copy of the
Deed of Sale 3 between respondent and Adela Blas. On the same date, letters4 were likewise sent by respondent
to the tenants of the building, namely, Seiko Service Center and Glitters Corporation, informing them of the sale
and requesting that, thenceforth, they pay 1/5 of the monthly rentals to respondent. That petitioner received
these letters is proved by the fact that on June 8, 1992, she wrote5 the building's tenants advising them to
disregard respondent's request and continue paying full rentals directly to her.

On August 19, 1996, the trial court dismissed petitioner's complaint for legal redemption. It ruled that Art. 1623
does not prescribe any particular form of notifying co-owners about a sale of property owned in common to
enable them to exercise their right of legal redemption.6 While no written notice was given by the vendor,
Adela Blas, to petitioner or the other owners, petitioner herself admitted that she had received respondent's letter
of May 30, 1992 and was in fact furnished a copy of the deed evidencing such sale.7 The trial court considered
the letter sent by respondent to petitioner with a copy of the deed of sale as substantial compliance with the
required written notice under Art. 1623 of the New Civil Code.8 Consequently, the 30-day period of redemption
should be counted not from August 5, 1992, when petitioner received summons in Civil Case No. 15510, but at
the latest, from June 8, 1992, the date petitioner wrote the tenants of the building advising them to continue
paying rentals in full to her. Petitioner failed to redeem the property within that period.

Petitioner brought the matter to the Court of Appeals, which, on October 26, 1998, affirmed the decision of the
Regional Trial Court. She moved for reconsideration, but her motion was denied by the appellate court on
February 16, 1999. Hence, this petition.

The sole issue presented in this appeal is whether the letter of May 30, 1992 sent by respondent to petitioner
notifying her of the sale on August 8, 1986 of Adela Blas' 1/5 share of the property to respondent, containing a
copy of the deed evidencing such sale, can be considered sufficient as compliance with the notice requirement
of Art. 1623 for the purpose of legal redemption. The trial court and the Court of Appeals relied on the ruling in
Distrito v. Court of
Appeals9 that Art. 1623 does not prescribe any particular form of written notice, nor any distinctive method for
notifying the redemptioner. They also invoked the rulings in De Conejero v. Court of Appeals 10 and Badillo v.
Ferrer 11 that furnishing the redemptioner with a copy of the deed of sale is equivalent to giving him the
written notice required by law.

On the other hand, petitioner points out that the cited cases are not relevant because the present case does not
concern the particular form in which notice must be given. Rather, the issue here is whether a notice sent by the
vendee may be given in lieu of that required to be given by the vendor or prospective vendor. 12

Art. 1623 of the Civil Code provides:

The right of legal pre-emption or redemption shall not be exercised except within thirty days
from the notice in writing by the prospective vendor, or by the vendor, as the case maybe. The
deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit
of the vendor that he has given written notice thereof to all possible redemptioners.

The right of redemption of co-owners excludes that of adjoining owners.

In ruling that the notice given by the vendee was sufficient, the appellate court cited the case of Etcuban v.
Court of Appeals 1 in which it was held:

Petitioner contends that vendors (his co-heirs) should be the ones to give him written notice and
not the vendees (defendants or private respondent herein) citing the case of Butte vs. Manuel Uy
& Sons. Inc., 4 SCRA 526. Such contention is of no moment. While it is true that written notice is
required by the law (Art. 1623), it is equally true that, the same "Art. 1623 does not prescribe
any particular form of notice, nor any distinctive method for notifying the redemptioner." So
 long, therefore, as the latter is informed in writing of the sale and the particulars thereof, the 30
days for redemption start running, and the redemptioner has no real cause to complain. (De
Conejero et al v. Court of Appeals, et al., 16 SCRA 775). In the Conejero case, we ruled that the
furnishing of a copy of the disputed deed of sale to the redemptioner was equivalent to the giving
of written notice required by law in "a more authentic manner than any other writing could have
done," and that We cannot adopt a stand of having to sacrifice substance to technicality. More so
in the case at bar, where the vendors or co-owners of petitioner stated under oath in the deeds of
sale that notice of sale had been given to prospective redemptioners in accordance with Art.
16232 of the Civil Code. "A sworn statement or clause in a deed of sale to the effect that a
written notice of sale was given to possible redemptioners or co-owners might be used to
determine whether an offer to redeem was made on or out of time, or whether there was
substantial compliance with the requirement of said Art. 1623." 14

