765 Phil.

605

FIRST DIVISION
[ G.R. No. 166102, August 05, 2015 ]
MANILA ELECTRIC COMPANY, PETITIONER, VS. THE CITY ASSESSOR AND CITY
TREASURER OF LUCENA CITY, RESPONDENTS.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Manila
Electric Company (MERALCO), seeking the reversal of the Decision[1] dated May 13, 2004 and
Resolution[2] dated November 18, 2004 of the Court of Appeals in CA-G.R. SP No. 67027. The appellate court
affirmed the Decision[3] dated May 3, 2001 of the Central Board of Assessment Appeals (CBAA) in CBAA
Case No. L-20-98, which, in turn, affirmed with modification the Decision[4] dated June 17, 1998[5] of the
Local Board of Assessment Appeals (LBAA) of Lucena City, Quezon Province, as regards Tax Declaration
Nos. 019-6500 and 019-7394, ruling that MERALCO is liable for real property tax on its transformers,
electric posts (or poles), transmission lines, insulators, and electric meters, beginning 1992.

MERALCO is a private corporation organized and existing under Philippine laws to operate as a public utility
engaged in electric distribution. MERALCO has been successively granted franchises to operate in Lucena
City beginning 1922 until present time, particularly, by: (1) Resolution No. 36[6] dated May 15, 1922 of the
Municipal Council of Lucena; (2) Resolution No. 108[7] dated July 1, 1957 of the Municipal Council of
Lucena; (3) Resolution No. 2679[8] dated June 13, 1972 of the Municipal Board of Lucena City;[9] (4)
Certificate of Franchise[10] dated October 28, 1993 issued by the National Electrification Commission; and (5)
Republic Act No. 9209[11] approved on June 9, 2003 by Congress.[12]

On February 20, 1989, MERALCO received from the City Assessor of Lucena a copy of Tax Declaration No.
019-6500[13] covering the following electric facilities, classified as capital investment, of the company: (a)
transformer and electric post; (b) transmission line; (c) insulator; and (d) electric meter, located in Quezon
Ave. Ext., Brgy. Gulang-Gulang, Lucena City. Under Tax Declaration No. 019-6500, these electric facilities
had a market value of P81,811,000.00 and an assessed value of P65,448,800.00, and were subjected to real
property tax as of 1985.

MERALCO appealed Tax Declaration No. 019-6500 before the LBAA of Lucena City, which was docketed
as LBAA-89-2. MERALCO claimed that its capital investment consisted only of its substation facilities, the
true and correct value of which was only P9,454,400.00; and that MERALCO was exempted from payment of
real property tax on said substation facilities.

The LBAA rendered a Decision[14] in LBAA-89-2 on July 5, 1989, finding that under its franchise,
MERALCO was required to pay the City Government of Lucena a tax equal to 5% of its gross earnings, and
"[s]aid tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected x x x, on its poles, wires, insulators, transformers and structures,
installations, conductors, and accessories, x x x, from which taxes the grantee (MERALCO) is hereby
expressly exempted."[15] As regards the issue of whether or not the poles, wires, insulators, transformers, and
electric meters of MERALCO were real properties, the LBAA cited the 1964 case of Board of Assessment
Appeals v. Manila Electric Company[16] (1964 MERALCO case) in which the Court held that: (1) the steel
towers fell within the term "poles" expressly exempted from taxes under the franchise of MERALCO; and (2)
the steel towers were personal properties under the provisions of the Civil Code and, hence, not subject to real
property tax. The LBAA lastly ordered that Tax Declaration No. 019-6500 would remain and the poles, wires,
insulators, transformers, and electric meters of MERALCO would be continuously assessed, but the City
Assessor would stamp on the said Tax Declaration the word "exempt." The LBAA decreed in the end:

WHEREFORE, from the evidence adduced by the parties, the Board overrules the claim of the [City Assessor
of Lucena] and sustain the claim of [MERALCO].
Further, the Appellant (Meralco) is hereby ordered to render an accounting to the City Treasurer of Lucena
and to pay the City Government of Lucena the amount corresponding to the Five (5%) per centum of the gross
earnings in compliance with paragraph 13 both Resolutions 108 and 2679, respectively, retroactive from
November 9, 1957 to date, if said tax has not yet been paid.[17]

The City Assessor of Lucena filed an appeal with the CBAA, which was docketed as CBAA Case No. 248. In
its Decision[18] dated April 10, 1991, the CBAA affirmed the assailed LBAA judgment. Apparently, the City
Assessor of Lucena no longer appealed said CBAA Decision and it became final and executory.

Six years later, on October 29, 1997, MERALCO received a letter19 dated October 16, 1997 from the City
Treasurer of Lucena, which stated that the company was being assessed real property tax delinquency on its
machineries beginning 1990, in the total amount of P17,925,117.34, computed as follows:

TAX ASSESSED COVERED TAX DUE PENALTY TOTAL

DEC. # VALUE PERIOD
019-6500 P65,448,800.00 1990-94 P3,272,440.00 P2,356,156.80 P5,628,596.80
019-7394 78,538,560.00 1995 785,385.60 534,062.21 1,319,447.81
1996 785,385.60 345,569.66 1,130,955.26
lst-3rd/1997 589,039.20 117,807.84 706,847.04
4th 1997 196,346.40 (19,634.64) 176,711.76
BASIC---- P8,962,558.67
SEF---- 8,962,558.67
TOTAL TAX DELINQUENCY---- P17,925,117.34

The City Treasurer of Lucena requested that MERALCO settle the payable amount soon to avoid
accumulation of penalties. Attached to the letter were the following documents: (a) Notice of
Assessment[20] dated October 20, 1997 issued by the City Assessor of Lucena, pertaining to Tax Declaration
No. 019-7394, which increased the market value and assessed value of the machinery; (b) Property Record
Form;[21] and (c) Tax Declaration No. 019-6500.[22]

MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 before the LBAA of Lucena City on
December 23, 1997 and posted a surety bond[23] dated December 10, 1997 to guarantee payment of its real
property tax delinquency. MERALCO asked the LBAA to cancel and nullify the Notice of Assessment dated
October 20, 1997 and declare the properties covered by Tax Declaration Nos. 019-6500 and 019-7394 exempt
from real property tax.

In its Decision dated June 17, 1998 regarding Tax Declaration Nos. 019-6500 and 019-7394, the LBAA
declared that Sections 234 and 534(f) of the Local Government Code repealed the provisions in the franchise
of MERALCO and Presidential Decree No. 551[24] pertaining to the exemption of MERALCO from payment
of real property tax on its poles, wires, insulators, transformers, and meters. The LBAA refused to apply
as res judicata its earlier judgment in LBAA-89-2, as affirmed by the CBAA, because it involved collection of
taxes from 1985 to 1989, while the present case concerned the collection of taxes from 1989 to 1997; and
LBAA is only an administrative body, not a court or quasi-judicial body. The LBAA though instructed that
the computation of the real property tax for the machineries should be based on the prevailing 1991 Schedule
of Market Values, less the depreciation cost allowed by law. The LBAA ultimately disposed:

WHEREFORE, in view of the foregoing, it is hereby ordered that:

1) MERALCO's appeal be dismissed for lack of merit;

2) MERALCO be required to pay the realty tax on the questioned properties, because they are not exempt by
law, same to be based on the 1991 level of assessment, less depreciation cost allowed by law. [25]

MERALCO went before the CBAA on appeal, which was docketed as CBAA Case No. L-20-98. The CBAA,
in its Decision dated May 3, 2001, agreed with the LBAA that MERALCO could no longer claim exemption
from real property tax on its machineries with the enactment of Republic Act No. 7160, otherwise known as
the Local Government Code of 1991, thus:
Indeed, the Central Board of Assessment Appeals has had the opportunity of ruling in [MERALCO's] favor in
connection with this very same issue. The matter was settled on April 10, 1991 where this Authority ruled that
"wires, insulators, transformers and electric meters which are mounted on poles and can be separated from the
poles and moved from place to place without breaking the material or causing [the] deterioration of the object,
are deemed movable or personal property". The same position of MERALCO would have been tenable and
that decision may have stood firm prior to the enactment of R.A. 7160 but not anymore in this jurisdiction.
The Code provides and now sets a more stringent yet broadened concept of machinery, x x x:

xxxx

The pivotal point where the difference lie between the former and the current case is that by the very wordings
of [Section 199(0)], the ground being anchored upon by MERALCO concerning the properties in question
being personal in nature does not hold anymore for the sole reason that these come now within the purview
and new concept of Machineries. The new law has treated these in an unequivocal manner as machineries in
the sense that they are instruments, mechanical contrivances or apparatus though not attached permanently to
the real properties of [MERALCO] are actually, directly and exclusively used to meet their business of
distributing electricity.

xxxx

Clearly, [Section 234 of the Local Government Code] lists down the instances of exemption in real property
taxation and very apparent is the fact that the enumeration is exclusive in character in view of the wordings in
the last paragraph. Applying the maxim "Expressio Unius est Exclusio Alterius", we can say that "Where the
statute enumerates those who can avail of the exemption, it is construed as excluding all others not mentioned
therein". Therefore, the above-named company [had] lost its previous exemptions under its franchise because
of non-inclusion in the enumeration in Section 234. Furthermore, all tax exemptions being enjoyed by all
persons, whether natural or juridical, including all government-owned or controlled corporations are expressly
withdrawn, upon effectivity of R.A. 7160.

In the given facts, it has been manifested that the Municipal Board of Lucena passed Resolution No. 108 on
July 1, 1957 extending the franchise of MERALCO to operate in Lucena city an electric light system for
thirty-five years, which should have expired on November 9, 1992 and under Resolution No. 2679 passed on
June 13, 1972 by the City Council of Lucena City awarding [MERALCO] a franchise to operate for twenty
years an electric light, heat and power system in Lucena City, also to expire in the year 1992. Under those
franchises, they were only bound to pay franchise taxes and nothing more.

Now, granting arguendo that there is no express revocation of the exemption under the franchise of
[MERALCO] since, unquestionably [MERALCO] is a recipient of another franchise granted this time by the
National Electrification Commission as evidenced by a certificate issued on October 28, 1993, such
conferment does not automatically include and/or award exemption from taxes, nor does it impliedly give the
franchisee the right to continue the privileges like exemption granted under its previous franchise. It is just a
plain and simple franchise. In countless times, the Supreme Court has ruled that exemption must be clear in
the language of the law granting such exemption for it is strictly construed and favored against the person
invoking it. In addition, a franchise though in the form of a contract is also a privilege that must yield to the
sublime yet inherent powers of the state, one of these is the power of taxation.

Looking into the law creating the National Electrification Administration (Commission), P.D. 269 as amended
by P.D. 1645, nowhere in those laws can we find such authority to bestow upon the grantee any tax exemption
of whatever nature except those of cooperatives. This we believe is basically in consonance with the
provisions of the Local Government Code more particularly Section 234.

Furthermore, Section 534(f) of R.A. 7160 which is taken in relation to Section 234 thereof states that "All
general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly". Anent this unambiguous mandate, P.D. 551 is mandatorily repealed due to
its contradictory and irreconcilable provisions with R.A. 7160.[26]

Yet, the CBAA modified the ruling of the LBAA by excluding from the real property tax deficiency
assessment the years 1990 to 1991, considering that:
In the years 1990 and 1991, the exemption granted to MERALCO under its franchise which incidentally
expired upon the effectivity of the Local Government Code of 1991 was very much in effect and the decision
rendered by the Central Board of Assessment Appeals (CBAA) classifying its poles, wires, insulators,
transformers and electric meters as personal property was still controlling as the law of the case. So, from
1990 to 1991, it would be inappropriate and illegal to make the necessary assessment on those properties,
much more to impose any penalty for nonpayment of such.

But, assessments made beginning 1992 until 1997 by the City Government of Lucena is legal, both
procedurally and substantially. When R.A. 7160, which incorporated amended provisions of the Real Property
Tax Code, took effect on January 1, 1992, as already discussed, the nature of the aforecited questioned
properties considered formerly as personal metamorphosed to machineries and the exemption being invoked
by [MERALCO] was automatically withdrawn pursuant to the letter and spirit of the law. x x x. [27]

Resultantly, the decretal portion of said CBAA Decision reads:

WHEREFORE, in view of the foregoing, the Decision appealed from is hereby modified. The City Assessor
of Lucena City is hereby directed to make a new assessment on the subject properties to retroact from the year
1992 and the City Treasurer to collect the tax liabilities in accordance with the provisions of the cited Section
222 of the Local Government Code.[28]

The CBAA denied the Motion for Reconsideration of MERALCO in a Resolution[29] dated August 16, 2001.

Disgruntled, MERALCO sought recourse from the Court of Appeals by filing a Petition for Review under
Rule 43 of the Rules of Court, which was docketed as CA-G.R. SP No. 67027.

The Court of Appeals rendered a Decision on May 13, 2004 rejecting all arguments proffered by MERALCO.
The appellate court found no deficiency in the Notice of Assessment issued by the City Assessor of Lucena:

It was not disputed that [MERALCO] failed to provide the [City Assessor and City Treasurer of Lucena] with
a sworn statement declaring the true value of each of the subject transformer and electric post, transmission
line, insulator and electric meter which should have been made the basis of the fair and current market value
of the aforesaid property and which would enable the assessor to identify the same for assessment purposes.
[MERALCO] merely claims that the assessment made by the [City Assessor and City Treasurer of Lucena]
was incorrect but did not even mention in their pleading the true and correct assessment of the said properties.
Absent any sworn statement given by [MERALCO], [the City Assessor and City Treasurer of Lucena] were
constrained to make an assessment based on the materials within [their reach]. [30]

The Court of Appeals further ruled that there was no more basis for the real property tax exemption of
MERALCO under the Local Government Code and that the withdrawal of said exemption did not violate the
non-impairment clause of the Constitution, thus:

Although it could not be denied that [MERALCO] was previously granted a Certificate of Franchise by the
National Electrification Commission on October 28, 1993 x x x, such conferment does not automatically
include an exemption from the payment of realty tax, nor does it impliedly give the franchisee the right to
continue the privileges granted under its previous franchise considering that Sec. 534(f) of the Local
Government Code of 1991 expressly repealed those provisions which are inconsistent with the Code.

At the outset, the Supreme Court has held that "Section 193 of the LGC prescribes the general rule, viz., tax
exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon
the effectivity of the LGC except with respect to those entities expressly enumerated. In the same vein, We
must hold that the express withdrawal upon effectivity of the LGC of all exemptions except only as provided
therein, can no longer be invoked by MERALCO to disclaim liability for the local tax." (City Government of
San Pablo, Laguna vs. Reyes, 305 SCRA 353, 362-363)

In fine, [MERALCO's] invocation of the non-impairment clause of the Constitution is accordingly unavailing.
The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments and
to enable them to attain fullest development as self-reliant communities. The power to tax is primarily vested
in Congress. However, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to [a] direct authority conferred by Section 5, Article X of
the Constitution. The important legal effect of Section 5 is that henceforth, in interpreting statutory provisions
on municipal fiscal powers, doubts will be resolved in favor of the municipal corporations. (Ibid. pp. 363-365)
[31]

MERALCO similarly failed to persuade the Court of Appeals that the transformers, transmission lines,
insulators, and electric meters mounted on the electric posts of MERALCO were not real properties. The
appellate court invoked the definition of "machinery" under Section 199(o) of the Local Government Code
and then wrote that:

We firmly believe and so hold that the wires, insulators, transformers and electric meters mounted on the
poles of [MERALCO] may nevertheless be considered as improvements on the land, enhancing its utility and
rendering it useful in distributing electricity. The said properties are actually, directly and exclusively used to
meet the needs of [MERALCO] in the distribution of electricity.

In addition, "improvements on land are commonly taxed as realty even though for some purposes they might
be considered personalty. It is a familiar personalty phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property." (Caltex (Phil) Inc. vs.
Central Board of Assessment Appeals, 114 SCRA 296, 301-302)[32]

Lastly, the Court of Appeals agreed with the CBAA that the new assessment of the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO shall retroact to 1992.

Hence, the Court of Appeals adjudged:

WHEREFORE, premises considered, the assailed Decision [dated] May 3, 2001 and Resolution dated
August 16, 2001 are hereby AFFIRMED in toto and the present petition is hereby DENIED DUE
COURSE and accordingly DISMISSED for lack of merit.[33]

In a Resolution dated November 18, 2004, the Court of Appeals denied the Motion for Reconsideration of
MERALCO.

MERALCO is presently before the Court via the instant Petition for Review on Certiorari grounded on the
following lone assignment of error:

THE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN AFFIRMING IN TOTO

THE DECISION OF THE CENTRAL BOARD OF ASSESSMENT APPEALS WHICH HELD THAT THE
SUBJECT PROPERTIES ARE REAL PROPERTIES SUBJECT TO REAL PROPERTY TAX; AND THAT
ASSESSMENT ON THE SUBJECT PROPERTIES SHOULD BE MADE TO TAKE EFFECT
RETROACTIVELY FROM 1992 UNTIL 1997, WITH PENALTIES; THE SAME BEING UNJUST,
WHIMSICAL AND NOT IN ACCORD WITH THE LOCAL GOVERNMENT CODE. [34]

MERALCO argues that its transformers, electric posts, transmission lines, insulators, and electric meters are
not subject to real property tax, given that: (1) the definition of "machinery" under Section 199(o) of the Local
Government Code, on which real property tax is imposed, must still be within the contemplation of real or
immovable property under Article 415 of the Civil Code because it is axiomatic that a statute should be
construed to harmonize with other laws on the same subject matter as to form a complete, coherent, and
intelligible system; (2) the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which
affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2, ruling that the transformers, electric
posts, transmission lines, insulators, and electric meters of MERALCO are movable or personal properties, is
conclusive and binding; and (3) the electric poles are not exclusively used to meet the needs of MERALCO
alone since these are also being utilized by other entities such as cable and telephone companies.

MERALCO further asserts that even if it is assumed for the sake of argument that the transformers, electric
posts, transmission lines, insulators, and electric meters are real properties, the assessment of said properties
by the City Assessor in 1997 is a patent nullity. The collection letter dated October 16, 1997 of the City
Treasurer of Lucena, Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena, the
Property Record Form dated October 20, 1997, and Tax Declaration No. 019-6500 simply state a lump sum
market value for all the transformers, electric posts, transmission lines, insulators, and electric meters covered
and did not provide an inventory/list showing the actual number of said properties, or a schedule of values
presenting the fair market value of each property or type of property, which would have enabled MERALCO
to verify the correctness and reasonableness of the valuation of its properties. MERALCO was not furnished
at all with a copy of Tax Declaration No. 019-7394, and while it received a copy of Tax Declaration No. 019-
6500, said tax declaration did not contain the requisite information regarding the date of operation of
MERALCO and the original cost, depreciation, and market value for each property covered. For the foregoing
reasons, the assessment of the properties of MERALCO in 1997 was arbitrary, whimsical, and without factual
basis - in patent violation of the right to due process of MERALCO. MERALCO additionally explains that it
cannot be expected to make a declaration of its transformers, electric posts, transmission lines, insulators, and
electric meters, because all the while, it was of the impression that the said properties were personal properties
by virtue of the Decision dated July 5, 1989 of the LBAA in LBAA-89-2 and the Decision dated April 10,
1991 of the CBAA in CBAA Case No. 248.

Granting that the assessment of its transformers, electric posts, transmission lines, insulators, and electric
meters by the City Assessor of Lucena in 1997 is valid, MERALCO alternatively contends that: (1) under
Sections 221[35] and 222[36] of the Local Government Code, the assessment should take effect only on January
1, 1998 and not retroact to 1992; (2) MERALCO should not be held liable for penalties and interests since its
nonpayment of real property tax on its properties was in good faith; and (3) if interest may be legally imposed
on MERALCO, it should only begin to run on the date it received the Notice of Assessment on October 29,
1997 and not all the way back to 1992.

At the end of its Petition, MERALCO prays:

WHEREFORE, it is respectfully prayed of this Honorable Court that the appealed Decision dated May 13,
2004 of the Court of Appeals, together with its Resolution dated November 18, 2004 be reversed and set
aside, and judgment be rendered x x x nullifying and cancel[l]ing the Notice of Assessment, dated October 20,
1997, issued by respondent City Assessor, and the collection letter dated October 16, 1997 of respondent City
Treasurer.

Petitioner also prays for such other relief as may be deemed just and equitable in the premises. [37]

The City Assessor and City Treasurer of Lucena counter that: (1) MERALCO was obliged to pay the real
property tax due, instead of posting a surety bond, while its appeal was pending, because Section 231 of the
Local Government Code provides that the appeal of an assessment shall not suspend the collection of the real
property taxes; (2) the cases cited by MERALCO can no longer be applied to the case at bar since they had
been decided when Presidential Decree No. 464, otherwise known as the Real Property Tax Code, was still in
effect; (3) under the now prevailing Local Government Code, which expressly repealed the Real Property Tax
Code, the transformers, electric posts, transmission lines, insulators, and electric meters of MERALCO fall
within the new definition of "machineries," deemed as real properties subject to real property tax; and (4) the
Notice of Assessment dated October 20, 1997 covering the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO only retroacts to 1992, which is less than 10 years prior to the
date of initial assessment, so it is in compliance with Section 222 of the Local Government Code, and since
MERALCO has yet to pay the real property taxes due on said assessment, then it is just right and appropriate
that it also be held liable to pay for penalties and interests from 1992 to present time. Ultimately, the City
Assessor and City Treasurer of Lucena seek judgment denying the instant Petition and ordering MERALCO
to pay the real property taxes due.

The Petition is partly meritorious.

The Court finds that the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO are no longer exempted from real property tax and may qualify as "machinery" subject to real
property tax under the Local Government Code. Nevertheless, the Court declares null and void the appraisal
and assessment of said properties of MERALCO by the City Assessor in 1997 for failure to comply with the
requirements of the Local Government Code and, thus, violating the right of MERALCO to due process.

By posting a surety bond before

filing its appeal of the assessment with
the LBAA, MERALCO substantially complied
with the requirement of payment under
protest in Section 252 of the Local
Government Code.

Section 252 of the Local Government Code mandates that "[n]o protest shall be entertained unless the
taxpayer first pays the tax." It is settled that the requirement of "payment under protest" is a condition sine
qua non before an appeal may be entertained.[38] Section 231 of the same Code also dictates that "[a]ppeal on
assessments of real property x x x shall, in no case, suspend the collection of the corresponding realty taxes on
the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal." Clearly, under the Local Government Code,
even when the assessment of the real property is appealed, the real property tax due on the basis thereof
should be paid to and/or collected by the local government unit concerned.

In the case at bar, the City Treasurer of Lucena, in his letter dated October 16, 1997, sought to collect from
MERALCO the amount of P17,925,l 17.34 as real property taxes on its machineries, plus penalties, for the
period of 1990 to 1997, based on Tax Declaration Nos. 019-6500 and 019-7394 issued by the City Assessor of
Lucena. MERALCO appealed Tax Declaration Nos. 019-6500 and 019-7394 with the LBAA, but instead of
paying the real property taxes and penalties due, it posted a surety bond in the amount of PI 7,925,117.34.

By posting the surety bond, MERALCO may be considered to have substantially complied with Section 252
of the Local Government Code for the said bond already guarantees the payment to the Office of the City
Treasurer of Lucena of the total amount of real property taxes and penalties due on Tax Declaration Nos. 019-
6500 and 019-7394. This is not the first time that the Court allowed a surety bond as an alternative to cash
payment of the real property tax before protest/appeal as required by Section 252 of the Local Government
Code. In Camp John Hay Development Corporation v. Central Board of Assessment Appeals [39] the Court
affirmed the ruling of the CBAA and the Court of Tax Appeals en bane applying the "payment under protest"
requirement in Section 252 of the Local Government Code and remanding the case to the LBAA for "further
proceedings subject to a full and up-to-date payment, either in cash or surety, of realty tax on the subject
properties x x x."

Accordingly, the LBAA herein correctly took cognizance of and gave due course to the appeal of Tax
Declaration Nos. 019-6500 and 019-7394 filed by MERALCO.

Beginning January 1, 1992,

MERALCO can no longer claim
exemption from real property tax of
its transformers, electric posts,
transmission lines, insulators, and
electric meters based on its
franchise.

MERALCO relies heavily on the Decision dated April 10, 1991 of the CBAA in CBAA Case No. 248, which
affirmed the Decision dated July 5, 1989 of the LBAA in LBAA-89-2. Said decisions of the CBAA and the
LBAA, in turn, cited Board of Assessment Appeals v. Manila Electric Co.,[40] which was decided by the Court
way back in 1964 (1964 MERALCO case). The decisions in CBAA Case No. 248 and the 1964 MERALCO
case recognizing the exemption from real property tax of the transformers, electric posts, transmission lines,
insulators, and electric meters of MERALCO are no longer applicable because of subsequent developments
that changed the factual and legal milieu for MERALCO in the present case.

In the 1964 MERALCO case, the City Assessor of Quezon City considered the steel towers of MERALCO as
real property and required MERALCO to pay real property taxes for the said steel towers for the years 1952 to
1956. MERALCO was operating pursuant to the franchise granted under Ordinance No. 44 dated March 24,
1903 of the Municipal Board of Manila, which it acquired from the original grantee, Charles M. Swift. Under
its franchise, MERALCO was expressly granted the following tax exemption privilege:

Par 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including
poles, wires, transformers, and insulators), machinery and personal property as other persons are or may be
hereafter required by law to pay. x x x Said percentage shall be due and payable at the times stated in
paragraph nineteen of Part One hereof, x x x and shall be in lieu of all taxes and assessments of whatsoever
nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby expressly
exempted, x x x.[41]
Given the express exemption from taxes and assessments of the "poles, wires, transformers, and insulators" of
MERALCO in the aforequoted paragraph, the sole issue in the 1964 MERALCO case was whether or not the
steel towers of MERALCO qualified as "poles" which were exempted from real property tax. The Court ruled
in the affirmative, ratiocinating that:

Along the streets, in the City of Manila, may be seen cylindrical metal poles, cubical concrete poles, and poles
of the PLDT Co. which are made of two steel bars joined together by an interlacing metal rod. They are called
"poles" notwithstanding the fact that they are not made of wood. It must be noted from paragraph 9, above
quoted, that the concept of the "poles" for which exemption is granted, is not determined by their place or
location, nor by the character of the electric current it carries, nor the material or form of which it is made, but
the use to which they are dedicated. In accordance with the definitions, a pole is not restricted to a long
cylindrical piece of wood or metal, but includes "upright standards to the top of which something is affixed or
by which something is supported." As heretofore described, respondent's steel supports consist of a framework
of four steel bars or strips which are bound by steel cross-arms atop of which are cross-arms supporting five
high voltage transmission wires (See Annex A) and their sole function is to support or carry such wires.

The conclusion of the CTA that the steel supports in question are embraced in the term "poles" is not a
novelty. Several courts of last resort in the United States have called these steel supports "steel towers", and
they have denominated these supports or towers, as electric poles. In their decisions the words "towers" and
"poles" were used interchangeably, and it is well understood in that jurisdiction that a transmission tower or
pole means the same thing.

xxxx

It is evident, therefore, that the word "poles", as used in Act No. 484 and incorporated in the petitioner's
franchise, should not be given a restrictive and narrow interpretation, as to defeat the very object for which the
franchise was granted. The poles as contemplated thereon, should be understood and taken as a part of the
electric power system of the respondent Meralco, for the conveyance of electric current from the source
thereof to its consumers, x x x.[42]

Similarly, it was clear that under the 20-year franchise granted to MERALCO by the Municipal Board of
Lucena City through Resolution No. 2679 dated June 13, 1972, the transformers, electric posts, transmission
lines, insulators, and electric meters of MERALCO were exempt from real property tax. Paragraph 13 of
Resolution No. 2679 is quoted in full below:

13. The grantee shall be liable to pay the same taxes upon its real estate, building, machinery, and personal
property (not including poles, wires, transformers, and insulators) as other persons are now or may
hereafter be required by law to pay. In consideration of the franchise and rights hereby granted, the grantee
shall pay into the City Treasury of Lucena a tax equal to FIVE (5%) PER CENTUM of the gross
earnings received from electric current sold or supplied under this franchise. Said tax shall be due and
payable quarterly and shall be in lieu of any and all taxes of any kind, nature or description levied,
established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the
future, on its poles, wires, insulators, switches, transformers and structures, installations, conductors,
and accessories, placed in and over and under all the private and/or public property, including public streets
and highways, provincial roads, bridges, and public squares, and on its franchise rights, privileges, receipts,
revenues and profits, from which taxes the grantee is hereby expressly exempted. (Emphases supplied.)

In CBAA Case No. 248 (and LBAA-89-2), the City Assessor assessed the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO located in Lucena City beginning 1985 under
Tax Declaration No. 019-6500. The CBAA in its Decision dated April 10, 1991 in CBAA Case No. 248
sustained the exemption of the said properties of MERALCO from real property tax on the basis of paragraph
13 of Resolution No. 2679 and the 1964 MERALCO case.

Just when the franchise of MERALCO in Lucena City was about to expire, the Local Government Code took
effect on January 1, 1992, Sections 193 and 234 of which provide:

Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

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

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and
government-owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled
corporations are hereby withdrawn upon the effectivity of this Code.

The Local Government Code, in addition, contains a general repealing clause under Section 534(f) which
states that "[a]ll general and special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly."

Taking into account the above-mentioned provisions, the evident intent of the Local Government Code is to
withdraw/repeal all exemptions from local taxes, unless otherwise provided by the Code. The limited and
restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the
State policy to ensure autonomy of local governments and the objective of the Local Government Code to
grant genuine and meaningful autonomy to enable local government units to attain their fullest development
as self-reliant communities and make them effective partners in the attainment of national goals. The obvious
intention of the law is to broaden the tax base of local government units to assure them of substantial sources
of revenue.[43]

Section 234 of the Local Government Code particularly identifies the exemptions from payment of real
property tax, based on the ownership, character, and use of the property, viz.:

(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties
owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.

(b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) nonprofit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use
to which they are devoted are: (i) all lands, buildings and improvements which are actually directly and
exclusively used for religious, charitable or educational purposes; (ii) all machineries and equipment actually,
directly and exclusively used by local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and environmental protection.

To help provide a healthy environment in the midst of the modernization of the country, all machinery and
equipment for pollution control and environmental protection may not be taxed by local governments.

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are withdrawn upon the effectivity of the Code. [44]

The last paragraph of Section 234 had unequivocally withdrawn, upon the effectivity of the Local Government
Code, exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the same section.

MERALCO, a private corporation engaged in electric distribution, and its transformers, electric posts,
transmission lines, insulators, and electric meters used commercially do not qualify under any of the
ownership, character, and usage exemptions enumerated in Section 234 of the Local Government Code. It is a
basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.[45] Not being
among the recognized exemptions from real property tax in Section 234 of the Local Government Code, then
the exemption of the transformers, electric posts, transmission lines, insulators, and electric meters of
MERALCO from real property tax granted under its franchise was among the exemptions withdrawn upon the
effectivity of the Local Government Code on January 1, 1998.

It is worthy to note that the subsequent franchises for operation granted to MERALCO, i.e., under the
Certificate of Franchise dated October 28, 1993 issued by the National Electrification Commission and
Republic Act No. 9209 enacted on June 9, 2003 by Congress, are completely silent on the matter of exemption
from real property tax of MERALCO or any of its properties.

It is settled that tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must
point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a
common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer. [46] MERALCO
has failed to present herein any express grant of exemption from real property tax of its transformers, electric
posts, transmission lines, insulators, and electric meters that is valid and binding even under the Local
Government Code.

The transformers, electric posts,

transmission lines, insulators, and electric
meters of MERALCO may qualify as
"machinery" under the Local Government
Code subject to real property tax.

Through the years, the relevant laws have consistently considered "machinery" as real property subject to real
property tax. It is the definition of "machinery" that has been changing and expanding, as the following table
will show:

Real Property
Incidence of Real Property Tax Definition of Machinery[47]
Tax Law
The Assessment Law Section 2.  Incidence of real property tax. - Section 3. Property exempt from tax. - The
(Commonwealth Act Except in chartered cities, there shall be levied, exemptions shall be as follows:
No. 470) assessed, and collected, an annual ad valorem xxxx
tax on real property, including land, buildings, (f) Machinery, which term shall embrace
Effectivity: January 1, machinery, and other improvements not machines, mechanical contrivances,
1940 hereinafter specifically exempted. instruments, appliances, and apparatus
attached to the real estate, used for industrial
agricultural or manufacturing purposes, during
the first five years of the operation of the
machinery.
Real Property Section 38. Incidence of Real Property Tax. - Section 3. Definition of Terms. -
Tax Code There shall be levied, assessed and collected in When used in this Code -
all provinces, cities and municipalities an
Effectivity: June 1, annual ad valorem tax on real property, such as x x x x
1974 land, buildings, machinery and other
improvements affixed or attached to real (m) Machinery - shall embrace machines,
property not hereinafter specifically exempted. mechanical contrivances, instruments,
 appliances and apparatus attached to the real
estate. It includes the physical facilities
available for production, as well as the
installations and appurtenant service facilities,
together with all other equipment designed for
or essential to its manufacturing, industrial or
agricultural purposes.
Real Property Section 38. Incidence of Real Property Tax. - Section 3. Definition of Terms.
Tax Code, as amended There shall be levied, assessed and collected in   When used in this Code -
by all provinces, cities and municipalities an xxxx
Presidential annual ad valorem tax on real property, such as
Decree No. 1383 land, buildings, machinery and other (m) Machinery - shall embrace machines,
improvements affixed or attached to real equipment, mechanical contrivances,
Effectivity: May 25, property not hereinafter specifically exempted. instruments, appliances and apparatus attached
1978 to the real estate. It shall include the physical
facilities available for production, as well as
the installations and appurtenant service
facilities, together with all those not
permanently attached to the real estate but are
actually, directly and essentially used to meet
the needs of the particular industry, business,
or works, which by their very nature and
purpose are designed for, or essential to
manufacturing, commercial, mining, industrial
or agricultural purposes.
Local Section 232. Power to Levy Real Property Section 199. Definitions. - When used in this
Government Tax.  — A province or city or a municipality Title:
  Code within the Metropolitan Manila Area may levy xxxx
an annual ad valorem tax on real property
Effectivity: such as land, building, machinery, and other (o) "Machinery" embraces machines,
January 1, 1992 improvement not hereinafter specifically equipment, mechanical contrivances,
exempted. instruments, appliances or apparatus which
may or may not be attached, permanently
or temporarily, to the real property. It
includes the physical facilities for production,
the installations and appurtenant service
facilities, those which are mobile, self-
powered or self- propelled, and those not
permanently attached to the real property
which are actually, directly, and exclusively
used to meet the needs of the particular
industry, business or activity and which by
their very nature and purpose are designed for,
or necessary to its manufacturing,
mining, logging, commercial, industrial or
agricultural  purposes[.]

MERALCO is a public utility engaged in electric distribution, and its transformers, electric posts, transmission
lines, insulators, and electric meters constitute the physical facilities through which MERALCO delivers
electricity to its consumers. Each may be considered as one or more of the following: a
"machine,"[48] "equipment,"[49] "contrivance,"[50] "instrument,"[51] "appliance,"[52] "apparatus,"[53] or
"installation."[54]

The Court highlights that under Section 199(o) of the Local Government Code, machinery, to be deemed real
property subject to real property tax, need no longer be annexed to the land or building as these "may or may
not be attached, permanently or temporarily to the real property," and in fact, such machinery may even be
"mobile."[55] The same provision though requires that to be machinery subject to real property tax, the physical
facilities for production, installations, and appurtenant service facilities, those which are mobile, self-powered
or self-propelled, or not permanently attached to the real property (a) must be actually, directly, and
exclusively used to meet the needs of the particular industry, business, or activity; and (2) by their very nature
and purpose, are designed for, or necessary for manufacturing, mining, logging, commercial, industrial, or
agricultural purposes. Thus, Article 290(o) of the Rules and Regulations Implementing the Local Government
Code of 1991 recognizes the following exemption:

Machinery which are of general purpose use including but not limited to office equipment, typewriters,
telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile
machines, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or
racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to
meet the needs of a particular industry, business or activity shall not be considered within the definition of
machinery under this Rule. (Emphasis supplied.)

The 1964 MERALCO case was decided when The Assessment Law was still in effect and Section 3(f) of said
law still required that the machinery be attached to the real property. Moreover, as the Court pointed out
earlier, the ruling in the 1964 MERALCO case - that the electric poles (including the steel towers) of
MERALCO are not subject to real property tax - was primarily based on the express exemption granted to
MERALCO under its previous franchise. The reference in said case to the Civil Code definition of real
property was only an alternative argument:

Granting for the purpose of argument that the steel supports or towers in question are not embraced
within the term poles, the logical question posited is whether they constitute real properties, so that they
can be subject to a real property tax. The tax law does not provide for a definition of real property;
but Article 415 of the Civil Code does, by stating the following are immovable property:

(1) Land, buildings, roads, and constructions of all kinds adhered to the soil;

xxxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated
therefrom without breaking the material or deterioration of the object;

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry
or works which may be carried in a building or on a piece of land, and which tends directly to meet the needs
of the said industry or works;

xxxx
The steel towers or supports in question, do not come within the objects mentioned in paragraph 1, because
they do not constitute buildings or constructions adhered to the soil. They are not constructions analogous to
buildings nor adhering to the soil. As per description, given by the lower court, they are removable and merely
attached to a square metal frame by means of bolts, which when unscrewed could easily be dismantled and
moved from place to place. They can not be included under paragraph 3, as they are not attached to an
immovable in a fixed manner, and they can be separated without breaking the material or causing
deterioration upon the object to which they are attached. Each of these steel towers or supports consists of
steel bars or metal strips, joined together by means of bolts, which can be disassembled by unscrewing the
bolts and reassembled by screwing the same. These steel towers or supports do not also fall under paragraph
5, for they are not machineries or receptacles, instruments or implements, and even if they were, they are not
intended for industry or works on the land. Petitioner is not engaged in an industry or works on the land in
which the steel supports or towers are constructed.[56] (Emphases supplied.)

The aforequoted conclusions of the Court in the 1964 MERALCO case do not hold true anymore under the
Local Government Code.

While the Local Government Code still does not provide for a specific definition of "real property," Sections
199(o) and 232 of the said Code, respectively, gives an extensive definition of what constitutes "machinery"
and unequivocally subjects such machinery to real property tax. The Court reiterates that the machinery
subject to real property tax under the Local Government Code "may or may not be attached, permanently or
temporarily to the real property;" and the physical facilities for production, installations, and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, or are not permanently attached must
(a) be actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity;
and (2) by their very nature and purpose, be designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.

Article 415, paragraph (1) of the Civil Code declares as immovables or real properties "[l]and, buildings,
roads and constructions of all kinds adhered to the soil." The land, buildings, and roads are immovables by
nature "which cannot be moved from place to place," whereas the constructions adhered to the soil are
immovables by incorporation "which are essentially movables, but are attached to an immovable in such
manner as to be an integral part thereof."[57] Article 415, paragraph (3) of the Civil Code, referring to
"[ejverything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom
without breaking the material or deterioration of the object," are likewise immovables by incorporation. In
contrast, the Local Government Code considers as real property machinery which "may or may not be
attached, permanently or temporarily to the real property," and even those which are "mobile."

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[machinery,
receptacles, instruments or implements intended by the owner of the tenement for an industry or works which
may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said
industry or works." The Civil Code, however, does not define "machinery."

The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or "those
which are essentially movables, but by the purpose for which they have been placed in an immovable, partake
of the nature of the latter because of the added utility derived therefrom."[58] These properties, including
machinery, become immobilized if the following requisites concur: (a) they are placed in the tenement by the
owner of such tenement; (b) they are destined for use in the industry or work in the tenement; and (c) they
tend to directly meet the needs of said industry or works.[59] The first two requisites are not found anywhere in
the Local Government Code.

MERALCO insists on harmonizing the aforementioned provisions of the Civil Code and the Local
Government Code. The Court disagrees, however, for this would necessarily mean imposing additional
requirements for classifying machinery as real property for real property tax purposes not provided for, or
even in direct conflict with, the provisions of the Local Government Code.

As between the Civil Code, a general law governing property and property relations, and the Local
Government Code, a special law granting local government units the power to impose real property tax, then
the latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of the Department of
Public Works and Highways Simeon A. Datumanong[60]:

It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a
general one. Lex specialis derogant generali. As this Court expressed in the case of Leveriza v. Intermediate
Appellate Court, "another basic principle of statutory construction mandates that general legislation must give
way to special legislation on the same subject, and generally be so interpreted as to embrace only cases in
which the special provisions are not applicable, that specific statute prevails over a general statute and that
where two statutes are of equal theoretical application to a particular case, the one designed therefor specially
should prevail." (Citations omitted.)

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation[61] that:

A general law and a special law on the same subject are statutes in pah materia and should, accordingly, be
read together and harmonized, if possible, with a view to giving effect to both. The rule is that where there are
two acts, one of which is special and particular and the other general which, if standing alone, would include
the same matter and thus conflict with the special act, the special law must prevail since it evinces the
legislative intent more clearly than that of a general statute and must not be taken as intended to affect the
more particular and specific provisions of the earlier act, unless it is absolutely necessary so to construe it in
order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act does not change the principle.
Where the special law is later, it will be regarded as an exception to, or a qualification of, the prior general act;
and where the general act is later, the special statute will be construed as remaining an exception to its terms,
unless repealed expressly or by necessary implication. (Citations omitted.)
Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals,[62] the Court acknowledged
that "[i]t is a familiar phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the definition and
requirements under the Local Government Code are controlling.

MERALCO maintains that its electric posts are not machinery subject to real property tax because said posts
are not being exclusively used by MERALCO; these are also being utilized by cable and telephone
companies. This, however, is a factual issue which the Court cannot take cognizance of in the Petition at bar
as it is not a trier of facts. Whether or not the electric posts of MERALCO are actually being used by other
companies or industries is best left to the determination of the City Assessor or his deputy, who has been
granted the authority to take evidence under Article 304 of the Rules and Regulations Implementing the Local
Government Code of 1991.

Nevertheless, the appraisal and

assessment of the transformers, electric
posts, transmission lines, insulators, and
electric meters of MERALCO as machinery
under Tax Declaration Nos. 019-6500 and
019-7394 were not in accordance with the
Local Government Code and in violation of
the right to due process of MERALCO and,
therefore, null and void.