In Etcuban, notice to the co-owners of the sale of the share of one of them was given by the vendees through
their counterclaim in the action for legal redemption. Despite the apparent meaning of Art. 1623, it was held in
that case that it was "of no moment" that the notice of sale was given not by the vendor but by the vendees. "So
long as the [co-owner] is informed in writing of the sale and the particulars thereof, the 30 days for redemption
stair running, and the redemptioner has no cause to complain," so it was held. The contrary doctrine of Butte v.
Manuel Uy and Sons, Inc. 15 was thus overruled sub silencio.

However, in the later case of Salatandol v. Retes, 16 decided a year after the Etcuban case, the Court expressly
affirmed the ruling in Butte that the notice required by Art. 1623 must be given by the vendor. In Salatandol,
the notice given to the redemptioner by the Register of Deeds of the province where the subject land was
situated was held to be insuffucient. Resolving the issue of whether such notice was equivalent to the notice
from the vendor required under Art. 1623, this Court stated:

The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., the Court ruled that
Art. 1623 of the Civil Code clearly and expressly prescribes that the thirty (30) days for making
the pre-emption or redemption are to be counted from notice in writing by the vendor. The Court
said:

. . . The test of Article 1623 clearly and expressly prescribes that the thirty days for making the
redemption are to be counted from notice in writing by the vendor. Under the old law (Civil
Code of 1889, Art. 1524), it was immaterial who gave the notice; so long as the redeeming co-
owner learned of the alienation in favor of the stranger, the redemption period began to run. It is
thus apparent that the Philippine legislature in Article 1623 deliberately selected a particular
method of giving notice, and that method must be deemed exclusive (39 Am. Jur., 237; Payne vs.
State, 12 S.W. (2d) (528). As ruled in Wampher vs. Lecompte, 150 Atl. 458 (aff'd. in 75 Law Ed.
[U.S.] 275) —

Why these provisions were inserted in the statute we are not informed, but we
may assume until the contrary is shown, that a state of facts in respect thereto
existed, which warranted the legislature in so legislating.

The reasons for requiring that the notice should be given by the seller, and not by the buyer, are
easily divined. The seller of an undivided interest is in the best position to know who are his co-
owners that under the law must be notified of the sale. Also, the notice by the seller removes all
doubts as to fact of the sale, its perfection, and its validity, the notice being a reaffirmation
thereof; so that that party notified need not entertain doubt that the seller may still contest the
alienation. This assurance would not exist if the notice should be given by the buyer.
 In the case at bar, the plaintiffs have not been furnished any written notice of sale or a copy
thereof by Eufemia Omole, the vendor. Said plaintiffs' right to exercise the legal right of
preemption or redemption, given to a co-owner when any one of the other co-owners sells his
share in the thing owned in common to a third person, as provided for in Article 1623 of the
Civil Code, has not yet accrued.

There was thus a return to the doctrine laid down in Butte. That ruling is sound. In the first place, reversion to
the ruling in Butte is proper. Art. 1623 of the Civil Code is clear in requiring that the written notification should
come from the vendor or prospective vendor, not from any other person. There is, therefore, no room for
construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and Art. 1623 of the
present one is that the former did not specify who must give the notice, whereas the present one expressly says
the notice must be given by the vendor. Effect must be given to this change in statutory language.