The Local Government Code defines "appraisal" as the "act or process of determining the value of property as
of a specific date for a specific purpose." "Assessment" is "the act or process of determining the value of a
property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of
the properties[.]"[63] When it comes to machinery, its appraisal and assessment are particularly governed by
Sections 224 and 225 of the Local Government Code, which read:

Section 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a brand-new machinery
shall be the acquisition cost. In all other cases, the fair market value shall be determined by dividing the
remaining economic life of the machinery by its estimated economic life and multiplied by the replacement or
reproduction cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges,
brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and installation
charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost
on the basis of foreign currency exchange rates as fixed by the Central Bank.

Section 225. Depreciation Allowance for Machinery. - For purposes of assessment, a depreciation allowance
shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or
reproduction cost, as the case may be, for each year of use: Provided, however, That the remaining value for
all kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or
reproduction cost for so long as the machinery is useful and in operation.

It is apparent from these two provisions that every machinery must be individually appraised and assessed
depending on its acquisition cost, remaining economic life, estimated economic life, replacement or
reproduction cost, and depreciation.

Article 304 of the Rules and Regulations Implementing the Local Government Code of 1991 expressly
authorizes the local assessor or his deputy to receive evidence for the proper appraisal and assessment of the
real property:

Article 304. Authority of Local Assessors to Take Evidence. - For the purpose of obtaining information on
which to base the market value of any real property, the assessor of the province, city, or municipality or his
deputy may summon the owners of the properties to be affected or persons having legal interest therein and
witnesses, administer oaths, and take deposition concerning the property, its ownership, amount, nature, and
value.

The Local Government Code further mandates that the taxpayer be given a notice of the assessment of real
property in the following manner:

Section 223. Notification of New or Revised Assessment. - When real property is assessed for the first time or
when an existing assessment is increased or decreased, the provincial, city or municipal assessor shall within
thirty (30) days give written notice of such new or revised assessment to the person in whose name the
property is declared. The notice may be delivered personally or by registered mail or through the assistance of
the punong barangay to the last known address of the person to served.

A notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending
tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. [64] In Manila
Electric Company v. Barlis,[65] the Court described the contents of a valid notice of assessment of real property
and differentiated the same from a notice of collection:

A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer
of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of properties. The September 3, 1986 and October 31, 1989 notices do not contain
the essential information that a notice of assessment must specify, namely, the value of a specific property or
proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of
the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes,
thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off
the properties subject to taxes x x x.

Although the ruling quoted above was rendered under the Real Property Tax Code, the requirement of a notice
of assessment has not changed under the Local Government Code.

A perusal of the documents received by MERALCO on October 29, 1997 reveals that none of them
constitutes a valid notice of assessment of the transformers, electric posts, transmission lines, insulators, and
electric meters of MERALCO.

The letter dated October 16, 1997 of the City Treasurer of Lucena (which interestingly precedes the purported
Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena) is a notice of collection, ending
with the request for MERALCO to settle the payable amount soon in order to avoid accumulation of penalties.
It only presented in table form the tax declarations covering the machinery, assessed values in the tax
declarations in lump sums for all the machinery, the periods covered, and the taxes and penalties due again in
lump sums for all the machinery.

The Notice of Assessment dated October 20, 1997 issued by the City Assessor gave a summary of the
new/revised assessment of the "machinery" located in "Quezon Avenue Ext., Brgy. Gulang-Gulang, Lucena
City," covered by Tax Declaration No. 019-7394, with total market value of P98,173,200.00 and total assessed
value of P78,538,560.00. The Property Record Form basically contained the same information. Without
specific description or identification of the machinery covered by said tax declaration, said Notice of
Assessment and Property Record Form give the false impression that there is only one piece of machinery
covered.

In Tax Declaration No. 019-6500, the City Assessor reported its findings under "Building and Improvements"
and not "Machinery." Said tax declaration covered "capital investment-commercial," specifically: (a)
Transformer and Electric Post; (b) Transmission Line, (c) Insulator, and (d) Electric Meter, with a total market
value of P81,811,000.00, assessment level of 80%, and assessed value of £65,448,800.00. Conspicuously, the
table for "Machinery" - requiring the description, date of operation, replacement cost, depreciation, and
market value of the machinery - is totally blank.

MERALCO avers, and the City Assessor and the City Treasurer of Lucena do not refute at all, that
MERALCO has not been furnished the Owner's Copy of Tax Declaration No. 019-7394, in which the total
market value of the machinery of MERALCO was increased by PI6,632,200.00, compared to that in Tax
Declaration No. 019-6500.
The Court cannot help but attribute the lack of a valid notice of assessment to the apparent lack of a valid
appraisal and assessment conducted by the City Assessor of Lucena in the first place. It appears that the City
Assessor of Lucena simply lumped together all the transformers, electric posts, transmission lines, insulators,
and electric meters of MERALCO located in Lucena City under Tax Declaration Nos. 019-6500 and 019-
7394, contrary to the specificity demanded under Sections 224 and 225 of the Local Government Code for
appraisal and assessment of machinery. The City Assessor and the City Treasurer of Lucena did not even
provide the most basic information such as the number of transformers, electric posts, insulators, and electric
meters or the length of the transmission lines appraised and assessed under Tax Declaration Nos. 019-6500
and 019-7394. There is utter lack of factual basis for the assessment of the transformers, electric posts,
transmission lines, insulators, and electric meters of MERALCO.

The Court of Appeals laid the blame on MERALCO for the lack of information regarding its transformers,
electric posts, transmission lines, insulators, and electric meters for appraisal and assessment purposes because
MERALCO failed to file a sworn declaration of said properties as required by Section 202 of the Local
Government Code. As MERALCO explained, it cannot be expected to file such a declaration when all the
while it believed that said properties were personal or movable properties not subject to real property tax.
More importantly, Section 204 of the Local Government Code exactly covers such a situation, thus:

Section 204. Declaration of Real Property by the Assessor. -When any person, natural or juridical, by whom
real property is required to be declared under Section 202 hereof, refuses or fails for any reason to make such
declaration within the time prescribed, the provincial, city or municipal assessor shall himself declare the
property in the name of the defaulting owner, if known, or against an unknown owner, as the case may be, and
shall assess the property for taxation in accordance with the provision of this Title. No oath shall be required
of a declaration thus made by the provincial, city or municipal assessor.

Note that the only difference between the declarations of property made by the taxpayer, on one hand, and the
provincial/city/municipal assessor, on the other, is that the former must be made under oath. After making the
declaration of the property himself for the owner, the provincial/city/municipal assessor is still required to
assess the property for taxation in accordance with the provisions of the Local Government Code.

It is true that tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer
having the burden of proving otherwise.[66] In this case, MERALCO was able to overcome the presumption
because it has clearly shown that the assessment of its properties by the City Assessor was baselessly and
arbitrarily done, without regard for the requirements of the Local Government Code.

The exercise of the power of taxation constitutes a deprivation of property under the due process clause, and
the taxpayer's right to due process is violated when arbitrary or oppressive methods are used in assessing and
collecting taxes. [67] The Court applies by analogy its pronouncements in Commissioner of Internal Revenue v.
United Salvage and Towage (Phils.), Inc.,[68] concerning an assessment that did not comply with the
requirements of the National Internal Revenue Code:

On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in balancing the
scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the
law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the
laws on the other, the scales must tilt in favor of the individual, for a citizen's right is amply protected by the
Bill of Rights under the Constitution." Thus, while "taxes are the lifeblood of the government," the power to
tax has its limits, in spite of all its plenitude. Even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with
the prescribed procedure. (Citations omitted.)

The appraisal and assessment of the transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO under Tax Declaration Nos. 019-6500 and 019-7394, not being in compliance with the
Local Government Code, are attempts at deprivation of property without due process of law and, therefore,
null and void.

WHEREFORE, premises considered, the Court PARTLY GRANTS the instant Petition and AFFIRMS

with MODIFICATION the Decision dated May 13, 2004 of the Court of Appeals in CA-G.R. SP No. 67027,
affirming in toto the Decision dated May 3, 2001 of the Central Board of Assessment Appeals in CBAA Case
No. L-20-98. The Court DECLARES that the transformers, electric posts, transmission lines, insulators, and
electric meters of Manila Electric Company are NOT EXEMPTED from real property tax under the Local
Government Code. However, the Court also DECLARES the appraisal and assessment of the said properties
under Tax Declaration Nos. 019-6500 and 019-7394 as NULL and VOID for not complying with the
requirements of the Local Government Code and violating the right to due process of Manila Electric
Company, and ORDERS the CANCELLATION of the collection letter dated October 16, 1997 of the City
Treasurer of Lucena and the Notice of Assessment dated October 20, 1997 of the City Assessor of Lucena,
but WITHOUT PREJUDICE to the conduct of a new appraisal and assessment of the same properties by the
City Assessor of Lucena in accord with the provisions of the Local Government Code and guidelines issued
by the Bureau of Local Government Financing.

SO ORDERED.

Sereno, CJ., (Chairperson), Bersamin, Perez, and Perlas-Bernabe, JJ., concur.

[1]
Rollo, pp. 27-34; penned by Associate Justice B. A. Adefuin-De La Cruz with Associate Justices Perlita J.
Tria Tirana and Arturo D. Brion (now a member of this Court), concurring.
[2]
 Id. at 36-37; penned by Associate Justice Perlita J. Tria Tirana with Associate Justices Arturo D. Brion and
Fernanda Lampas Peralta, concurring.
[3]
 Id. at 59-69; signed by Chairman Cesar S. Gutierrez and Members Angel P. Palomares and Benjamin M.
Kasala.
[4]
 Id. at 52-56; signed by Chairman Alberto P. Marquez and Members Romeo Dato and Alfonso A. Custodio.
[5]
 Erroneously dated June 17, 1997.
[6]
 CA rollo, p. 69. As stated in Resolution No. 108 dated July 1, 1957 of the Municipal Council of Lucena,
Quezon.
[7]
 Id. at 69-73.
[8]
 CA rollo, pp. 74-77.
[9]
 Lucena became a city by virtue of Republic Act No. 3271, enacted on June 17, 1961.
[10]
 CA rollo, p. 80.
[11]
An Act Granting the Manila Electric Company a Franchise to Construct, Operate and Maintain a
Distribution System for the Conveyance of Electric Power to the End-Users in the Cities/Municipalities of
Metro Manila, Bulacan, Cavite and Rizal, and Certain Cities/Municipalities/Barangays in Batangas, Laguna,
Quezon and Pampanga.
[12]
 In compliance with Sections 22 and 27 of Republic Act No. 9136, otherwise known as the Electric Power
Industry Reform Act of 2001, which state, respectively, that "[t]he distribution of electricity to end-users shall
be a regulated common carrier business requiring a national franchise" and "[t]he power to grant franchises to
persons engaged in the transmission and distribution of electricity shall be vested exclusively in the Congress
of the Philippines."
[13]
 Rollo, p. 50.
[14]
 CA rollo, pp. 52-57. Signed by Chairman Elpidio G. Jorvina and Members Patricio C. Haway and Jose E.
Lao.
[15]
 Id. at 55.
[16]
 119 Phil. 328(1964).
[17]
 CA rollo, p. 57.
[18]
 Id. at 59-68. Signed by Chairman Jesus F. Estanislao (Secretary of Finance) and Members Franklin M.
Drilon (Secretary of Justice) and Luis T. Santos (Secretary of Interior and Local Government).
[19]
 Rollo, p. 47.
[20]
 Id. at 48.
[21]
 Id. at 49.
[22]
 Id. at 50.
[23]
 CA rollo, pp. 43-47. Issued  by The Mercantile Insurance Co., Inc. in the amount of P17,925,117.34.
[24]
 Lowering the Cost to Consumers of Electricity by Reducing the Franchise Tax Payable by Electric
Franchise Holders and the Tariff on Fuel Oils for the Generation of Electric Power by Public Utilities.
[25]
 Rollo, p. 56.
[26]
 Id. at 62-65.
[27]
 Id. at 65-66.
[28]
 Id. at 69.
[29]
 Id. at 57. Signed by Chairman Cesar S. Gutierrez and Members Angel P. Palomares and Benjamin M.
Kasala.
[30]
 Id. at 29-30.
[31]
 Id. at 31.
[32]
 Id. at 32.
[33]
 Id. at 34.
[34]
 Id. at 12.
[35]
 Section 221. Date of Effectivity of Assessment or Reassessment. ~~ All assessments or reassessments made
after the first (1st) day of January of any year shall take effect on the first (1 st) day of January of the
succeeding year: Provided, however, That the reassessment of real property due to its partial or total
destruction, or to a major change in its actual use, or to any great and sudden inflation or deflation of real
property values, or to the gross illegality of the assessment when made or to any other abnormal cause, shall
be made within ninety (90) days from the date any such cause or causes occurred, and shall take effect at the
beginning of the quarter next following the reassessment.
[36]
 Section 222. Assessment of Property Subject to Back Taxes. - Real property declared for the first time shall
be assessed for taxes for the period during which it would have been liable but in no case for more than ten
(10) years prior to the date of initial assessment: Provided, however, That such taxes shall be computed on the
basis of the applicable schedule of values in force during the corresponding period.

If such taxes are paid on or before the end of the quarter following the date the notice of assessment was
received by the owner or his representative, no interest for delinquency shall be imposed thereon; otherwise
such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof from
the date of the receipt of the assessment until such taxes are fully paid.
[37]
 Rollo, p. 22.
[38]
 Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No. 169234,
October 2, 2013, 706 SCRA 547, 563.
[39]
 Id. at 570.
[40]
 Supra note 16.
[41]
 Id. at 331.
[42]
 Id. at 331-333.
[43]
 Philippine Rural Electric Cooperatives Association, Inc. v. The Secretary, Department of Interior and
Local Government, 451 Phil. 683, 698 (2003), citing Mactan Cebu International Airport Authority v.
Marcos, 330 Phil. 392, 417 (1996).
[44]
 Mactan Cebu International Airport Authority v. Marcos, id. at 410-411, citing Pimentel, Aquilino Jr., THE
LOCAL GOVERNMENT CODE of 1991 — The Key to National Development [1933], 329.
[45]
 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 259 (2003).
[46]
 Digital Telecommunications Philippines, Inc. v. City Government ofBatangas, 594 Phil. 269 299 (2008).
[47]
 Emphases on the substantial changes introduced by the succeeding law.
[48]
"Machine" is a piece of equipment with moving parts that does work when it is given power from
electricity, gasoline, etc.; an assemblage of parts that transmit forces, motion, and energy one to another in a
predetermined manner; an instrument (as a lever) designed to transmit or modify the application of power,
force, or motion; or a mechanically, electrically, or electronically operated device for performing a task,
(http://www.men-iam-webster.com/dictionary/machine, last visited on July 15,2015)
 
[49]
"Equipment" is the set of articles or physical resources serving to equip a person or thing; apparatus; the
implements used in an operation or activity; or all the fixed assets other than land and buildings of a business
enterprise; or a piece of such equipment. (http://www.merriam- webster.com/dictionary/equipment, last visited
on July 15, 2015)
[50]
 "Contrivance" is a machine or piece of equipment made with skill and cleverness; or a thing contrived,
especially, a mechanical device, (http://www.merriam-webster.com/ dictionary/ contrivance, last visited on
July 15, 2015)
[51]
 "Instrument" is a tool or device used for a particular purpose, especially, a tool or device designed to do
careful and exact work; implement, especially, one designed for precision work; a relatively simple device for
performing work, (http://www.merriam-webster.com/dictionary/instrument, last visited July 15,2015)
[52]
 "Appliance" is a piece of equipment for adapting a tool or machine to a special purpose; an instrument or
device designed for a particular use or function (an orthodontic appliance); specifically, a household or office
device (as a stove, fan, or refrigerator) operated by gas or electric current; or a tool or instrument utilising a
power source and suggests portability or temporary attachment (household appliances). (http://www.merriam-
webster.com/dictionary/appliance, last visited on July 15, 2015)
[53]
 "Apparatus" is a tool or piece of equipment used for specific activities; or an instrument or appliance
designed for a specific operation, (http://www.merriam-webster.com/dictionary/ apparatus, last visited July
15, 2015)
[54]
 "Installation" is something (such as a piece of equipment) that is put together and made ready for use.
(http://www.merriam-webster.com/dictionary/installation, last visited on July 15, 2015)
[55]
 "Mobile" means capable of moving or being moved; or movable (a mobile missile launcher).
(http://www.inerriam-webster.com/dictionary/mobile, last visited July 15, 2015)
[56]
 Board of Assessment Appeals v. Manila Electric Company, supra note 16 at334-335.
[57]
 Tolentino, CIVIL CODE OF THE PHILIPPINES, Vol. II (1992 ed) p. 13.
[58]
 Id.
[59]
 Id. at 18-20.
[60]
 486 Phil. 398, 448 (2004).
[61]
 552 Phil. 101, 111 (2007).
[62]
 199 Phil. 487, 492 (1982).
[63]
 Section 199(e-f).
[64]
 Yamane v. BA Lepanto Condominium Corporation, 510 Phil. 750, 770 (2005).
[65]
 426 Phil. 280, 284 (2002).
[66]
 Cagayan Robina Sugar Milling Company v. Court of Appeals, 396 Phil. 830, 839 (2000).
[67]
 Yarnane v. BA Lepanlo Condominium Corporation, supra note 64 at 776.
[68]
 G.R. No. 197515, July 2, 2014, 729 SCRA 113, 136.

Source: Supreme Court E-Library | Date created: October 27, 2017

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 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 181517               July 6, 2015

GREEN STAR EXPRESS, INC. and FRUTO SAYSON, JR., Petitioners,

vs.
NISSIN-UNIVERSAL ROBINA CORPORATION, Respondent.

DECISION

PERALTA, J.:

For resolution is a Petition for Review under Rule 45 of the Rules of Court which petitioners Green Star Express, Inc. and
Fruto Sayson, Jr. brought before the Court, assailing the Decision 1 of the Court of Appeals (CA) dated September 17, 2007
and its Resolution2 dated January 22, 2008 in CA-G.R. SP No. 86824. The CA nullified the Resolution dated May 5, 2004
of the Regional Trial Court (RTC) of San Pedro, Laguna, Branch 31, in Civil Case No. SPL-0969, and dismissed the
complaint for lack of jurisdiction.

The following are the antecedents of the case:

On February 25, 2003, a Mitsubishi L-300 van which Universal Robina Corporation ( URC) owned figured in a vehicular
accident with petitioner Green Star Express, Inc.' s (Green Star) passenger bus, resulting in the death of the van's driver.
Thus, the bus driver, petitioner Fruto Sayson, Jr., was charged with the crime of reckless imprudence resulting in homicide.

Thereafter, Green Star sent a demand letter to respondent NissinUniversal Robina Corporation (NURC) for the repair of its
passenger bus amounting to ₱567, 070.68. NURC denied any liability therefore and argued that the criminal case shall
determine the ultimate liabilities of the parties. Thereafter, the criminal case was dismissed without prejudice, due to
insufficiency of evidence.

Sayson and Green Star then filed a complaint for damages against NURC before the R TC of San Pedro, Laguna. Francis
Tinio, one of NURC's employees, was the one who received the summons. On February 6, 2004, NURC filed a Motion to
Dismiss claiming lack of jurisdiction due to improper service.

On May 5, 2004, the RTC issued a Resolution denying NURC's motion to dismiss. It ruled that there was substantial
compliance because there was actual receipt of the summons by NURC. The dispositive portion of said Resolution thus
reads:

WHEREFORE, in view of the foregoing, defendant's "Motion to Dismiss" is hereby DENIED. 3

Since its Motion for Reconsideration was denied, NURC elevated the case to the CA via a Petition for Certiorari. On
September 17, 2007, the CA reversed the RTC ruling, hence:

WHEREFORE, the instant Petition for Certiorari is GRANTED. The assailed Resolutions, dated May 5, 2004 and dated July
26, 2004, of the Regional Trial Court of San Pedro, Laguna, Branch 31, in Civil Case No. SPL-0969, are hereby NULLIFIED
and a new one rendered granting Petitioner's Motion to Dismiss, dated February 3, 2004. Private Respondents' Amended
Complaint for Damages filed against Petitioner Nissin-Universal Robina Corporation is accordingly dismissed for lack of
jurisdiction.

SO ORDERED. 4

Aggrieved, Green Star and Sayson moved for reconsideration, but the same was denied. Hence, this petition.

The lone issue is whether or not the summons was properly served on NURC, vesting the trial court with jurisdiction.

The petition is benefit of merit.

It is a well-established rule that the rules on service of summons upon a domestic private juridical entity must be strictly
complied with. Otherwise, the court cannot be said to have acquired jurisdiction over the person of the defendant. 5

NURC maintains that the RTC did not acquire jurisdiction over it as the summons was received by its cost accountant,
Francis Tinio.  It argues that under Section 11, Rule 14 of the 1997 Rules of Court, which provides the rule on service of
1âwphi1

summons upon a juridical entity, in cases where the defendant is a domestic corporation like NURC, summons may be
served only through its officers.  Thus:
6

Section 11. Service upon domestic private juridical entity. – When the defendant is a corporation, partnership or association
organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing
partner, general manager, corporate secretary, treasurer, or in-house counsel. 7
This provision replaced the former Section 13, Rule 14 of the 1964 Rules of Court which read:

Section 13. Service upon private domestic corporation or partnership. - If the defendant is a corporation organized under the
laws of the Philippines or a partnership duly registered, service may be made on the president, manager, secretary, cashier,
agent, or any of its directors. 8

In the past, the Court upheld service of summons upon a construction project manager, a corporation’s assistant manager,
and ordinary clerk of a corporation, private secretary of corporate executives, retained counsel, and officials who had control
over the operations of the corporation like the assistant general manager or the corporation’s Chief Finance and
Administrative Officer. The Court then considered said persons as "agent" within the contemplation of the old rule. Notably,
under the new Rules, service of summons upon an agent of the corporation is no longer authorized,  The rule now likewise
9

states "general manager" instead of "manager"; "corporate secretary" instead of merely "secretary"; and "treasure" instead
of "cashier."  It has now become restricted, limited, and exclusive only to the persons enumerated in the aforementioned
10

provision, following the rule in statutory construction that the express mention of one person excludes all others, or
expression unions est exclusion alterius. Service must, therefore, be made only on the person expressly listed in the
rules.  If the revision committee intended to liberalize the rule on service of summons, it could have easily done so by clear
11

and concise language. 12

Here, Tinio, a, member of NURC’s accounting staff, received the summons on January 22, 2004. Green star claims that it
was received upon instruction of Junadette Avedillo. The general manager of the corporation. Such fact, however, does not
appear in the Sheriff’s Return.  The Return did not even state whether Avedillo was present at the time the summons was
13

received by Tinio, the supposed assistant manager. Green Star further avers that the sheriff tendered the summons, but
Avedillo simply refused to sign and receive the same. She then allegedly instructed Tinio to just receive it in her behalf.
However, Green Star never presented said sheriff as witness during the hearing of NURC’s motion to dismiss to attest to
said claim. And while the sheriff executed an affidavit which appears to support such allegation, the same was likewise not
presented as evidence. It was only when the case was already before the CA that said affidavit first surfaced. Since the
service of summons was made on a cost accountant, which is not one of the designated persons under Section 11 of Rule
14, the trial court did not vadily acquire jurisdiction over NURC,  although the corporation may have actually received the
14

summons.  To rule otherwise will be an outright circumvention of the rules, aggravating further the delay in the
15

administration of justice. 16

At this juncture, it is worth emphasizing that notice to enable the other party to be heard and to present evidence is not a
mere technicality or a trivial matter in any administrative or judicial proceedings. The service of summons is a vital and
indispensable ingredient of due process. Corporations would be easily deprived of their right to present their defense in a
multi-million peso suit, if the Court would disregard the mandate of the Rules on the service of summons. 17

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated September 17, 2007 and Resolution dated
January 22, 2008 in CA-G.R. SP No. 86824 are hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA **

Associate Justice
 August 1, 2017

G.R. No. 210669

HI-LON MANUFACTURING, INC., Petitioner,

vs.
COMMISSION ON AUDIT, Respondent

DECISION

PERALTA, J.:

This Petition for Certiorari under Rule 64, in relation to Rule 65 of the 1997 Rules of Civil Procedure,

seeks to annul and set aside the Commission on Audit (COA) Decision No. 2011-003  dated January 20, 2011, which
1

denied HI-LON Manufacturing, Inc. 's (HI-LON) petition for review, and affirmed with modification the Notice of
Disallowance (ND) No. 2004-032 dated January 29, 2004 of COA's Legal and Adjudication Office-National Legal and
Adjudication Section (LAO-N). The LAO-N disallowed the amount of ₱9,937,596.20, representing the difference between
the partial payment of ₱10,461,338.00 by the Department of Public Works and Highways (DPWH) and the auditor's
valuation of ₱523,741.80, as just compensation for the 29,690-square-meter road right-of-way taken by the government in
1978 from the subject property with a total area of 89,070 sq. m. supposedly owned by HI-LON. The dispositive portion of
the assailed COA Decision No. 2011-003 reads:

WHEREFORE, premises considered, the instant petition for review is hereby DENIED for lack of merit. Accordingly, ND No.
2004- 32 dated January 29, 2004 amounting to ₱9,937,596.20 is hereby AFFIRMED with modification on the reason thereof
that the claimant is not entitled thereto.

On the other hand, the Special Audit Team constituted under COA Office Order No. 2009-494 dated July 16, 2009 is hereby
instructed to issue a ND for the ₱523,741.80 payment to Hi-Lon not covered by ND No. 2004-032 without prejudice to the
other findings to be embodied in the special audit report.2

This Petition likewise assails COA's Decision  No. 2013-212 dated December 3, 2013 which denied HI-LON's motion for
3

reconsideration, affirmed with finality COA Decision No. 2011-003, and required it to refund payment made by DPWH in the
amount of ₱10,461,338.00. The dispositive portion of the assailed COA Decision No. 2013-212 reads:

WHEREFORE, the instant Motion for Reconsideration is hereby DENIED for lack of merit. Accordingly, Commission on
Audit Decision No. 2011-003 dated January 20, 2011 is hereby AFFIRMEDWITHFINALITY. Hi-Lon Manufacturing Co., Inc.
is hereby required to refund the payment made by the Department of Public Works and Highways in the amount of
₱10,461,338.00. 4

The antecedent facts are as follows:

Sometime in 1978, the government, through the then Ministry of Public Works and Highways (now DPWH), converted to a
road right-of-way (RROW) a 29,690 sq. m. portion of the 89,070 sq. m. parcel of land (subject property) located in Mayapa,
Calamba, Laguna, for the Manila South Expressway Extension Project. The subject property was registered in the name of
Commercial and Industrial Real Estate Corporation (CIREC) under Transfer Certificate of Title (TCT) No. T-40999.

Later on, Philippine Polymide Industrial Corporation (PPIC) acquired the subject property, which led to the cancellation of
TCT No. T-40999 and the issuance of TCT No. T-120988 under its name. PPIC then mortgaged the subject property with
the Development Bank of the Philippines (DBP), a government financing institution, which later acquired the property in a
foreclosure proceeding on September 6, 1985. TCT No. T-120988, under PPIC's name, was then cancelled, and TCT No.
T-151837 was issued in favor of DBP.

Despite the use of the 29,690 sq. m. portion of the property as RROW, the government neither annotated its claim or lien on
the titles of CIREC, PPIC and DBP nor initiated expropriation proceedings, much less paid just compensation to the
registered owners.

Upon issuance of Administrative Order No. 14 dated February 3, 1987, entitled "Approving the Identification of and Transfer
to the National Government of Certain Assets and Liabilities of the Development Bank of the Philippines and the Philippine
National Bank," the DBP submitted all its acquired assets, including the subject property, to the Asset Privatization
Trust (APT) for disposal, pursuant to Proclamation No. 50 dated 8 December 1986.

On June 30, 1987, APT disposed of a portion of the subject property in a public bidding. The Abstract of Bids  indicated that
5

Fibertex Corporation (Fibertex), through Ester H. Tanco, submitted a ₱154,000,000.00 bid for the asset formerly belonging
to PPIC located in Calamba, Laguna, i.e., "Land (5.9 hectares) TCT 4099, buildings & improvements, whole mill," while TNC
Philippines, Inc. and P. Lim Investment, Inc. submitted a bid of ₱106,666,000.00 and ₱138,000,000.00, respectively. With
respect to the former assets of Texfiber Corporation (Texfiber) in Taytay, Rizal i.e., "Land (214,062 sq. m. TCT (493917)
506665, buildings & improvements, whole mill"), only Fibertex submitted a bid of ₱2 l 0,000,000.00.

In a Certification  dated July 1, 1987, APT certified that Fibertex was the highest bidder of PPIC and Texfiber assets for
6

₱370,000,000.00, and recommended to the Committee on Privatization to award said assets to Fibertex. In a Letter  dated
7
November 10, 1988, APT certified that Fibertex paid APT ₱370,000,000.00 for the purchase of the said assets formerly
belonging to PPIC and Texfiber.

Meanwhile, Fibertex allegedly requested APT to exclude separate deeds of sale for the parcel of land and for improvements
under the subject property covered by TCT No. 151837 in the name of DBP. Having been paid the full bid amount, APT
supposedly agreed with Fibertex that the land would be registered in the name of TG Property, Inc. (TGPI) and the
improvements to Fibertex. Thus, APT executed two (2) separate Deeds of Sale with TGPI and Fibertex with regard to the
property, namely:

a. Deed of Sale between APT and TGPI executed on October 29, 1987 for the sale of a parcel of land covered by
TCT No. T-151837 for a consideration of ₱2,222,967.00.

b. Deed of Sale between APT and Fibertex executed on 19 August 1987 for the sale of improvements (machinery,
equipment and other properties) on the same property for a consideration of ₱154,315,615.39.

Upon complete submission of the required documents and proof of tax payments on December 9, 1987, the Register of
Deeds of Calamba, Laguna, cancelled DBP's TCT No. 151837 and issued TCT No. T-158786 in the name of TGPI,
covering the entire 89,070 sq. m. subject property, including the 29,690 sq. m. RROW. From 1987 to 1996, TGPI had paid
real property taxes for the entire 89,070 sq. m. property, as shown by the Tax Declarations and the Official Receipt issued
by the City Assessor's Office and Office of the City Treasurer of Calamba, Laguna, respectively.

On April 16, 1995, TGPI executed a Deed of Absolute Sale in favor of HI-LON over the entire 89,070 sq. m. subject property
for a consideration of ₱44,535,000.00. HI-LON registered the Deed with the Register of Deeds of Calamba, Laguna, which
issued in its name TCT No. 383819.

Sometime in 1998, Rupert P. Quijano, Attorney-in-Fact of HI-LON, requested assistance from the Urban Road Project
Office (URPO) DPWH for payment of just compensation for the 29,690 sq. m. portion of the subject property converted to a
RROW. The DPWH created an Ad Hoc Committee which valued the RROW at ₱2,500/sq. m. based on the 1999 Bureau of
Internal Revenue (BIR) zonal valuation.

On December 21, 2001, a Deed of Sale was executed between HILON and the Republic of the Philippines, represented by
Lope S. Adriano, URPO-PMO Director, by authority of the DPWH Secretary, covering the 29,690 sq. m. parcel of land
converted to RROW for a total consideration of ₱67,492,500.00. On January 23, 2002, the Republic, through the DPWH,
made the first partial payment to HI-LON in the amount of ₱10,461,338.00.

On post audit, the Supervising Auditor of the DPWH issued Audit Observation Memorandum No. NGS VIII-A-03-001 dated
April 2, 2003 which noted that the use of the 1999 zonal valuation of ₱2,500.00/sq. m. as basis for the determination of just
compensation was unrealistic, considering that as of said year, the value of the subject property had already been "glossed
over by the consequential benefits" it has obtained from the years of having been used as RROW. The auditor pointed out
that the just compensation should be based on the value of said property at the time of its actual taking in 1978. Taking into
account the average value between the 1978 and 1980 Tax Declarations covering the subject land, the Auditor arrived at
the amount of ₱19.40/sq. m. as reasonable compensation and, thus, recommended the recovery of excess payments.

Upon review of the auditor's observations, the Director of the LAO-N issued on January 29, 2004 ND No. 2004-32 in the
amount of ₱9,937,596.20, representing the difference between the partial payment of ₱10,461,338.00 to HI-LON and the
amount of P532,741.80, which should have been paid as just compensation for the conversion of the RROW.

Acting on the request of Dir. Lope S. Adriano, Project Director (URPO-PMO) for the lifting of ND No. 2004-032 dated
January 29, 2004, the LAO-N rendered Decision No. 2004-172 dated May 12, 2004, affirming the same ND, and stating the
value of the property must be computed from the time of the actual taking.

Resolving (1) the motions for reconsideration and request for exclusion from liability of former DPWH Secretary Gregorio R.
Vigilar, et al.; (2) the request for lifting of Notice of Disallowance No. 2004-032 of OIC Director Leonora J. Cuenca; (3) the
motion to lift the disallowance and/or exclusion as person liable of Ms. Teresita S. de Vera, Head, Accounting Unit, DPWH;
and (4) the appeal from ND No. 2004-032 of former Assistant Secretary Joel C. Altea and of Mr. Rupert P. Quijano,
Attorney-in-Fact of HI-LON, the LAO-N issued Decision No. 2008-172-A dated June 25, 2008, which denied the appeal and
affirmed the same ND with modification that payment of interest is appropriate under the circumstances.

Aggrieved, HI-LON filed a petition for review before the COA. In its regular meeting on June 9, 2009, the COA deferred the
resolution of the petition, and instructed its Legal Service Section to create a Special Audit Team from the Fraud Audit and
Investigation Office to investigate and validate HI-LON's claim.

In its assailed Decision No. 2011-003 dated January 20, 2011, the COA denied for lack of merit HI-LON's petition for review
of the LAO-N Decision No. 2008-172-A, and affirmed ND No. 2004-032 dated July 29, 2004 with modification declaring the
claimant not entitled to just compensation. The COA also instructed the Special Audit Team to issue an ND for the
₱523,741.80 payment to HI-LON not covered by ND No. 2004- 032, without prejudice to the other findings embodied by the
special audit report.

On the issue of whether or not HI-LON is entitled to just compensation for the 29,690 sq. m. portion of the subject property,
the COA found that the evidence gathered by the Special Audit Team are fatal to the claim for such compensation.
First, the COA noted that the transfer of the subject property in favor of TGPI, the parent corporation of HI-LON, was tainted
with anomalies because records show that TGPI did not participate in the public bidding held on June 30, 1987, as only
three (3) bidders participated, namely: Fibertex Corporation, TNC Philippines, Inc., and P. Lim Investment, Inc.

Second, the COA pointed out that the Deed of Sale between APT and Fibertex has a disclosure that "The subject of this
Deed of Absolute Sale, therefore, as fully disclosed in the APT Asset Catalogue, is the total useable area of 59,380 sq.
m.,"  excluding for the purpose the 29,690 sq. m. converted to RROW. The COA added that such exclusion was
8

corroborated by the Abstract of Bids duly signed by the then APT Executive Assistant and Associate Executive Trustee,
showing that the land covered by TCT No. T- 151387 was offered to the public bidding for its useable portion of 5.9
hectares only, excluding the subject 29,690 sq. m. converted to RROW.

Third, the COA observed that HI-LON is a mere subsidiary corporation which cannot acquire better title than its parent
corporation TGPI. The COA stressed that for more than (7) seven years that the subject property was under the name of
TGPI from its registration on December 9, 1987 until it was transferred to HI-LON on April 16, 1995, TGPI did not attempt to
file a claim for just compensation because it was stopped so as the Deed of Sale executed between APT and TGPI clearly
stated that the 29,690 sq. m. RROW was excluded from the sale and remains a government property. Applying the principle
of piercing the veil of corporate fiction since TGPI owns 99.9% of HI-LON, the COA ruled that HI-LON cannot claim
ignorance that the 29,690 sq. m. RROW was excluded from the public auction.

Having determined that HI-LON or its predecessor-in-interest TGPI does not own the RROW in question, as it has been the
property of the Republic of the Philippines since its acquisition by the DBP up to the present, the COA concluded that the
proper valuation of the claim for just compensation is irrelevant as HI-LON is not entitled thereto in the first place.

Dissatisfied, HI-LON filed a Motion for Reconsideration of COA Decision No. 2011-003 and a Supplement thereto.

On December 3, 2013, the COA issued the assailed Decision No. 2013-212 denying HI-LON's motion for reconsideration,
affirming with finality its assailed Decision No. 2011-003, and requiring HI-LON to refund the payment made by DPWH in
the amount of ₱10,461,338.00.

In this Petition for Certiorari, HI-LON argues that the COA committed grave abuse of discretion, amounting to lack or excess
of jurisdiction when it held (1) that there was no property owned by HI-LON that was taken by the government for public
use; (2) that the 89,070-sq. m. subject parcel of land, including the 29,690 sq. m. portion used as RROW by the
government, had been the property of the Republic of the Philippines; (3) that HI-LON is not entitled to payment of just
compensation; and (4) that it collaterally attacked HI-LON's ownership of the subject land, including the RROW. 9

The Office of the Solicitor General (OSG) counters that the COA acted within its jurisdiction when it evaluated and
eventually disallowed what it found to be an irregular, anomalous and unnecessary disbursement of public funds. The OSG
agrees with the COA that HI-LON is not entitled to payment of just compensation because the 29,690 sq. m. portion used
as RROW is already owned by the Republic since 1987 when DBP transferred the entire 89,070 sq. m. subject property to
APT, pursuant to Administrative Order No. 14. The OSG emphasizes that the Deed of Absolute Sale dated October 29,
1987 between the Republic (through APT) and TGPI clearly stated that the subject thereof, as fully disclosed in the APT
Asset Specific Catalogue, is the total useable area of 59,380 sq. m., hence, the 29,690 sq. m. portion used as RROW was
expressly excluded from the sale. Besides, the OSG notes that the COA aptly found that there were only three bidders who
participated in APT's public bidding of the subject property and TGPI was not one of the bidders. There being an anomaly in
the transfer of the property from APT to TGPI, the OSG posits that HI-LON, as TGPI's successor-in-interest, is not entitled
to just compensation.

Stating that the intention of Proclamation No. 50 was to transfer the non-performing assets of DBP to the national
government, the OSG maintains that APT has no authority to offer for sale the said portion because it is a performing asset,
having been used by the government as RROW for the Manila South Expressway since 1978. Considering that the said
29,690 sq. m. portion was not sold and transferred by APT to TGPI, the OSG submits that TGPI cannot also transfer the
same portion to its subsidiary, HILON. The OSG concludes that HI-LON is not entitled to payment of just compensation as it
is not the owner of the said portion, and that the COA properly ordered full disallowance of the ₱10,461,338.00 paid to HI-
LON.

HI-LON's Petition for Certiorari is devoid of merit.

In support of its claim of entitlement to just compensation, HI-LON relies on the Deed of Sale dated October 29, 1987, and
insists that its predecessor-in-interest (TGPI) acquired from the national government, through APT, the entire 89,070 sq. m.
property, which was previously registered in the name of DBP under TCT No. 151837. HI-LON asserts that the 29,690 sq.
m. RROW was not excluded from the sale because: (1) APT referred to the entire property in the Whereas Clauses as one
of the subject of the sale; (2) APT made an express warranty in the said Deed that the properties sold are clear of liens and
encumbrances, which discounts the need to investigate on the real status of the subject property; and (3) the title registered
in the name of DBP, as well as the titles of the previous owners, CIREC and PPIC, contains no annotation as regards any
government's claim over the RROW.

HI-LON's assertions are contradicted by the clear and unequivocal terms of the Deed of Sale  dated 29 October 1987
10

between APT and TGPI, which state that the subject thereof is the total usable area of 59,380 sq. m. of the subject property.
Contrary to HI-LO N's claim, nothing in the Whereas Clauses of the Deed indicates that the object of the sale is the entire
89,070 sq. m. property, considering that the 29,690 sq. m. portion thereof had been used as road right-of-way (RROW) for
the South Expressway, to wit:
 xxxx

WHEREAS, the Development Bank of the Philippines (DBP) was the mortgagee of a parcel of land (hereafter to be referred
to as the "PROPERTY") covered by Transfer Certificate of Title No. T-151837 of the Registry of Deeds for the Province of
Laguna (Calamba Branch), more particularly described as follows:

A parcel of land (Lot 2-D-I-J of the subd. Plan Psd- 39402, being a portion of Lot 2-D-l, described on plan Psd- 18888, LRC
(GLRO Rec. No. 9933, situated in the Bo. of Mayapa & San Cristobal, Municipality of Calamba, Province of Laguna.
Bounded on the N.E. by Lot No. 2-D- 1-I; of the subd. Plan; on the S., by the Provincial Road; on the SW., by Lot 2-D-1-K of
the subd. plan and on the NW., by Lot No. 2-B of plan Psd-925. Beginning at a point marked "l" on plan, being S. 62 deg. 03
'W., 1946.22 from L.M. 5, Calamba Estate; Thence --- N. 64 deg. 35'E., 200.27 m. to point 2; S.21 deg. 03'E. 166.82 m. to
point 3; S. 12 deg. 30'E, 141.01 m. to point 4; S. 10 deg. 25'E, 168.29 m. to point 5; N. 84 deg. 47'W, 215.01 m. to point 6;
N. 13 deg. 44'W., 150.99 m. Thence--- to point 7; N. 13 deg. 45'W., 27.66 m. to the point of beginning; containing an area of
EIGHTY-NINE THOUSAND SEVENTY (89,070) SQUARE METERS, more or less. All points referred to are indicated on the
plan and are marked on the ground by PLS. cyl. conc. mons. bearings true detloop deg. 03 'E., date of original survey Jan.
1906 - Jan. 1908 and Sept. 1913 and that of subd. survey, Aug. 23-25, 1953.

[As per Tax Declaration No. 9114, an area of 29,690 sq. m. had been used (road-right-of-way) for the South Expressway.
The subject of this Deed of Absolute Sale, therefore, as fully disclosed in the APT Asset Sfecific Catalogue, is the total
useable area of 59,380 sq. m.] 11

WHEREAS, the PROPERTY was subsequently acquired by DBP at public auction in a foreclosure sale as evidenced by a
Sheriff's Certificate of Sale dated September 6, 1985 issued by Mr. Godofredo E. Quiling, Deputy Provincial· Sheriff, Office
of the Provincial Sheriff of Laguna, Philippines, x x x

WHEREAS, pursuant to Administrative Order No. 14 issued on February 3, 1987 [Approving the Identification of and
Transfer to the National Government of Certain Assets and Liabilities of the Development Bank of the Philippines and the
Philippine National Bank], DBP's ownership and interest over the PROPERTY were transferred to the National Government
through the ASSET PRIVATIZATION TRUST (APT), a public trust created under Proclamation No. 50 dated December 8,
1986.