In the second place, it makes sense to require that the notice required in Art. 1623 be given by the vendor and
by nobody else. As explained by this Court through Justice J.B.L. Reyes in Butte, the vendor of an undivided
interest is in the best position to know who are his co-owners who under the law must be notified of the sale. It
is likewise the notification from the seller, not from anyone else, which can remove all doubts as to the fact of
the sale, its perfection, and its validity, for in a contract of sale, the seller is in the best position to confirm
whether consent to the essential obligation of selling the property and transferring ownership thereof to the
vendee has been given.

Now, it is clear that by not immediately notifying the co-owner, a vendor can delay or even effectively prevent
the meaningful exercise of the right of redemption. In the present case, for instance, the sale took place in 1986,
but it was kept secret until 1992 when vendee (herein respondent) needed to notify petitioner about the sale to
demand 1/5 rentals from the property sold. Compared to serious prejudice to petitioner's right of legal
redemption, the only adverse effect to vendor Adela Blas and respondent-vendee is that the sale could not be
registered. It is non-binding, only insofar as third persons are concerned. 17 It is, therefore, unjust when the
subject sale has already been established before both lower courts and now, before this Court, to further delay
petitioner's exercise of her right of legal redemption by requiring that notice be given by the vendor before
petitioner can exercise her right. For this reason, we rule that the receipt by petitioner of summons in Civil Case
No. 15510 on August 5, 1992 constitutes actual knowledge on the basis of which petitioner may now exercise
her right of redemption within 30 days from finality of this decision.

Our ruling is not without precedent. In Alonzo v. Intermediate Appellate Court, 18 we dispensed with the need
for written notification considering that the redemptioners lived on the same lot on which the purchaser lived
and were thus deemed to have actual knowledge of the sales. We stated that the 30-day period of redemption
started, not from the date of the sales in 1963 and 1964, but sometime between those years and 1976, when the
first complaint for redemption was actually filed. For 13 years, however, none of the co-heirs moved to redeem
the property. We thus ruled that the right of redemption had already been extinguished because the period for its
exercise had already expired.

In the present case, as previously discussed, receipt by petitioner of summons in Civil Case No. 15510 on
August 5, 1992 amounted to actual knowledge of the sale from which the 30-day period of redemption
commenced to run. Petitioner had until September 4, 1992 within which to exercise her right of legal
redemption, but on August 12, 1992 she deposited the P10,000.00 redemption price. As petitioner's exercise of
said right was timely, the same should be given effect.

WHEREFORE, in view of the foregoing, the petition is GRANTED and the decision of the Court of Appeals is
REVERSED and the Regional Trial Court, Branch 122, Caloocan City is ordered to effect petitioner's exercise
of her right of legal redemption in Civil Case No. C-17055.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 183505 February 26, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT CORPORATION,
Respondents.

DECISION

DEL CASTILLO, J.:

When the intent of the law is not apparent as worded, or when the application of the law would lead to absurdity
or injustice, legislative history is all important. In such cases, courts may take judicial notice of the origin and
history of the law,1 the deliberations during the enactment,2 as well as prior laws on the same subject matter3 to
ascertain the true intent or spirit of the law.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic Act (RA)
No. 9282,4 seeks to set aside the April 30, 2008 Decision5 and the June 24, 2008 Resolution6 of the Court of
Tax Appeals (CTA).

Factual Antecedents

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia)
are domestic corporations duly organized and existing under the laws of the Republic of the Philippines. Both
are engaged in the business of operating cinema houses, among others. 7

CTA Case No. 7079

On September 26, 2003, the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice
(PAN) for value added tax (VAT) deficiency on cinema ticket sales in the amount of ₱119,276,047.40 for
taxable year 2000.8 In response, SM Prime filed a letter-protest dated December 15, 2003.9

On December 12, 2003, the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency,
which the latter protested in a letter dated January 14, 2004. 10

On September 6, 2004, the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency
for taxable year 2000 in the amount of ₱124,035,874.12.11

On October 15, 2004, SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 7079. 12

CTA Case No. 7085

On May 15, 2002, the BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales for taxable year 1999 in the total amount of ₱35,823,680.93. 13 First Asia protested the PAN
in a letter dated July 9, 2002.14

Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested
by First Asia in a letter dated December 12, 2002.15

On September 6, 2004, the BIR rendered a Decision denying the protest and ordering First Asia to pay the
amount of ₱35,823,680.93 for VAT deficiency for taxable year 1999.16

Accordingly, on October 20, 2004, First Asia filed a Petition for Review before the CTA, docketed as CTA
Case No. 7085.17

CTA Case No. 7111

On April 16, 2004, the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year
2000 in the amount of ₱35,840,895.78. First Asia protested the PAN through a letter dated April 22, 2004.18

Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency. 19 First Asia protested the
same in a letter dated July 9, 2004.20

On October 5, 2004, the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount
of ₱35,840,895.78 for taxable year 2000.21

This prompted First Asia to file a Petition for Review before the CTA on December 16, 2004. The case was
docketed as CTA Case No. 7111.22

CTA Case No. 7272

Re: Assessment Notice No. 008-02

A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of
₱32,802,912.21 was issued against First Asia by the BIR. In response, First Asia filed a protest-letter dated
November 11, 2004. The BIR then sent a Formal Letter of Demand, which was protested by First Asia on
December 14, 2004.23

Re: Assessment Notice No. 003-03

A PAN for VAT deficiency on cinema ticket sales in the total amount of ₱28,196,376.46 for the taxable year
2003 was issued by the BIR against First Asia. In a letter dated September 23, 2004, First Asia protested the
PAN. A Formal Letter of Demand was thereafter issued by the BIR to First Asia, which the latter protested
through a letter dated November 11, 2004. 24

On May 11, 2005, the BIR rendered a Decision denying the protests. It ordered First Asia to pay the amounts of
₱33,610,202.91 and ₱28,590,826.50 for VAT deficiency for taxable years 2002 and 2003, respectively.25

Thus, on June 22, 2005, First Asia filed a Petition for Review before the CTA, docketed as CTA Case No.
7272.26

Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and First
Asia.27

On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case
No. 7079 on the grounds that the issues raised therein are identical and that SM Prime is a majority shareholder
of First Asia. The motion was granted.28

Upon submission of the parties’ respective memoranda, the consolidated cases were submitted for decision on
the sole issue of whether gross receipts derived from admission tickets by cinema/theater operators or
proprietors are subject to VAT.29

Ruling of the CTA First Division

On September 22, 2006, the First Division of the CTA rendered a Decision granting the Petition for Review.
Resorting to the language used and the legislative history of the law, it ruled that the activity of showing
cinematographic films is not a service covered by VAT under the National Internal Revenue Code (NIRC) of
1997, as amended, but an activity subject to amusement tax under RA 7160, otherwise known as the Local
Government Code (LGC) of 1991. Citing House Joint Resolution No. 13, entitled "Joint Resolution Expressing
the True Intent of Congress with Respect to the Prevailing Tax Regime in the Theater and Local Film Industry
Consistent with the State’s Policy to Have a Viable, Sustainable and Competitive Theater and Film Industry as
One of its Partners in National Development," 30 the CTA First Division held that the House of Representatives
resolved that there should only be one business tax applicable to theaters and movie houses, which is the 30%
amusement tax imposed by cities and provinces under the LGC of 1991. Further, it held that consistent with the
State’s policy to have a viable, sustainable and competitive theater and film industry, the national government
should be precluded from imposing its own business tax in addition to that already imposed and collected by
local government units. The CTA First Division likewise found that Revenue Memorandum Circular (RMC)
No. 28-2001, which imposes VAT on gross receipts from admission to cinema houses, cannot be given force
and effect because it failed to comply with the procedural due process for tax issuances under RMC No. 20-
86.31 Thus, it disposed of the case as follows:

IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review. Respondent’s
Decisions denying petitioners’ protests against deficiency value-added taxes are hereby REVERSED.
Accordingly, Assessment Notices Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-03 and 008-02 are
ORDERED cancelled and set aside.

SO ORDERED.32