WHEREAS, in the public bidding conducted by the APT on June 30, 1987, the VENDEE [TGPI] made the highest cash bid
for the PROPERTY and was declared the winning bidder.

WHEREAS, the sale of the PROPERTY has been authorized by the COMMITTEE ON PRIVATIZATION under Notice of
Approval dated July21, 1987oftheAPT;

WHEREAS, the VENDEE [TGPI] has fully paid the VENDOR [Government of the Republic of the Philippines, through APT]
the purchase price of the PROPERTY in the amount of PESOS: TWO MILLION TWO HUNDRED TWENTY-TWO
THOUSAND NINE HUNDRED SIXTY-SEVEN (₱2,222,967.00).

NOW, THEREFORE, for and in consideration of the above premises and for the sum of PESOS: TWO MILLION TWO
HUNDRED TWENTY-TWO THOUSAND NINE HUNDRED SIXTY-SEVEN (₱2,222,967.00), Philippine Currency, paid by
the VENDEE to the VENDOR, the VENDOR does by these presents sell, transfer and convey the PROPERTY hereinabove
described unto the VENDEE, its successors and assigns, subject to the following conditions:

1. The VENDOR hereby warrant that the PROPERTIES shall be sold and transferred free and clear of liens
and encumbrances accruing before August 18, 1987, and that all taxes or charges accruing or becoming
due on the PROPERTIES before said date have or shall be fully paid by the VENDOR;

2. Documentary Stamp Taxes, Transfer Taxes. Registration fees, and all other expenses arising out of or
relating to the execution and delivery of this Deed shall be for the account of and paid by the VENDEE;

3. Capital gains tax, if any, payable on or in respect of the transfer of the PROPERTY to the VEND EE shall
be for the account of and paid by the VENDOR. 1awp++i1

IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed at Makati, Metro Manila this [29th]
day of [October], 1987. 12

As the Deed of Sale dated October 29, 1987 is very specific that the object of the sale is the 59,380. sq. m. portion of the
subject property, HILON cannot insist to have acquired more than what its predecessor-in-interest (TGPI) acquired from
APT. Article 1370 of the New Civil Code provides that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. Every contracting party is presumed to
know the contents of the contract before signing and delivering it,  and that the words used therein embody the will of the
13

parties. Where the terms of the contract are simple and clearly appears to have been executed with all the solemnities of
the law, clear and convincing evidence is required to impugn it.  Perforce, HI-LON's bare allegation that the object of the
14

Deed of Sale is the entire 89,070 sq. m. area of the subject property, is self-serving and deserves short shrift.

The Court thus agrees with the COA in rejecting HI-LON's claim of ownership over the 29,690 sq. m. RROW portion of the
subject property in this wise:
 xxxx

As clearly shown in the Abstract of Bids, the subject of the bidding was 59,380 sq. m. only. The Deed of Sale expressly
states that -

[As per Tax Declaration No. 9114, an area of 29,690 sq. m. had been used (road-right-of-way) for the South
Expressway.  The subject of this Deed of Absolute Sale, therefore, as fully disclosed in the APT Asset Specific
1âwphi1

Catalogue, is the total useable area of 59,380 sq. m.]

The government cannot enter into a contract with the highest bidder and incorporate substantial provisions beneficial to the
latter which are not included or contemplated in the terms and specifications upon which the bids were solicited. It is
contrary to the very concept of public bidding to permit an inconsistency between the terms and conditions under which the
bids were solicited and those under which the bids were solicited and those under which proposals are submitted and
accepted. Moreover, the substantive amendment of the terms and conditions of the contract bid out, after the bidding
process had been concluded, is violative of the principles in public bidding and will render the government vulnerable to the
complaints from the losing bidders.

Thus, since the area of [29,690 sq. m. which later became] 26,997 sq. m. covered by the ROW was not subject of the public
bidding, Hi-Lon cannot validly acquire and own the same. The owner of this property is still the Republic of the Philippines.

x x x. 15

Citing Bagatsing v. Committee on Privatization  where it was held that Proclamation No. 50 does not prohibit APT from
16

selling and disposing other kinds of assets whether they are performing or non-performing, necessary or appropriate, HI-
LON contends that regardless of whether or not the RROW is a performing or non-performing asset, it could not have been
excluded in the sale of the entire 89,070 sq. m. property pursuant to the said Proclamation.

Concededly, the 29,690 sq. m. portion of the subject property is not just an ordinary asset, but is being used as a RROW for
the Manila South Expressway Extension Project, a road devoted for a public use since it was taken in 1978. Under the
Philippine Highway Act of 1953, "right-of-way" is defined as the land secured and reserved to the public for highway
purposes, whereas "highway" includes rights-of-way, bridges, ferries, drainage structures, signs, guard rails, and protective
structures in connection with highways.  Article 420 of the New Civil Code considers as property of public dominion those
17

intended for public use, such as roads, canals, torrents, ports and bridges constructed by the state, banks, shores,
roadsteads, and others of similar character.

Being of similar character as roads for public use, a road right-of-way (RROW) can be considered as a property of public
dominion, which is outside the commerce of man, and cannot be leased, donated, sold, or be the object of a
contract,  except insofar as they may be the object of repairs or improvements and other incidental matters. However, this
18

RROW must be differentiated from the concept of easement of right of way under Article 649  of the same Code, which
19

merely gives the holder of the easement an incorporeal interest on the property but grants no title thereto,  inasmuch as the
20

owner of the servient estate retains ownership of the portion on which the easement is established, and may use the same
in such a manner as not to affect the exercise of the easement. 21

As a property of public dominion akin to a public thoroughfare, a RROW cannot be registered in the name of private
persons under the Land Registration Law and be the subject of a Torrens Title; and if erroneously included in a Torrens
Title, the land involved remains as such a property of public dominion.  In Manila International Airport Authority v. Court of
22

Appeals,  the Court declared that properties of public dominion, being for public use, are not subject to levy, encumbrance
23

or disposition through public or private sale. "Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. " 24

It is, therefore, inconceivable that the government, through APT, would even sell in a public bidding the 29,690 sq. m.
portion of the subject property, as long as the RROW remains as property for public use. Hence, Hl-LON's contention that
the RROW is included in the Deed of Absolute Sale dated 29 October 1987, regardless whether the property is a
performing or non-performing asset, has no legal basis.

Neither can HI-LON harp on the express warranty in the Deed of Sale that the subject property is clear from any
encumbrance, and the lack of annotation of the government's claim of RROW on the TCTs of CIREC, PPIC and DBP
covering the subject property, to bolster its claim of having acquired ownership of such property in good faith.

There is no dispute as to the finding of COA Commissioner Juanito G. Espino and DPWH Officer-in-Charge Manuel M.
Bonoan based on the examination of land titles of the subject property that the entire 89,070 sq. m. area thereof was never
reduced in the process of seven (7) transfers of ownership from Emerito Banatin, et al., in 1971 to HI-LON in 1996, nor was
there an annotation of a RROW encumbrance on the TCTs of CIREC, PPIC, DBP and TGPI. Be that as it may, HI-LON
cannot overlook the fact that the RROW was taken upon the directive of the Ministry of Public Works and Highways in 1978
for the construction of the Manila South Expressway Extension project. Such public highway constitutes as a statutory lien
on the said TCTs, pursuant to Section 39 of the Land Registration Act (Act No. 496) and Section 44 of the Property
Registration Decree (Presidential Decree No. 1529):

Section 39. Every applicant receiving a certificate of title in pursuance of a decree of registration, and every subsequent
purchaser of registered land who takes a certificate of title for value in good faith, shall hold the same free of all
encumbrance except those noted on said certificate, and any of the following encumbrances which may be subsisting,
namely:

First. Liens, claims, or rights arising or existing under the laws or Constitution of the United States or of the Philippine
Islands which the statutes of the Philippine Islands cannot require to appear of record in the registry.

Second. Taxes within two years after the same have become due and payable.

Third. Any public highway, way, or private way established by law, where the certificate of title does not state that the
boundaries of such highway or way have been determined. But if there are easements or other rights appurtenant to a
parcel of registered land which for any reason have failed to be registered, such easements or rights shall remain so
appurtenant notwithstanding such failure, and shall be held to pass with the land until cut off or extinguished by the
registration of the servient estate, or in any other manner.

xxxx

SECTION 44. Statutory Liens Affecting Title. - Every registered owner receiving a certificate of title in pursuance of a decree
of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith,
shall hold the same free from all encumbrances except those noted in said certificate and any of the following
encumbrances which may be subsisting, namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law
required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrancers
of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right
over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable
before that period from the delinquent taxpayer alone.

Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral
thereof, if the certificate of title docs not state that the boundaries of such highway or irrigation canal or lateral thereof
have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to,

Presidential Decree No. 27 or any other law or regulations on agrarian reform. 25

Section 39 of Act No. 496 and Section 44 of P.D. No. 1529 provide for statutory liens which subsist and bind the whole
world, even without the benefit of registration under the Torrens System. Thus, even if the TCTs of CIREC, PPIC, DBP and
TGPI contain no annotation of such encumbrance, HI-LON can hardly feign lack of notice of the government's claim of
ownership over the public highway built along the RROW, and claim to be an innocent purchaser for value of the entire
89,070 sq. m. subject property because such highway prompts actual notice of a possible claim of the government on the
RROW.

Given that prospective .buyers dealing with registered lands are normally not required by law .to inquire further than what
appears on the face of the TCTs on file with the Register of Deeds, it is equally settled that purchasers cannot close their
eyes to known facts that should have put a reasonable person on guard.  Their mere refusal to face up to that possibility will
26

not make them innocent purchasers for value, if it later becomes apparent that the title was defective, and that they would
have discovered the fact, had they acted with the measure of precaution required of a prudent person in a like
situation.  Having actual notice of a public highway built on the RROW portion of the subject property, HI-LON cannot afford
27

to ignore the possible claim of encumbrance thereon by the government, much less fail to inquire into the status of such
property.

Invoking the principle of estoppel by laches, HI-LON posits that the government's failure to assert its right of ownership over
the RROW by registering its claim on the titles of CIREC, PPIC, and DBP since the 29,690 sq. m. portion of the property
was converted to a RROW way back in 1978 until the purported sale of the entire 89,070 sq. m. property to TGPI in 1987,
bars it from claiming ownership of the RROW because it slept over its rights for almost nine (9) years. HI-LON states that if
it were true that the government was convinced that it acquired the RROW, it would have lost no time in registering its claim
before the Register of Deeds, instead of surrendering to TGPI the owner's duplicate of TCT No. 151837 in the name of
DBP, to facilitate the issuance of a new title over the entire 89,070 sq. m. property, which includes the 29,690 sq. m.
RROW. HI-LON further claims that the government is estopped from claiming its alleged right of ownership of the RROW
because the DPWH itself offered to buy and, in fact, executed a Deed of Sale, thereby acknowledging that the RROW is a
private property owned by HI-LON.

The failure of the government to register its claim of RROW on the titles of CIREC, PPIC, DBP and TGPI is not fatal to its
cause. Registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the Office of
the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract, or
instrument.  It creates a constructive notice to the whole world and binds third persons.  Nevertheless, HI-LON cannot
28 29

invoke lack of notice of the government's claim over the 29,690 sq. m. RROW simply because it has actual notice of the
public highway built thereon, which constitutes as a statutory lien on its title even if it is not inscribed on the titles of its
predecessors-in-interest, CIREC, PPIC, DBP, and TGPI. Indeed, actual notice is equivalent to registration, because to hold
otherwise would be to tolerate fraud and the Torrens System cannot be used to shield fraud. 30
Meanwhile, the mistake of the government officials in offering to buy the 29,690 sq. m. RROW does not bind the State, let
alone vest ownership of the property to HI-LON. As a rule, the State, as represented by the government, is not estopped by
the mistakes or errors of its officials or agents, especially true when the government's actions are sovereign in
nature.  Even as this rule admits of exceptions in the interest of justice and fair play, none was shown to obtain in this case.
31

Considering that only 59,380 sq. m. of the subject property was expressly conveyed and sold by the government (through
APT) to HI-LON's predecessor-in-interest (TGPI), HI-LON has no legal right to claim ownership over the entire 89,070 sq.
m. property, which includes the 29,690 sq. m. RROW taken and devoted for public use since 1978.

In arguing that the government had no legal title over the RROW, HILON points out that the government acquired title
thereto only in 2001 when a Deed of Sale was executed between HI-LON and the DPWH. HI-LON claims that when the
government used the 29,690 sq. m. portion of the subject property as RROW in 1978, it never acquired legal title because it
did not institute any expropriation proceeding, let alone pay the registered owner just compensation for the use thereof.

HI-LON's claim of ownership over the said RROW has been duly rejected by the COA in this manner:

xxxx

By virtue of Administrative Order No. 14, s. 1987, pursuant to Section 23 of Proclamation No. 50, the 89,070 sq. m. subject
parcel of land, including the 29,690 sq. m. which had been used as ROW by the Government, was transferred to and owned
by the National Government. TG Property, Inc. cannot acquire a portion of the parcel of land without authority and consent
of the Philippine Government, being the owner and seller of the said property. Hi-Lon cannot even claim ownership on the
portion of the subject land without the said deed of sale executed by the Government in favor of TG Property, Inc. The facts
would show that the ROW has been the property of the Republic of the Philippines since its transfer from DBP in
1987.

xxx 32

It bears emphasis that the right to claim just compensation for the 29,690 sq. m. portion which was not exercised by CIREC
or PPIC, ceased to exist when DBP acquired the entire 89,070 sq. m. property in a foreclosure sale and later transferred it
to the national government (through APT) in 1987, pursuant to Proclamation No. 50. Having consolidated its title over the
entire property, there is no more need for the government to initiate an action to determine just compensation for such
private property which it previously took for public use sans expropriation proceedings.

Citing Section 48 of P .D. 1529 which bars collateral attack to certificates of title, HI-LON asserts that COA erred in ruling
that there was no property owned by HI-LON that was taken by the government for public use, despite the fact that: (a) the
ownership of the subject property was not raised before the Commission Proper of the COA; and (b) COA has no
jurisdiction over issues of ownership and entitlement to just compensation. HI-LON stresses that the titles issued to TGPI
and HI-LON conclusively show that they are the registered owners of the entire 89,070 sq. m. property in Calamba, Laguna,
including the 29,690 sq. m. RROW. Absent any proceeding directly assailing the said titles, the ownership of the said
property by HI-LON and TGPI is beyond dispute. HI-LON further states that Leoncio Lee Tek Sheng v. Court of
Appeal  cited by the OSG is inapplicable because a notice of lis pendens was annotated on the title subject of the case,
33

unlike the titles of TGPI and HI-LON which contain no annotation of claims of ownership by the Republic.

Suffice it to state that there is no merit in HI-LON's argument that the TCTs issued in its name and that of its predecessor-in-
interest (TGPI) have become incontrovertible and indefeasible, and can no longer be altered, cancelled or modified or
subject to any collateral attack after the expiration of one (1) year from the date of entry of the decree of registration,
pursuant to Section 32 of P.D. No. 1529. In Heirs of Clemente Ermac v. Heirs of Vicente Ermac,   the Court clarified the
34

foregoing principle, viz.:

x x x While it is true that Section 32 of PD 1529 provides that the decree of registration becomes incontrovertible after a
year, it does not altogether deprive an aggrieved party of a remedy in law. The acceptability of the Torrens System would be
impaired, if it is utilized to perpetuate fraud against the real owners.

Furthermore, ownership is not the same as a certificate of title. Registering a piece of land under the Torrens System does
not create or vest title, because registration is not a mode of acquiring ownership. A ce11ificate of title is merely an
evidence of ownership or title over the particular property described therein. Its issuance in favor of a particular person does
not foreclose the possibility that the real property may be coowned with persons not named in the certificate, or that it may
be held in trust for another person by the registered owner. 35

In Lacbayan v. Samay, Jr.,   the Court noted that what cannot be collaterally attacked is the certificate of title, and not the
36

title itself:

x x x The certificate referred to is that document issued by the Register of Deeds known as the TCT. In contrast, the title
referred to by law means ownership which is, more often than not, represented by that document. xxx Title as a concept of
ownership should not be confused with the certificate of title as evidence of such ownership although both are
interchangeably used.

In Mallilin, Jr. v. Castillo,  the Court defined collateral attack on the title, as follows:
37

x x x When is an action an attack on a title? It is when the object of the action or proceeding is to nullify the title, and thus
challenge the judgment pursuant to which the title was decreed. The attack is direct when the object of an action or
proceeding is to annul or set aside such judgment, or enjoin its enforcement. On the other hand, the attack is indirect or
collateral when, in an action to obtain a different relief, an attack on the judgment is nevertheless made as an incident
thereof.38

In this case, what is being assailed by the COA when it sustained the Notice of Disallowance for payment of just
compensation is HI-LON's claim of ownership over the 29,690 sq. m. portion of the property, and not the TCT of TGPI from
which HI-LON derived its title. Granted that there is an error in the registration of the entire 89,070 sq. m. subject property
previously in the name of TGPI under TCT No.· 156786  and currently in the name of HI-LON under TCT No. T-
39

383819  because the 29,690 sq. m. RROW portion belonging to the government was mistakenly included, a judicial
40

pronouncement is still ·necessary in order to have said portion excluded from the Torrens title. 41

HI-LON's assertion that the titles issued to TGPI and HI-LON conclusively show that they are the registered owners of the
entire 89,070 sq. m. property in Calamba, Laguna, including the 29,690 sq. m. RROW is anathema to the purpose of the
Torrens System, which is intended to guarantee the integrity and conclusiveness of the certificate of registration, but cannot
be used for the perpetration of fraud against the real owner of the registered land.  On point is the case of Balangcad v.
42

Court of Appeals  where it was held that "the system merely confirms ownership and does not create it. Certainly, it cannot
43

be used to divest the lawful owner of his title for the purpose of transferring it to another who has not acquired it by any of
the modes allowed or recognized by law. Where such an erroneous transfer is made, as in this case, the law presumes that
no registration has been made and so retains title in the real owner of the land."

It is also not amiss to cite Ledesma v. Municipality of Iloilo  where it was ruled that "if a person obtains title, under the
44

Torrens system, which includes, by mistake or oversight, lands which cannot be registered under the Torrens system, he
does not, by virtue of said certificate alone, become the owner of the land illegally included." Inasmuch as the inclusion of
public highways in the certificate of title under the Torrens system does not thereby give to the holder of such certificate said
public highways,  the same holds true with respect to RROW s which are of similar character as roads for public use.
45

Assuming arguendo that collateral attack of said titles are allowed, HI-LON claims that its right of ownership of the subject
RROW can no longer be assailed by the COA because it never questioned such right until after it denied the petition for
review. HI-LON notes that ND No. 2004-032 was issued and it was denied payment of just compensation for the RROW
solely on the ground that such compensation should be based on the value of the lot at the time of the actual taking by the
government in 1978. HI-LON avers that it was surprised to find out that in the Decision dated 20 January 2011, the COA
Commission Proper assailed for the first time TGPI's and HI-LON's right of ownership over the RROW, instead of merely
finding whether or not the valuation of the property should be based on the value at the time of the taking in 1978 or the
value of the ₱2,500.00/sq. m. HI-LON's arguments fail to persuade.

COA may delve into the question of ownership although this was not an original ground for the issuance of the Notice of
Disallowance, but only the proper valuation of the just compensation based on the date of actual taking of the property.
In Yap v. Commission on Audit,  the Court ruled that "COA is not required to limit its review only to the grounds relied upon
46

by a government agency's auditor with respect to disallowing certain disbursements of public funds. In consonance with its
general audit power, respondent COA is not merely legally permitted, but is also duty-bound to make its own assessment of
the merits of the disallowed disbursement and not simply restrict itself to reviewing the validity of the ground relied upon by
the auditor of the government agency concerned . To hold otherwise would render the COA's vital constitutional power
unduly limited and thereby useless and ineffective." Tasked to be vigilant and conscientious in safeguarding the proper use
of the government's, and ultimately the people's property, the COA is endowed with enough latitude to determine, prevent,
and disallow irregular, unnecessary, excessive, extravagant or unconscionable expenditures of government funds. 47

It is the policy of the Court to sustain the decisions of administrative authorities, especially one that was constitutionally
created like herein respondent COA, not only on the basis of the doctrine of separation of powers, but also of their
presumed expertise in the laws they are entrusted to enforce.  Considering that findings of administrative agencies are
48

accorded not only respect but also finality when the decision and order are not tainted with unfairness or arbitrariness
amounting to grave abuse of discretion, it is only when the COA acted with such abuse of discretion that the Court
entertains a petition for certiorari under Rule 65 of the Rules of Court. 49

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction
or, in other words, the exercise of the power in an arbitrary manner by reason of passion, prejudice, or personal hostility;
and it must be so patent or gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty
enjoined or to act at all in contemplation of law.  No grave abuse of discretion can be imputed against the COA when it
51

affirmed the Notice of Disallowance issued by the LAO-N in line with its constitutional authority  and jurisdiction over cases
52

involving "disallowance of expenditures or uses of government funds and properties found to be illegal, irregular,
unnecessary, excessive, extravagant or unconscionable."  Having determined that HI-LON does not own the disputed
53

RROW, the COA correctly ruled that HI-LON is not entitled to payment of just compensation and must accordingly refund
the partial payment made by the DPWH in the amount of ₱10,461,338.00 .. To stress, even if HI-LON is the registered
owner of the subject property under TCT No. T-383819 with an area of 89,070 sq. m., the Deed of Absolute Sale dated 29
October 1987 clearly shows that only the 59,380 sq.· m. portion of the subject property, and not 29,690 sq. m. portion used
as RROW, was sold and conveyed by the government (through APT) to HI-LON's immediate predecessor-in-interest
(TGPI).

In light of the foregoing disquisition, Hl-LON's prayer for issuance of Temporary Restraining Order and/or Writ of Injunction
must necessarily be denied for lack of clear and unmistakable right over the disputed 29,690 sq. m. portion of the subject
property.
Lastly, from the finality of the Court's decision until full payment, the total amount to be refunded by HI-LON shall earn legal
interest at the rate of six percent (6%) per annum pursuant to Bangko Sentral ng Pilipinas Monetary Board Circular No. 799,
Series of 2013, because such interest is imposed by reason of the Court's decision and takes the nature of a judicial debt. 54

WHEREFORE, premises considered, the Petition for Certiorari is DENIED for lack of merit, and the Commission on Audit
Decision No. 2011-003 dated January 20, 2011 and Decision No. 2013-212 dated December 3, 2013
are AFFIRMED with MODIFICATION that a legal interest of six percent (6%) per annum from the finality of this Decision
until fully paid, is imposed on the amount of ₱10,461,338.00 that HI-LON Manufacturing Co., Inc. is required to refund to the
Department of Public Works and Highways.

SO ORDERED.

DIOSDADO M. PERALTA,
Associate Justice
G.R. No. 191458

CHINATRUST (PHILS.) COMMERCIAL BANK, Petitioner

vs.
PHILIP TURNER, Respondent

DECISION

LEONEN, J.:

Issues that were not alleged or proved before the lower court cannot be decided for the first time on appeal. This rule
ensures fairness in proceedings.

This Petition for Review assails the Court of Appeals' (a) December 14, 2009 Decision  affirming the Regional Trial Court's
1

Decision dated January 29, 2007 and (b) its March 2, 2010 Resolution  denying petitioner Chinatrust (Philippines)
2

Commercial Bank's (Chinatrust) Motion for Reconsideration.  The Regional Trial Court set aside the Metropolitan Trial
3

Court's dismissal  of the complaint. It ordered Chinatrust to restore to the account of respondent Philip Turner (Turner) the
4

following amounts: 1) US$430 or ₱24,129.88, its peso equivalent as of September 13, 2004; and 2) US$30 or ₱l,683.48, its
peso equivalent as of September 13, 2004. It also ordered Chinatrust to pay ₱20,000.00 as moral damages, ₱l0,000.00 as
exemplary damages, and ₱5,000.00 as attorney's fees.

On September 13, 2004, British national Turner initiated via Chinatrust-Ayala Branch the telegraphic transfer of US$430.00
to the account of "MIN TRAVEL/ESMAT AZMY, Account No. 70946017, Citibank, Heliopolis Branch" in Cairo, Egypt.  The 5

amount was partial payment to Turner's travel agent for his and his wife's 11-day tour in Egypt.  Turner paid a service fee of
6

US$30.00. Both amounts were debited from his dollar savings account with Chinatrust. 7

On the same day, Chinatrust remitted the funds through the Union Bank of California, its paying bank, to Citibank-New
York, to credit them to the bank account of Min Travel/EsmatAzmy in Citibank-Cairo, Egypt. 8

On September 17, 2004, Chinatrust received Citibank-Cairo's telexnotice about the latter's inability to credit the funds it
received because the "beneficiary name d[id] not match their books (referred to as the 'discrepancy notice')."  In other
9

words, the beneficiary's name "Min Travel/Esmat Azmy" given by Turner did not match the account name on file of Citibank-
Cairo.  Chinatrust relayed this information to Turner on September 20, 2004, "the next succeeding business day."
10 11

Chinatrust claimed that it relayed the discrepancy to Turner and requested him to verify from his beneficiary the correct
bank account name.  On September 22, 2004, Turner allegedly informed Chinatrust that he was able to contact Esmat
12

Azmy, who acknowledged receipt of the transferred funds. Turner, however, had to cancel his travel-tour because his wife
got ill and requested from Chinatrust the refund of his money. 13

According to Chinatrust, it explained to Turner that since the funds were already remitted to his beneficiary's account, they
could no longer be withdrawn or retrieved without Citibank-Cairo's consent. Turner was, thus, advised to seek the refund of
his payment directly from his travel agency. 14

Turner allegedly insisted on withdrawing the funds from Chinatrust explaining that the travel agency would forfeit fifty
percent (50%) as penalty for the cancellation of the booking, as opposed to the minimal bank fees he would shoulder if he
withdrew the money through Chinatrust.  Hence, Chinatrust required Turner to secure, at least, his travel agency's written
15

certification denying receipt of the funds so that it could act on his request. However, Turner purportedly failed to submit the
required certification despite repeated reminders. 16

On October 28, 2004, Chinatrust received Citibank-Cairo's Swift telex reply, which confirmed receipt of Chinatrust's
telegraphic funds transfer and its credit to the bank account of Min Travel, not "Min Travel/Esmat Azmy" as indicated by the
respondent, as early as September 15, 2004.  This information was relayed to Turner on October 29, 2004.
17 18

Despite this official confirmation, Turner allegedly continued to insist on his demand for a refund. 19

On March 7, 2005, Turner filed a Complaint  against Chinatrust before the Metropolitan Trial Court of Makati City,
20

demanding the refund of his telegraphic transfer of ₱24,129.88 plus damages. 21

Upon further queries, Chinatrust received another telex on September 28, 2005 from Citibank-Cairo confirming again and
acknowledging receipt of Turner's remittance and its credit to the account of Min Travel on September 15, 2004. 22

After the parties had submitted their respective position papers in accordance with the Rules on Summary Procedure, the
Metropolitan Trial Court of Makati City, Branch 61 rendered a Decision  on January 15, 2006, dismissing Turner's complaint
23

for lack of merit as well as Chinatrust's counterclaim. The Metropolitan Trial Court found sufficient evidence to prove that
Chinatrust complied with its contractual obligation to transmit the funds to Citibank-Cairo and that these funds were actually
credited to the intended beneficiary's account. 24

Turner filed an appeal. On the substantive matters, Turner argued that the Metropolitan Trial Court erred in ruling that he
had no basis in claiming a refund from Chinatrust and in not awarding him damages and attorney's fees. 25

Branch 137, Regional Trial Court of Makati City rendered a Decision  on January 29, 2007, reversing and setting aside the
26

decision of the Metropolitan Trial Court. While it agreed with the Metropolitan Trial Court's findings that the funds had been
deposited to the account of the beneficiary as early as September 15, 2004, the Regional Trial Court ruled that this was not
sufficient basis to absolve Chinatrust of any responsibility.  The trial court found insufficient evidence to show that
27

Chinatrust was not negligent in the performance of its obligation under the telegraphic transfer agreement. It held that no
"discrepancy notice" from Citibank-Cairo was even presented in evidence. 28

The Regional Trial Court further held that Chinatrust failed to render its services in a manner that could have mitigated, if
not prevented, the monetary loss, emotional stress, and mental anguish that Turner suffered for six (6) weeks while waiting
for his intended beneficiary's confirmation of receipt of his money.  Hence, Chinatrust was found liable for the monetary loss
29

suffered by Turner and for damages. The Decision disposed as follows:

WHEREFORE, in view of all the foregoing, the Decision of the Metropolitan Trial Court of Makati City, Branch 61, in Civil
Case No. 87471, is hereby REVERSED and SET ASIDE, and a new one entered finding for plaintiff-appellant PHILIP
TURNER, and against defendant-appellee CHINA TRUST (PHILS.) COMMERCIAL BANK CORPORATION by ordering the
latter to pay, or restore to PHILIP TURNER's account with said Bank, the following amounts:

(1) US $ 430.00 or ₱24,129.88, the Peso equivalent at the rate of ₱56.l160/US $1.00, as of 13 September 2004; and

(2) US $ 30.00 or ₱l,683.48, the Peso equivalent at the rate of ₱56.1160/US $1.00, as of 13 September 2004.

The defendant-appellee bank is further ordered to pay plaintiff-appellant Philip Turner ₱20,000.00 as and for moral
damages; ₱10,000.00 as and for exemplary damages; and ₱5,000.00 as and for reasonable attorney's fees.

SO ORDERED. 30

Chinatrust filed a motion for reconsideration, but it was denied by the Regional Trial Court in a Resolution  dated June 4,
31

2007.

On July 4, 2007, Chinatrust filed a Petition for Review  under Rule 42 of the 1997 Rules of Civil Procedure before the Court
32

of Appeals.

In its Decision  dated December 14, 2009, the Court of Appeals dismissed the petition and upheld the decision of the
33

Regional Trial Court. Chinatrust's subsequent Motion for Reconsideration  was likewise denied in the Court of Appeals'
34

Resolution  dated March 2, 2010.

35

Hence, this Petition  was filed. In compliance with this Court's directive, respondent filed his Comment,  to which petitioner
36 37

filed its Reply. 38

Petitioner stresses that based on the allegations in the Complaint, the real issue is "whether or not the petitioner-bank has
legally complied with its contractual obligation with respondent in remitting his telegraphic fund to the latter's beneficiary
account with Citibank-Cairo."  It reasons that as respondent has failed to prove his allegation that his telegraphic transfer
39

funds were not received or credited to his intended beneficiary's Citibank-Cairo account, the Court of Appeals should have
dismissed respondent's complaint. 40

Instead, the Court of Appeals adjudged petitioner liable for negligence: (1) when it did not immediately refund the telexed
funds to respondent upon receipt of the discrepancy notice from Citibank-Cairo; and (2) when it did not immediately relay to
Citibank-Cairo respondent's demand for the cancellation of the transaction.  According to petitioner, this was erroneous
41

because the Court of Appeals ruled upon matters not alleged in the complaint or raised as an issue  and awarded damages
42

not prayed for in the complaint. 43

Petitioner further argues that respondent demanded for the return of his money long after-and not immediately after-he was
informed of the discrepancy in the beneficiary's name. Moreover, respondent made the demand (1) only because he had
changed his mind about the tour because his wife was ill, (2) after he had personally known that his beneficiary had
received the transferred funds, and (3) to avoid the 50% forfeiture penalty. 44

Petitioner adds that Article 1172 of the Civil Code was erroneously applied by the Court of Appeals because this provision
refers to an obligor's negligence in performing the obligation. Here, the "acts of negligence" attributed to petitioner were
those that transpired after it had fully performed its obligation to transfer the funds.45

Finally, petitioner contends that the Court of Appeals erred "when it unjustly enriched the respondent by making the
petitioner liable to refund the amount already legally transferred to, and received by respondent's beneficiary, for his
benefit."
46
Respondent counters that the issues raised by petitioner are factual, which are not reviewable by this Court.  He further
47

denies that he disclosed to the petitioner that he was able to contact his travel agency, which admitted that it had received
the funds. On the contrary, respondent avers that he "demanded for the return of his money when the petitioner informed
him that the funds could not be deposited to the beneficiary account." 48

The issues for resolution are:

First, whether the Court of Appeals erred in affirming the Regional Trial Court's Decision, granting the refund of
respondent's US$430.00 telegraphic funds transfer despite its successful remittance and credit to respondent's beneficiary
Min Travel's account with Citibank-Cairo;

Second, whether petitioner Chinatrust (Philippines) Commercial Bank was negligent in the performance of its obligation
under the telegraphic transfer agreement; and

Finally, whether the subsequent acts of petitioner after compliancewith its obligation can be considered "negligent" to justify
the award of damages by the Regional Trial Court, as affirmed by the Court of Appeals.

The Regional Trial Court and the Court of Appeals erred in holding that petitioner was negligent in failing to immediately
address respondent's queries and return his money and was consequently liable for the anguish suffered by respondent.
They ruled on an issue that was not raised by respondent in the lower court, thereby violating petitioner's right to due
process.

It is an established principle that "courts cannot grant a relief not prayed for in the pleadings or in excess of what is being
sought by the party."  The rationale for the rule was explained in Development Bank of the Philippines v. Teston,  where
49 50

this Court held that it is improper to enter an order which exceeds the scope of the relief sought by the pleadings:

The Court of Appeals erred in ordering [Development Bank of the Philippines] to return to respondent "the ₱l,000,000.00"
alleged down payment, a matter not raised in respondent's Petition for Review before it. In Jose Clavano, Inc. v. Housing
and Land Use Regulatory Board, this Court held:

It is elementary that a judgment must conform to, and be supported by, both the pleadings and the evidence, and must be in
accordance with the theory of the action on which the pleadings are framed and the case was tried. The judgment must
be secudum allegata et probata.

Due process considerations justify this requirement. It is improper to enter an order which exceeds the scope of relief
sought by the pleadings, absent notice which affords the opposing party an opportunity to be heard with respect to the
proposed relief. The fundamental purpose of the requirement that allegations of a complaint must provide the measure of
recovery is to prevent surprise to the defendant.  (Emphasis supplied, citations omitted)
51

The bank's supposed negligence in the handling of respondent's concerns was not among respondent's causes of action
and was never raised in the Metropolitan Trial Court. Respondent's cause of action was based on the theory that the
telexed funds transfer did not materialize, and the relief sought was limited to the refund of his money and damages as a
result of the purported non-remittance of the funds to the correct beneficiary account. 52

"[T]he purpose of an action ... and the law to govern it ... is to be determined . . . by the complaint itself, its allegations and
the prayer for relief."  The complaint states "the theory of a cause of action which forms the bases of the plaintiff's claim of
53

liability."
54

A review of the Complaint filed before the Metropolitan Trial Court reveals that respondent originally sued upon a breach of
contract consisting in the alleged failure of petitioner to remit the funds to his travel agency's account in Cairo-Egypt.

Respondent's cause of action was based on paragraphs 5 and 6 of his Complaint:

5. That after a few days, the plaintiff verified from the defendant whether the telegraphic transfer was sent but the plaintiff
was told that the fund was not applied to the intended account number and name as "THE BENE TITLE DOES NOT
MATCH WITH THEIR BOOKS";

6. That the plaintiff talked with the President of the defendant and asked what was meant by that and was told that they did
not succeed in sending the telegraphic transfer to the beneficiary account[.] 55

Respondent further alleged:

10. That because of the refusal of the defendant to return the amounts given by the plaintiff, the latter suffered sleepless
nights, worry and anxiety because of his fear that he lost the money that he entrusted to the defendant for transfer to the
beneficiary account for which the plaintiff should be awarded moral damages on the amount of ₱20,000.00;

11. That the defendant was guilty of gross negligence in failing to comply with its obligation to send the telegraphic transfer
to the intended beneficiary account;
12. That by way of example, the defendant should be ordered to pay exemplary damages in the amount of
₱20,000.00.  (Emphasis supplied)
56

In both his Complaint and Position Paper,  respondent anchored his claim for refund and damages on the "discrepancy
57

notice" and the manager's explanation that the funds were not successfully credited to the beneficiary's account.
Respondent demanded for the return of his money having the impression that the bank was not successful in remitting it.

The parties' pleadings and position papers submitted before the Metropolitan Trial Court raised the factual issue of whether
petitioner had complied with its obligation to remit the funds of the respondent to his intended beneficiary's account with
Citibank-Cairo. They likewise raised the legal issue of whether respondent was entitled to rescind the contract.

Furthermore, during the preliminary conference, the following issues were defined: (a) "whether or not the amount was
remitted to the correct beneficiary's account," and (b) "whether or not the parties are entitled to their respective
claims."  This does not include the issue of negligence on the part of petitioner in attending to respondent's queries or the
58

purported one (1)-month delay in the confirmation of the remittance.

The case was decided by the Metropolitan Trial Court pursuant to the Revised Rules on Summary Procedure.  Accordingly,
59

no trial was conducted as, after the conduct of a preliminary conference, the parties were made to submit their position
papers.  There was, thus, no opportunity to present witnesses during an actual trial. However, Section 9 of the Revised
60

Rules on Summary Procedure calls for the submission of witnesses' affidavits together with a party's position paper after the
conduct of a preliminary conference:

Section 9. Submission of Affidavits and Position Papers. - Within ten (10) days from receipt of the order mentioned in the
next preceding section, the parties shall submit the affidavits of their witnesses and other evidence on the factual issues
defined in the order, together with their position papers setting forth the law and the facts relied upon by them.

The determination of issues at the preliminary conference bars the consideration of other questions on appeal.  This is
61

because under Section 9 above, the parties were required to submit their affidavits and other evidence on the factual issues
as defined in the preliminary conference order. Thus, either of the parties cannot raise a new factual issue on appeal,
otherwise it would be unfair to the adverse party, who had no opportunity to present evidence against it.

II

The Metropolitan Trial Court correctly absolved petitioner from liability and dismissed the complaint upon its finding that the
bank had duly proven that it had complied with its obligation under the telegraphic transfer. It found that despite the earlier
advice of Citibank-Cairo that the beneficiary name did not match their files, Chinatrust and respondent Turner were
subsequently informed that the amount sent had been credited to the account of the beneficiary as early as September 15,
2004. 62

However, on appeal, the Regional Trial Court reversed the dismissal of the complaint. While the Regional Trial Court
affirmed the court a quo's ruling that indeed the funds were credited to the intended beneficiary's account, it went further
and touched upon an issue that was beyond the cause of action framed by the respondent. It adjudged petitioner liable not
because it failed to perform its obligation to remit the funds but because it purportedly did not exercise due diligence in
attending to respondent's queries and demands with regard to the telegraphic funds transfer. Specifically, it found petitioner
negligent in its failure to promptly inform respondent that the money was, in fact, credited to the account of the
beneficiary.  According to the Regional Trial Court, "it is but right that the [petitioner] bank be held liable for the monetary
63

loss, as well as the emotional stresses and mental anguish that [respondent] Turner had to go through as a result
thereof."  Hence, the Regional Trial Court awarded respondent's claims for refund and damages.
64

The Regional Trial Court also faulted the petitioner for not submitting in evidence the "discrepancy notice," which according
to the trial court "puts the ... bank's position in a cloud of doubt."
65

Contrary to the observation of the Regional Trial Court, however, the discrepancy notice's existence and content were not
the core of the controversy. In fact, they were never put in issue. The discrepancy notice only came up because it was the
basis for Turner's claim for refund insisting that the funds were not credited to his travel agency's account. Hence, it is
understandable that both parties did not present it in evidence.

Similarly, the purported negligence of the bank personnel in attending to his concerns was neither raised by respondent in
any of his pleadings nor asserted as an issue in the preliminary conference. Hence, it was improper for the Regional Trial
Court to consider this issue on negligence in determining the respective claims of the parties.

Basic rules of fair play, justice, and due process require that arguments or issues not raised in the trial court may not be
raised for the first time on appeal. 66

In Philippine Ports Authority v. City of Iloilo: 67

As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court will
not be permitted to change theory on appeal. Points of law, theories, issues and arguments not brought to the attention of
the lower court need not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for the
first time at such late stage. Basic considerations of due process underlie this rule. It would be unfair to the adverse party
who would have no opportunity to present further evidence material to the new theory, which it could have done had it been
aware of it at the time of the hearing before the trial court. To permit petitioner in this case to change its theory on appeal
would thus be unfair to respondent, and offend the basic rules of fair play, justice and due process.  (Citations omitted)
68

There is more reason for a reviewing court to refrain from resolving motu proprio an issue that was not even raised by a
party. This Court has previously declared that:

"[C]ourts of justice have no jurisdiction or power to decide a question not in issue" and that a judgment going outside the
issues and purporting to adjudicate something upon which the parties were not heard is not merely irregular, but
extrajudicial and invalid.  (Citations omitted)
69

As pointed out earlier, respondent's cause of action was anchored on the alleged non-remittance of the funds to his travel
agency's account or based on a breach of contract.

On appeal, however, the Regional Trial Court motu proprio found that petitioner was negligent in addressing respondent's
concerns, which justified the award of damages against it. This was unfair to petitioner who had no opportunity to introduce
evidence to counteract this new issue. The factual bases of this change of theory would certainly require presentation of
further evidence by the bank in order to enable it to properly meet the issue raised.

III

The Regional Trial Court and the Court of Appeals erred in awarding damages to respondent.

Petitioner was not remiss in the performance of its contractual obligation to remit the funds. It was established that the funds
were credited to the account of Min Travel on September 15, 2004, or two (2) days from respondent's application. 70

Petitioner cannot likewise be faulted for the discrepancy notice sent by Citibank-Cairo, assuming there was a mistake in its
sending. It merely relayed its contents to respondent. Citibank-Cairo is not an agent of petitioner but a beneficiary bank
designated by respondent, upon the instruction of the beneficiary, Min Travel.

The Regional Trial Court, as affirmed by the Court of Appeals, found petitioner negligent in addressing the concerns and
queries of respondent. It specifically faulted petitioner for failure to submit any letters, tracers, cables, or other evidence of
communication sent to Citibank-Cairo to inquire about the status of the remittance and adjudged petitioner liable for the
anxieties suffered by respondent. 71

The rule that factual findings of the Court of Appeals are not reviewable by this Court is subject to certain exceptions such
as when there is a misapprehension of facts and when the conclusions are contradicted by the evidence on record.  Here, 72

there is insufficient evidence to show negligence on the part of petitioner.

The one (1 )-month delay in receiving the telex reply from Citibank-Cairo does not sufficiently prove petitioner's fault or
negligence, especially since "[p]etitioner's communications were coursed thru a third-party-correspondent bank, Union Bank
of Califomia."73

Furthermore, the lower courts overlooked the fact that respondent knew all along, or as early as September 22, 2004, that
his funds were already received by his beneficiary. Despite this, he insisted on demanding the retrieval of the funds after he
opted not to pursue with his travel abroad.

Respondent did not specifically deny paragraphs 8 and 9 of petitioner's Answer with Counterclaims, which alleged the
following:

8. However, on September 22, 2004, the Plaintiff, despite being aware that his foregoing remittance was already received
by the beneficiary MIN TRAVEL, changed his mind, and stated that he will no longer push though with his tour travel, and
thus, requested for the retrieval of said funds. Defendant relayed said request through the foregoing channel to Citibank-
Cairo. Considering that said fund was already transferred, Citibank-Cairo refused to honor said request, and consider the
transmittal closed and accomplished;

9. Plaintiff, however, insisted on demanding refund of said amount from the Defendant, who politely denied such demand,
and repeatedly explained to the Plaintiff that Citibank-Cairo will not honor such request, and that there is nothing that the
Defendant can do under the circumstances[.] 74

The Affidavit of Rosario C. Astrologo (Astrologo), Branch Service Head, Chinatrust-Ayala Branch, was never rebutted by
respondent by submitting his counter evidence. Portions of it stated:

7. On September 22, 2004, when he visited our branch office, which he has been doing almost everyday, he mentioned to
our Ms. Rina Chua, the bank's Senior Service Assistant, Ayala Branch, that he [was] able to contact Mr. Esmat Azmy who
already confirmed having received the said remittance;

8. When I also talked to him, also on the same date, he, stated that he changed his mind and will no longer push through
with his said travel because his wife, who is supposed to accompany him, became sick, injured, or something to such effect.
He also mentioned that if he will cancel his travel agreement, the travel agency will only return to him fifty [percent] (50%) of
his foregoing down-payment, but if he will be able to retrieve and withdraw such remittance from the bank, he will only pay
the bank charges, which is minimal. He, therefore, insisted, that said fund be withdrawn and returned to him by the bank;
9. He was also told that if such fund was already received by the travel agency and credited to its bank account of said
travel agency at Citibank, it cannot be returned anymore, and I advised him to contact his travel agency and negotiate for
the refund of his entire proceeds. I do not know if he later made such plea to his travel agency for we were not told what
happened later. I promised, however, that we will relay his request for its retrieval of such fund to Citibank, which we did
thru various telexes[.]
75

The successful remittance was later confirmed by the telex-reply from Citibank-Cairo on October 28, 2004, stating that the
funds were credited to the account of Min Travel on September 15, 2004.  This telex-reply confirms that petitioner indeed
76

made a follow up with Citibank-Cairo regarding the status of respondent's funds.

Moreover, the refusal of petitioner's personnel to accede to respondent's demand for a refund cannot be considered an
actionable wrong. Their refusal was due primarily to lack of information or knowledge of the effective cancellation of the
remittance and not from a deliberate intent to ignore or disregard respondent's rights. When respondent insisted on asking
for the refund, he was repeatedly requested to submit a certification or, at least, a written denial from his beneficiary that the
funds were not in fact received. They cannot be faulted for wanting to verify with Citibank-Cairo the status of the remittance
before acting upon his request, especially since the funds have actually been received by Citibank-Cairo. The written denial
would also be the basis for petitioner's demand upon Citibank-Cairo.

The Court of Appeals erred in ruling that petitioner had the duty to immediately return the money to Turner together with the
service fee upon the first instance that it relayed the discrepancy notice to him. Turner could no longer rescind the
telegraphic transfer agreement.

In Republic of the Philippines v. Philippine National Bank,  thisCourt described the nature of a telegraphic transfer
77

agreement:

"[C]redit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It
presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a
promised payment.

....

[A]s the transaction is for the establishment of a telegraphic or cable transfer, the agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer
upon making payment completes the transaction insofar as he is concerned, though insofar as the remitting bank is
concerned the contract is executory until the credit is established.78

Thus, once the amount represented by the telegraphic transfer order is credited to the account of the payee or appears in
the name of the payee in the books of the receiving bank, the ownership of the telegraphic transfer order is deemed to have
been transmitted to the receiving bank. The local bank is deemed to have fully executed the telegraphic transfer and is no
longer the owner of this telegraphic transfer order.

It is undisputed that on September 13, 2004, the funds were remitted to Citibank-New York through petitioner's paying bank,
Union Bank of California. Citibank-New York, in turn, credited Citibank-Cairo, Egypt, Heliopolis Branch.

Moreover, it was established that the amount of US$430.00 was actually credited to the account of Min Travel on
September 15, 2004,  or merely two (2) days after respondent applied for the telegraphic transfer and even before
79

petitioner received its "discrepancy notice" on September 17, 2004. Chinatrust is, thus, deemed to have fully executed the
telegraphic transfer agreement and its obligation to respondent was extinguished.  Hence, respondent could no longer ask
80

for rescission of the agreement' on September 22, 2004.

When the funds were credited to the account of Min Travel at Citibank-Cairo, ownership and control of these funds were
transferred to Min Travel.  Thus, the funds could not be withdrawn without its consent.
1âwphi1

The Court of Appeals, in affirming the decision of the Regional Trial Court, held that petitioner was obliged to immediately
return the money to respondent as early as September 17, 2004 when it received the "discrepancy notice" from Citibank-
Cairo.  It held that petitioner's failure to do so even upon respondent's demand constituted an actionable negligence under
81

Article 1172.82

The Court of Appeals misappreciated the true import of the discrepancy notice when it held that the notice was an "effective
cancellation of the remittance by the Citibank-Cairo"  that gave rise to the legal obligation of petitioner to return the funds to
83

respondent.

The discrepancy notice does not mean that the funds were not received by the beneficiary bank. On the contrary, what it
implies is that these funds were actually received by Citibank-Cairo but it could not apply it because the account name of
the beneficiary indicated in the telex instruction does not match the account name in its books. In short, it cannot find in its
file the beneficiary account name "Min Travel/Esmat Azmy" pursuant to the telex instruction, for which reason, Citibank-
Cairo asked for clarifications. Petitioner, in turn, had to clarify from respondent, because it was respondent himself, upon
instruction of his travel agency, who indicated such beneficiary's name in his telegraphic transfer form. True enough, as
later shown, the beneficiary account name was not '"Min Travel/Esmat Azmy" but only "Min Travel." Petitioner, therefore,
had nothing to do with the mismatch of the beneficiary name and could not be made liable for it.
The information initially relayed by Citibank-Cairo and received by petitioner on September 17, 2004-that the funds were not
applied to the intended account because the beneficiary name did not match its books-proved to be no longer true. This is
because Citibank-Cairo later confirmed that respondent's remittance was duly credited to the account of Min Travel on
September 15, 2004.

As stated earlier, respondent's request for retrieval of the funds was because he changed his mind about the travel rather
than the discrepancy notice sent by Citibank-Cairo. The Affidavit of Astrologo was never refuted.

The tour travel arrangement, which brought about the remittance of the funds, is a separate and private arrangement
between respondent and Min Travel. Respondent's change of mind and claim for refund, therefore, should have been
properly addressed to Min Travel: which already had possession of the funds and not to petitioner, who was not privy to the
arrangement.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 14, 2009 and Resolution dated
March 2, 2010 are set aside and the Decision dated January 15, 2006 of the Metropolitan Trial Court, Branch 61, Makati
City is reinstated.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice

WE CONCUR:

On Official Leave
ANTONIO T. CARPIO
Associate Justice

DIOSDADO M. PERALTA JOSE CATRAL MENDOZA

Associate Justice Associate Justice

SAMUEL R. MARTIRES
Associate Justice

ATTESTATION

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

DIOSDADO M. PERALTA
Associate Justice
Acting Chairperson, Second Division

CERTIFICATION

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

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

*
On official leave.

**
 Designated Acting Chairperson per S.O. No. 2445 dated June 16, 2017.

 Rollo, pp. 40-51. The Decision in CA G.R. SP No. 99491, was penned by Associate Justice Sesinando E. Villon
1

and concurred in by Associate Justices Hakim S. Abdulwahid and Jane Aurora C. Lantion of the Special Fourteenth
Division of the Court of Appeals, Manila.

2
 Id. at 60-61.

3
 Id. at 183-192.
 Id. at 165-167. The Decision dated January 15, 2006, in CIVIL CASE NO. 87471, was penned by Presiding Judge
4

Rowena De Juan-Quinagoran of Branch 61, Metropolitan Trial Court, Makati City.

5
 Id. at 40-41.

6
 Id. at 10.

7
 Id. at 41.

8
 Id.

9
 Id. at 45.

10
 Id.

11
 Id.

12
 Id. at 11.

13
 Id. at ll-12.

14
 Id. at 12.

15
 Id.

16
 Id.

17
 Id.

18
 Id. at 43 and 175.

19
 Id. at 14.

20
 Id. at 81-85. The case was docketed as Civil Case No. 87471.

21
 Id. at 83.

22
 Id. at 13.

23
 Id. at 165-167.

24
 Id. at 166-167.

25
 Id. at 172.

26
 Id. at 168-182.

27
 Id. at 175.

28
 Id. at 175 & 178.

29
 Id. at 181-182.

30
 Id. at 182.

31
 Id. at 193-198.

32
 Id. at 62-80. The appeal was docketed as CA-G.R. No. 99491.

33
 Id. at 40-51.

34
 Id. at 52-59.

35
 Id. at 60-61.

36
 Id. at 8-39.

37
 Id. at 209-217.
  Id. at 218-224.
38

 Id. at 19.
39

 Id. at 23.
40

 Id. at 25-32.
41

 Id. at 24.
42

 Id. at 23.
43

 Id. at 26.
44

 Id. at 33.
45

 Id.
46

 Id. at 210.
47

 Id. at 214.
48

 Diana v. Balangue, 701 Phil. 19, 31 (2013) [Per J. Del Castillo, Second Division].
49

 569 Phil. 137 (2008) [Per J. Carpio-Morales, Second Division].

50

 Id. at 144.
51

 Rollo, pp. 82-83.
52

 Heirs of Vda. de Vega v. Court of Appeals, 276 Phil. 177, 186 (1991) [Per J. Medialdea, First Division] citing
53

Rone, et al. v. Claro, et al., 91 Phil. 250 (1952) [Per J. Montemayor, En Banc].

 Tantuico, Jr. v. Republic, 281Phil.487, 495 (1991) [Per J. Padilla, En Banc].

54

 Rollo, p. 82.
55

 Id. at 83.
56

 Id. at l05-117.
57

 Id. at 166.
58

 Id. at 171.
59

 Id. at 166.
60

 See Land Bank of the Phils. v. Onate, 724 Phil. 564 (2014) [Per J. Del Castillo, Second Division].
61

REV. SUMMARY PROC. RULE, sec. 7 and 8 provides:

Section 7. Preliminary conference; Appearance of parties. - Not later than thirty (30) days after the last
answer is filed, a preliminary conference shall be held. The rules on pre-trial in ordinary cases shall be
applicable to the preliminary conference unless inconsistent with the provisions of this Rule.

....

Section 8. Record of Preliminary Conference. - Within five (5) days after the termination of the preliminary
conference, the court shall issue an order stating the matters taken up therein, including but not limited to:

a) Whether the parties have arrived at an amicable settlement, and if so, the terms thereof;

b) The stipulations or admissions entered into by the parties;

c) Whether, on the basis of the pleadings and the stipulations and admissions made by the parties,
judgment may be rendered without the need of further proceedings, in which event the judgment
shall be rendered within thirty (30) days from issuance of the order;

d) A clear specification of material facts which remain controverted; and

 e) Such other matters intended to expedite the disposition of the case.

See Spouses Martinez v. De la Merced, 255 Phil. 871, 877 (1989) [Per J. Gancayco, First Division]).

The preliminary conference under the Rule on Summary Procedure is similar to the provision on "pretrial"
under the Rules of Court in that "both provisions are essentially designed to promote amicable settlement or
to avoid or simplify the trial."

 Rollo, pp. 166-167.
62

 Id.atl78-179.
63

 Id. at 180.
64

 Id. at 175.
65

66
 Vitug v. Abuda, G.R. No. 201264, January 11, 2016 <http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/20l6/january2016/201264.pdf> 7 [Per J. Leonen, Second Division]; Maxicare PCIB CIGNA
Healthcare v. Contreras, 702 Phil. 688, 696 (2013) [Per J. Mendoza, Third Division].

 453 Phil. 927 (2003) [Per J. Azcuna, First Division].

67

 Id. at 934-935.
68

 Bernas v. Court of Appeals, 296-A Phil. 90, 140 (1993) [Per J. Padilla, En Banc].
69

 Id. at 175.
70

 Id. at 177-178.
71

 THE INTERNAL RULES OF THE SUPREME COURT, Rule 3, sec. 4 enumerates the following exceptions:
72

Section 4. Cases when the Court May Determine Factual Issues. - The Court shall respect the factual
findings of lower courts, unless any of the following situations is present:

(a) the conclusion is a finding grounded entirely on speculation, surmise and conjecture;

(b) the inference made is manifestly mistaken;

(c) there is grave abuse of discretion;

(d) the judgment is based on a misapprehension of facts;

(e) the findings of fact are conflicting;

(f) the collegial appellate courts went beyond the issues of the case, and their findings are contrary
to the admissions of both appellant and appellee;

(g) the findings of fact of the collegial appellate courts are contrary to those of the trial court;

(h) said findings of fact are conclusions without citation of specific evidence on which they are
based;

(i) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed
by the respondents;

(j) the findings of fact of the collegial appellate courts are premised on the supposed evidence, but
are contradicted by the evidence on record; and

(k) all other similar and exceptional cases warranting a review of the lower courts' findings of fact.
(Emphasis supplied)

See Bank of the Philippine Islands v. Suarez, 629 Phil. 305 (2010) [Per J. Carpio, Second Division].

 Rollo, p. 32.
73

 Id. at 89.
74

 Id. at 163.
75
  Id. at 12 and 175.
76

 113 Phil. 828 (1961) [Per J. Bautista Angelo, Second Division].

77

 Id. at 830-831 and 833-834.

78

 Id. at 12 and 175.

79

G.R. No. 222838

PHILIPPINE HEALTH INSURANCE CORPORATION, Petitioner

vs.
COMMISSION ON AUDIT, CHAIRPERSON MICHAEL G. AGUINALDO, DIRECTOR JOSEPH B. ANACAY, AND
SUPERVISING AUDITOR ELENA L. AGUSTIN, Respondents

DECISION

JARDELEZA, J.:

This petition for review on certiorari  under Rule 64,  with prayer for issuance of a temporary restraining order and/or writ of
1 2

preliminary injunction, seeks to annul and set aside the Decision No. 2015-093  dated April 1, 2015 and Resolution  dated
3 4

December 15, 2015, respectively, of the Commission on Audit (COA). The COA affirmed the disallowance of the
Institutional Meeting Expenses (IME) for 2010 paid to members of the Board of Directors (BOD) of Philippine Health
Insurance Corporation (PhilHealth) in the total amount of ₱2,965,428.59.

In October 2007, the PhilHealth BOD passed Board Resolution No. 1055 approving the entitlement of its members (or their
authorized representatives) to the Board Extraordinary and Miscellaneous Expense (BEME) in the reimbursable amount of
₱30,000.00 each per month effective October 4, 2007. These allowances were intended to cover the expenses of said BOD
members in the performance of their official functions, which they would otherwise personally shoulder.   Correspondingly, a
5

supplemental budget in the amount of ₱1,560,000.00 was also appropriated for the purpose. 6

In December 2007, the BOD amended Board Resolution No. 1055 through Board Resolution No. 1084. It allowed the
unexpended balance of the monthly Extraordinary and Miscellaneous Expense (EME) to be carried over and expended in
the succeeding months within the same calendar year, effective retroactively from October 5, 2007. 7

In another Resolution  dated February 12, 2009, the BOD resolved to allocate the amount of ₱4,320,000.00 from the 2009
8

Corporate Operating Budget (COB) of the Office of the Corporate Secretary and every year thereafter for the
reimbursement of expenses incurred by the members of the BOD (or their authorized representatives) in the discharge of
their official functions and duties outside board meetings.

On May 24, 2011, the COA Supervising Auditor issued an Audit Observation Memorandum  (AOM) which showed that
9

reimbursements of EME totaling ₱19.95 million in calendar year 2010 were charged to the Representation Expenses
account under the sub-accounts "Institutional Meeting Expenses (865-10) and Committee Meeting Expenses (865-20)." The
AOM noted that PhilHealth had been using IME and Committee Meeting Expenses accounts to accommodate
reimbursements of EME since charges to the EME account already far exceeded the General Appropriations Act (GAA)
prescribed limitation for each official. The COA Supervising Auditor viewed the charging of EME against other accounts to
be irregular because the nature and purpose of these expenses fall under the budgetary controls in the disbursement of
EME as stated in the GAA and COA Circular No. 2006-01. The charging of EME against other accounts likewise increased
the amount of the excess from the GAA-prescribed annual rate for EME.   The Supervising Auditor also observed that
10

₱5.63 million of the total amount was reimbursement of expenses made by members of the PhilHealth BOD and personnel
whose positions were not entitled to EME.  11

PhilHealth commented on the AOM, but its comment was found unsatisfactory. Consequently, Notice of Disallowance (ND)
No. HO 12-004 (10) was issued on July 18, 2012 disallowing the payment for IME of the members of the PhilHealth BOD for
the period January to December 2010 in the amount of ₱2,965,428.59 for lack of legal basis.  12

PhilHealth filed an appeal before the COA-Corporate Government Sector (CGS), but the same was denied. The COA-CGS
affirmed the ruling of the Supervising Auditor that Section 18(d) of Republic Act (RA) No. 7875   expressly provides that
13

a per diem is precisely intended to be the compensation for members of the PhilHealth BOD. Nowhere in RA No. 7875 can
it be found that PhilHealth is authorized to grant additional compensation, allowances or benefits to its BOD. Neither is the
BOD authorized to grant compensation beyond what RA No. 7875 provides. Although the BOD is empowered to formulate
the necessary rules and regulations pursuant to RA No. 7875, this power must be exercised within the scope of the
authority given by the legislature. Thus, the COA-CGS found that the BOD exceeded its authority when it issued Board
Resolution No. 1193 authorizing its members to receive EME contrary to Section 18( d) of RA No. 7875 . 14

The COA-CGS further ruled that PhilHealth cannot seek refuge on the previous rulings of the Court with regard to the non-
refund of the disallowed benefits. Citing the AOM, the COA-CGS pointed out that the expenses in question were already
disallowed in audit. As such, the BOD members already knew, at the time they received the IME, that said benefits had no
legal basis. 15
PhilHealth filed a petition for review before the COA Proper. In its assailed Decision, however, the COA Proper dismissed
the petition for being filed out of time, noting that the ND and the COA-CGS Decision were appealed only after 181 and 42
days, respectively, had lapsed from the dates of their receipt by PhilHealth. The COA Proper also found no compelling
reason to relax its procedural rules because PhilHealth did not offer any justification for the belated filing of its petition.
PhilHealth moved for reconsideration, but the same was also denied.  16

Hence, this petition which raises grave abuse of discretion on the part of COA for denying the appeal on mere procedural
grounds instead of deciding on the merits of the case in the interest of substantial justice.

We deny the petition.

Firstly, PhilHealth maintains that the term "month" in the six-month reglementary period to file an appeal under the 2009
Revised Rules of Procedure of COA should be understood to mean the 30-day month and should, accordingly, not use the
equivalent of 180 days. We are not persuaded.

Section 4, Rule V of the 2009 Revised Rules of Procedure of the COA provides that an appeal before the Director of a
Central Office Audit Cluster in the National, Local or Corporate Sector, or of a Regional Office of the Commission, must be
filed within six months after receipt of the decision appealed from. The receipt by the Director of the appeal memorandum
shall stop the running of the period to appeal; the period shall resume to run upon receipt by the appellant of the Director's
decision. Section 3, Rule VII further provides that the appeal before the COA Proper shall be taken within the time
remaining of the six-month period, taking into account the suspension of the running thereof. There is no dispute that
PhilHealth received the ND on July 27, 2012 and filed an appeal before the COA-CGS on January 24, 2013. In ruling that
the reglementary period had already lapsed by then, the COA employed 180 days as the equivalent of the six-month period,
thereby making January 23, 2013 as the last date for PhilHealth to file its appeal.

PhilHealth, on the other hand, takes its cue from our Decision in Commissioner of Internal Revenue v. Primetown Property
Group, Inc.   (Primetown), positing that the six-month reglementary period should be determined as the entire period from
17

July 28, 2012 to January 27, 2013. This conclusion stemmed from our explanation in Primetown which included a definition
of a calendar month as one designated in the calendar without regard to the number of days it may contain.   Thus:
18

It is the "period of time running from the beginning of a certain numbered day up to, but not including, the corresponding
numbered day of the next month, and if there is not a sufficient number of days in the next month, then up to and including
the last day of that month." To illustrate, one calendar month from December 31, 2007 will be from January 1, 2008 to
January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29,
2008.   (Citations omitted.)
19

Glaringly, however, the issue in Primetown was with respect to the two-year prescriptive period within which to file for a tax
refund or credit under the National Internal Revenue Code. In computing this legal period, the Court held that there was a
manifest incompatibility with regard to the manner of computing legal periods, particularly as to what constitutes a year,
under Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987. Under the Civil
Code, a year is equivalent to 365 days, whether it be a regular year or a leap year. Under the Administrative Code of 1987,
however, a year is composed of 12 calendar months, with the number of days being irrelevant. To address this
incompatibility, the Court held that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more
recent law, governs the computation of legal periods. 20

What is at issue here, conversely, is the computation of the legal period for a "month." Unlike in Primetown, there is no
incompatibility with respect to the definition of a month under the Civil Code and the Administrative Code. A month is
understood under both laws to be 30 days. In ascertaining the last day of the reglementary period to appeal, one month is to
be treated as equivalent to 30 days, such that six months is equal to 180 days. Thus, the period began to run on July 27,
2012 upon receipt of the ND and ended on January 23, 2013.  The COA was correct, therefore, in denying the appeal on
21

the ground that the six-month period within which to file an appeal from the ND had already lapsed when PhilHealth filed its
appeal to the COA-CGS on January 24, 2013.

II

Even if we were to relax the rules and entertain the appeal, we find that PhilHealth's case would still fail on its merits. The
COA correctly disallowed the IME on the ground that its grant was without legal basis.

To begin with, we shall distinguish between the appointive and ex officio members of the BOD. The composition of the BOD
under RA No. 9241,  which amended RA No. 7875 in 2004, is as follows:
22

Sec. 3. Section 18 of the Law shall be amended to read as follows:

"Sec. 18. The Board of Directors. -

a) Composition - The Corporation shall be governed by a Board of Directors hereinafter referred to as the Board, composed
of the following members:

The Secretary of Health;

The Secretary of Labor and Employment or his representative;

The Secretary of the Interior and Local Government or his representative;

The Secretary of Social Welfare and Development or his representative;

The President of the Corporation;

A representative of the labor sector;

A representative of employers;

The SSS Administrator or his representative;

The GSIS General Manager or his representative;

The Vice Chairperson for the basic sector of the National Anti-Poverty Commission or his representative;

A representative of Filipino overseas workers;

A representative of the self-employed sector; and

A representative of health care providers to be endorsed by the national associations of health care institutions and medical
health professionals.

The Secretary of Health shall be the ex officio Chairperson while the President of the Corporation shall be the Vice
Chairperson of the Board.

As can be gleaned from above, there are members of the BOD who are appointed to the position, and there are those who
are designated to serve by virtue of their office (or in other words, in an ex officio capacity). Appointment is the selection by
the proper authority of an individual who is to exercise the functions of an office. Designation, on the other hand, connotes
merely the imposition of additional duties, upon a person already in the public service by virtue of an earlier appointment or
election.  23

Section 18(d) of RA No. 7875, which allows the members of the BOD to receive per diems for every meeting they actually
attend, must be understood to refer only to the appointive members and not to those who are designated in an ex
officio capacity or by virtue of their title to a certain office. The ex officio position being actually and in legal contemplation
part of the principal office, it follows that the official concerned has no right to receive any other form of additional
compensation for his services in the said position; otherwise, it would run counter with the constitutional prohibitions against
holding multiple positions in the government and receiving additional or double compensation.   We explained:
24

The reason is that these services are already paid for and covered by the compensation attached to his principal office. It
should be obvious that if, say, the Secretary of Finance attends a meeting of the Monetary Board as an ex-officio member
thereof, he is actually and in legal contemplation performing the primary function of his principal office in defining policy in
monetary and banking matters, which come under the jurisdiction of his department. For such attendance, therefore, he
is not entitled to collect any extra compensation, whether it be in the form of a per diem or an honorarium or an
allowance, or some other such euphemism. By whatever name it is designated, such additional compensation is
prohibited by the Constitution.  (Emphasis supplied.)
25

Prescinding from above, the disallowance of the IME granted to the members of the BOD serving in an ex officio capacity is
clearly warranted.  It would not be inaccurate to say that these members were already receiving these allowances from their
26

respective departments in the form of EME and as appropriated in the GAA. As such, the additional allowances from
PhilHealth were no longer necessary. 27

In the same vein, PhilHealth erroneously invokes Department of Budget and Management (DBM)-National Budget Circular
No. 2007-510  which provides in the last sentence of its Section 5.4 that department secretaries, department
28

undersecretaries, and department assistant secretaries who are ex officio members of governing boards of collegial bodies
may receive reimbursement for actual transportation and miscellaneous expenses incurred in attending board meetings.
This provision must be understood to mean that members of the BOD serving in an ex officio capacity may, indeed, receive
such allowances, but only as appropriated in the GAA of their own respective departments.

On the other hand, as far as the disallowance of the IME granted to the appointive members is concerned, the same is also
proper.

Contrary to the posturing of PhilHealth, its charter does not authorize the grant of additional allowances to the BOD beyond
per diems. For one, while Section 18(d) of RA No. 7875 is entitled "allowances and per diems," its body significantly fails to
mention any other allowances or benefits besides per diems. It is a basic precept of statutory construction that the express
mention of one person, thing, act, or consequence excludes all others, as expressed in the oft-repeated maxim expressio
unius est exlusio alterius. Elsewise stated, expressium facit cessare taciturn-what is expressed puts an end to what is
implied.  Casus omissus pro omisso habendus est. A person, object or thing omitted must have been omitted
29

intentionally.  If the legislature intended to give PhilHealth the authority to grant allowances to the BOD other than the per
30
diems, it could have facilely mentioned so. Our ruling in Bases Conversion and Development Authority v. COA  (BCDA) is
31

instructive:

First, the BCDA claims that the Board can grant the yearend benefit to its members and full-time consultants because,
under Section 10 of RA No. 7227, the functions of the Board include the adoption of a compensation and benefit scheme.

The Court is not impressed. The Board's power to adopt a compensation and benefit scheme is not unlimited. Section 9 of
RA No. 7227 states that Board members are entitled to a per diem:

"Members of the Board shall receive a per diem of not more than Five thousand pesos (₱ 5,000) for every board
meeting: Provided, however, That the per diem collected per month does not exceed the equivalent of four (4)
meetings: Provided, further, That the amount of per diem for every board meeting may be increased by the President but
such amount shall not be increased within two (2) years after its last increase." xx x

Section 9 specifies that Board members shall receive a per diem for every board meeting; limits the amount of per diem to
not more than ₱5,000; and limits the total amount of per diem for one month to not more than four meetings. In Magno v.
Commission on Audit, Cabili v. Civil Service Commission, De Jesus v. Civil Service Commission, Molen, Jr. v. Commission
on Audit, and Baybay Water District v. Commission on Audit, the Court held that the specification of compensation and
limitation of the amount of compensation in a statute indicate that Board members are entitled only to the per diem
authorized by law and no other. In Baybay Water District, the Court held that:

"By specifying the compensation which a director is entitled to receive and by limiting the amount he/she is allowed to
receive in a month, x x x the law quite clearly indicates that directors xx x are authorized to receive only the per
diem authorized by law and no other compensation or allowance in whatever form."

Fourth, the BCDA claims that the Board can grant the year-end benefit to its members and the full-time consultants because
RA No. 7227 does not expressly prohibit it from doing so.

The Court is not impressed. A careful reading of Section 9 of RA No. 7227 reveals that the Board is prohibited from granting
its members other benefits. x x x

x x xx

Section 9 specifies that Board members shall receive a per diem for every board meeting; limits the amount of per diem to
not more than ₱5,000; limits the total amount of per diem for one month to not more than four meetings; and does not state
that Board members may receive other benefits. In Magno, Cabili, De Jesus, Molen, Jr., and Baybay Water District, the
Court held that the specification of compensation and limitation of the amount of compensation in a statute indicate
that Board members are entitled only to the per diem authorized by law and no other.

The specification that Board members shall receive a per diem of not more than ₱5,000 for every meeting and the omission
of a provision allowing Board members to receive other benefits lead the Court to the inference that Congress intended to
limit the compensation of Board members to the per diem authorized by law and no other. Expressio unius est exclusio
alterius. Had Congress intended to allow the Board members to receive other benefits, it would have expressly
stated so. For example, Congress' intention to allow Board members to receive other benefits besides the per
diem authorized by law is expressly stated in Section 1 of RA No. 9286:

"SECTION 1. Section 13 of Presidential Decree No. 198, as amended, is hereby amended to read as follows:

"SEC. 13. Compensation.-Each director shall receive per diem to be determined by the Board, for each meeting of the
Board actually attended by him, but no director shall receive per diems in any given month in excess of the equivalent of the
total per diem of four meetings in any given month.

Any per diem in excess of One hundred fifty pesos (₱150.00) shall be subject to the approval of the Administration. In
addition thereto, each director shall receive allowances and benefits as the Board may prescribe subject to the
approval of the Administration." x x x

The Court cannot, in the guise of interpretation, enlarge the scope of a statute or insert into a statute what
Congress omitted, whether intentionally or unintentionally.  (Emphasis supplied; citations omitted.)
32

Secondly, PhilHealth, cannot take refuge behind its assertion that it may grant additional benefits on the strength of its fiscal
autonomy under Section 16(n)  of RA No. 7875, as tempered by the limitations provided in Section 26(b).  We have already
33 34

ruled on this same argument in PhilHealth v. COA,   where it was posited that it is the intent of the legislature to limit the
35

determination and approval of allowances to the PhilHealth BOD alone, subject only to the 12% to 13% limitation. We have
declared in that case that PhilHealth does not have unbridled discretion to issue any and all kinds of allowances, limited
only by the provisions of its charter:

As clearly expressed in PCSO v. COA, even if it is assumed that there is an explicit provision exempting a GOCC from the
rules of the then Office of Compensation and Position Classification (OCPC) under the DBM, the power of its Board to fix
the salaries and determine the reasonable allowances, bonuses and other incentives was still subject to the standards laid
down by applicable laws: P.D. No. 985, its 1978 amendment, P.D. No. 1597, the SSL, and at present, R.A. 10149. To
sustain petitioners' claim that it is the PHIC, and PHIC alone, that will ensure that its compensation system
conforms with applicable law will result in an invalid delegation of legislative power, granting the PHIC unlimited
authority to unilaterally fix its compensation structure. Certainly, such effect could not have been the intent of the
legislature.  (Emphasis supplied; citations omitted.)
36

It may not be amiss to point out that even on the fair assumption that RA No. 7875 grants PhilHealth the power to fix
compensation, the same is limited to; as expressly worded in Section 16(n); the personnel of PhilHealth. In BCDA  the
37

Court upheld DBM Circular Letter No. 2002-2 which states that "[m]embers of the Board of Directors of agencies are not
salaried officials of the government. As non-salaried officials they are not entitled to PERA, ADCOM, YEB and retirement
benefits unless expressly provided by law."  It appears that the consistent rule, therefore, is that the organic law must
38

expressly provide the allowances and benefits due the BOD; entitlement thereto can never be implied.

Neither can PhilHealth find solace in the alleged approval or confirmation by former President Gloria Macapagal-Arroyo of
PhilHealth's fiscal autonomy through two executive communications relative to its request to exercise fiscal authority in line
with the PhilHealth Rationalization Plan.   We observe that the alleged presidential approval was merely on the marginal
39

note of the said communications and was never reduced in any formal memorandum.   So, too, the Court has previously
40

held in BCDA that the presidential approval of a new compensation and benefit scheme which included the grant of
allowances found to be unauthorized by law shall not estop the State from correcting the erroneous application of a statute. 41

Equally important, we are reminded of our recent ruling in Social Security System (SSS) v. COA,  where similarly, issues on
42

the grant of EME to the appointive members of the SSS and the alleged fiscal autonomy of a government-owned and
controlled corporation were put into fore. In said case, the COA disallowed the EME on the ground that the Social Security
Law (SS Law) only mentions the grant of per diems and representation and transportation allowances. The SSS countered
that the SS Law, when taken as a whole, authorizes the SSS to grant additional allowances to its members. The SSS
believed, in particular, that it may grant additional benefits to its members because the SS Law allegedly empowers it to
adopt its own budget within the limits provided by the said law. In ruling against the SSS, we took significant note of the
nature of the funds possessed by the SSS, citing our previous ruling that the funds of the SSS were merely held in trust for
the benefit of workers and employees in the private sector. As such, the provisions of the SS Law empowering the Social
Security Commission to allocate its funds to pay for the salaries and benefits of its officials and employees are not absolute
and unrestricted because the SSS is a mere trustee of the said funds. In other words, the salaries and benefits to be
endowed by the SSS must always be reasonable so that the funds, which it holds in trust, will be devoted to its primary
purpose of servicing workers and employees from the private sector. 43

This foregoing analysis is applicable in the instant case. RA No. 7875 was enacted pursuant to the constitutional policy to
create a National Health Insurance Program (Program) that would grant discounted medical coverage to all citizens, with
priority to the needs of the underprivileged, sick, elderly, disabled, women and children, and free medical care to
paupers.  The Program is designed to be compulsory, universal in coverage, affordable, acceptable, available, and
44

accessible for all citizens of the Philippines.  In order to achieve this noble goal, RA No. 7875 created the National Health
45

Insurance Fund which consists of contributions from members; current balances of the Health Insurance Funds of the SSS
and Government Service Insurance System (GSIS) collected under the Philippine Medical Care Act of 1969, as amended,
including arrearages of the Government of the Philippines with the GSIS for the said Fund; other appropriations earmarked
by the national and local governments purposely for the implementation of the Program; subsequent appropriations;
donations and grants-in-aid; and all accruals thereof.  The National Health Insurance Fund is managed by PhilHealth
46

through its BOD, subject to certain limitations.  In line with managing the Program, RA No. 7875 speaks of ensuring fund
47

viability, as well as carrying out a fiduciary responsibility such that the Program shall provide effective stewardship, funds
management, and maintenance of reserves.  In a lot of ways, therefore, it is also imperative for PhilHealth to utilize funds
48

for the salaries and allowances of its BOD members with as much circumspection and restraint as the SSS. Like the latter,
the funds under the PhilHealth's stewardship need to be devoted primarily to providing universal and affordable health care
to all Filipinos.

Having established that RA No. 7875 does not authorize the grant of additional allowances and benefits to the BOD, it does
not follow (as we have already mentioned) that such grants are strictly and absolutely proscribed. The authority to grant
EMEs may be derived from the GAA. The COA, in its Circular No. 2006-001,  recognizes this much, to wit:
49

III. Audit Guidelines

1. The amount of extraordinary and miscellaneous expenses, as authorized in the corporate charters of GOCCs/GFIs, shall
be the ceiling in the disbursement of these funds. Where no such authority is granted in the corporate charter and the
authority to grant extraordinary and miscellaneous expenses is derived from the General Appropriations Act
(GAA), the amounts fixed thereunder shall be the ceiling in the disbursements;

2. Payment of these expenditures shall be strictly on a non-commutable or reimbursable basis;

3. The claim for reimbursement of such expenses shall be supported by receipts and/or other documents evidencing
disbursements; and

4. No portion of the amounts appropriated shall be used for salaries, wages, allowances, intelligence and confidential
expenses which are covered by separate appropriations. (Emphasis supplied.)

Indeed, in its AOM, the Supervising Auditor acknowledged the authority of PhilHealth to grant EMEs derived from the GAA.
Section 28 of RA No. 9970,  the 2010 GAA, on the other hand, provides for a ceiling of EMEs to be appropriated:
50
Sec. 28. Extraordinary and Miscellaneous Expenses. Appropriations authorized herein may be used for extraordinary
expenses of the following officials and those of equivalent rank as may be determined by the DBM, not exceeding:

(a) P220,000 for each Department Secretary;

(b) P90,000 for each Department Undersecretary;

(c) P50,000 for each Department Assistant Secretary;

(d) P38,000 for each head of bureau or organization of equivalent rank, and for each head of a Department
Regional Office;

(e) P22,000 for each head of a Bureau Regional Office or organization of equivalent rank; and

(f) P16,000 for each Municipal Trial Court Judge, Municipal Circuit Trial Court Judge, and Shari' a Circuit
Court Judge.

In addition, miscellaneous expenses not exceeding Seventy-Two Thousand Pesos (P72,000) for each of the offices under
the above named officials are herein authorized.

xxxx

However, the Supervising Auditor observed that the EMEs granted were irregularly charged to other accounts of PhilHealth
in order to accommodate reimbursements of EMEs which have already far exceeded the prescribed limitation set under the
2010 GAA. This act of charging was found to be irregular because it was conducted in a manner that deviated from the set
standards, which in this case were the budgetary controls in the disbursement of the EME as stated in the GAA and COA
Circular No. 2006- 001. The irregular charging also resulted to an increase in the "excess from the GAA prescribed annual
rate for EME."  There is no cogent reason to overturn these findings of the Supervising Auditor, which PhilHealth failed to
51

refute squarely in their comment to the AOM.  52

Finally, the defense of PhilHealth that its BOD members were reimbursed the IME in good faith and must, therefore, be not
required to refund the disallowed amount, does not lie. Insofar as ex officio members are concerned, we reiterate our ruling
in Tetangco that, by jurisprudence, patent disregard of case law and COA directives amounts to gross negligence; hence,
good faith on the part of the the approving officers cannot be presumed:  53

As the records bear out, the petitioners who approve the EMEs failed to observe the following: first, there is already a law,
the GAA, that limits the grant of EMEs; second, COA Memorandum No. 97-038 dated September 19, 1997 is a directive
issued by the COA to its auditors to enforce the self-executing prohibition imposed by Section 13, Article VII of the
Constitution on the President and his official family, their deputies and assistants, or their representatives from holding
multiple offices and receiving double compensation; and third, the irregularity of giving additional compensation or
allowances to ex officio members was already settled by jurisprudence, during the time that the subject allowances were
authorized by the BSP.

Indeed, the petitioners-approving officers' disregard of the aforementioned case laws, COA issuances, and the Constitution,
cannot be deemed as a mere lapse consistent with the presumption of good faith.

In line with this, We cannot subscribe to petitioner Favila's insistence that he should not be liable in the approving,
processing and receiving of EMEs on the basis that he did not participate in the adoption of the resolutions authorizing the
payment of the EMEs.

As pointed out during the deliberation by Our learned colleague, Hon. Justice Lucas P. Bersamin, the doctrine on the non-
liability of recipients of disallowed benefits based on good faith did not extend to petitioner Favila for the following
reasons: first, there was precisely a law (the relevant GAAs) that expressly limited the amounts of the EMEs to be received
by the ex officio members; and second, insofar as ND No. 10-004GF (2007-2008) is concerned, his liability arose from his
receipt of the subject allowances in 2008, when he was an ex officio member of the Board. Hence, good faith did not favor
him not only because he had failed to exercise the highest degree of responsibility, but also because as a cabinet member
he was aware of the extent of the benefits he was entitled to.

Verily, petitioners Tetangco, Jr., Favila, Amatong, FavisVillafuerte, Antonio, and Bunye, who were members of the Monetary
Board were expected to keep abreast of the laws that may affect the performance of their functions. The law, jurisprudence
and COA issuances subject of this case are of such clearness that the concerned officials could not have mistaken their
meaning. It was incumbent upon them to instruct Petitioners Ong, Prudencio, Reyes and Catarroja who participated in the
processing of the EMEs, to comply with these laws. Unfortunately, they did not. Thus, they cannot find shelter in the
defense of good faith.   (Citations omitted.)
54

Neither can good faith be appreciated with respect to the appointive members of the BOD. The Court can understand that
the BOD might have merely relied on, albeit erroneously: (1) PhilHealth's power to fix the compensation of its personnel and
for the BOD to exercise fiscal management; and (2) the fact that RA No. 7875 does not expressly prohibit Board members
from receiving benefits other than the per diem authorized by law.   There are findings, however, from the COA-CGS that
55
the BOD members already knew at the time of their receipt of the IMEs that said benefits had no legal basis.   This findings
56

remain unrebutted by PhilHealth. As correctly held by the COA-CGS:

As can be read from AOM No. 2011-10(10) dated May 24, 2011 and issued by the Supervising Auditor, PhilHealth:

"Claims for reimbursement of EME by the PhilHealth Board of Directors and those holding position titles with SG+ were
already disallowed in audit as these reimbursements were not in conformity with the above stated provisions in the GAA
that only positions of equivalent rank as may be determined by the DBM are entitled to reimbursements of
EME.   (Underscoring in the original.)
57

Good faith, in relation to the requirement of refund of disallowed benefits or allowances, is "that state of mind denoting
'honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest
intention to abstain from taking any unconscientious advantage of another, even though technicalities oflaw, together with
absence of all information, notice, or benefit or belief of facts which render transactions unconscientious."  In this regard,
58

therefore, this Court finds that the PhilHealth BOD members failed to earn the presumption of good faith.

WHEREFORE, the petition is DENIED. The Decision No. 2015-093 dated April 1, 2015 of the Commission on Audit
disallowing the Institutional Meeting Expenses for 2010 paid to members of the Board of Directors of Philippine Health
Insurance Corporation in the total amount of ₱2,965,428.59 is AFFIRMED.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice