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FIRST DIVISION

[A.C. No. 9464. August 24, 2016.]

INTERADENT ZAHNTECHNIK, PHIL., INC., REPRESENTED BY LUIS MARCO I.


AVANCEA, complainant, vs. ATTY. REBECCA S. FRANCISCO-SIMBILLO, respondent.

RESOLUTION

BERSAMIN, J p:

A complaint for disbarment based on the respondent attorney's alleged moral


turpitude cannot prosper after the criminal cases charging him with offenses
involving moral turpitude were dismissed by the competent trial courts. The rule
regarding this ground for disbarment requires the respondent attorney's conviction
of the offense involving moral turpitude by final judgment.

Antecedents

On March 12, 2012, the Office of the Bar Confidant (OBC) received a letter from the
attorney for complainant Intradent Zahnetchnik Philippines, Inc. informing about
several criminal cases filed and pending against respondent Rebecca Francisco-
Simbillo. The criminal cases had been filed by the complainant to charge the
respondent with estafa and qualified theft in the Office of the City Prosecutor of
Paraaque City (docketed as I.S. No. XV-12-INV-11-J-03189), and with violation of
Article 291 of the Revised Penal Code in the Office of the City Prosecutor of Quezon
City (docketed as I.S. No. XV-03-INV-11-J-08553). The complainant pointed out that
the charges for estafa and qualified theft involved moral turpitude. 1 ICHDca

At the time, the results of the 2011 Bar Examinations had just been released, and
the respondent was among those who had passed. She was in due course formally
notified by the OBC of the letter of the complainant, and thereby required to file her
comment within 15 days from notice. The OBC also informed her that she could join
the mass oath taking for the new lawyers, but she would not be allowed to enroll
her name in the Roll of Attorneys until the charges against her had been cleared. 2
Upon the advice of the OBC, she had the other option to sign the Roll of Attorneys
subject to the condition that the letter of the complainant would be automatically
converted to a disbarment complaint against her. Choosing the latter, she signed
the Roll of Attorneys on May 3, 2012. 3

In her comment, the respondent stated that she had been employed by the
complainant for four years; that her employment had lasted until she was illegally
dismissed; that she instituted a labor case against the complainant; that the
criminal charges filed against her were intended to malign, inconvenience, and
harass her, and to force her to desist from pursuing the labor case; and that at the
time of the filing of her comment, the criminal complaints brought against her were
still pending determination of probable cause by the respective Offices of the City
Prosecutor. 4

On June 8, 2012, the respondent filed a manifestation stating that the Office of the
City Prosecutor of Paraaque City had already dismissed the criminal charge
docketed as XV-12-INV-11-J-03189. 5

The complainant immediately countered that although the Office of the City
Prosecutor of Paraaque City had dismissed its complaint for estafa and qualified
theft, it had timely brought an appeal to the Department of Justice (DOJ); and that
the criminal case against the respondent should still be considered as pending. 6

On February 18, 2015, the respondent filed a motion seeking the resolution of this
disbarment case, alleging that the DOJ had denied the complainant's appeal in
respect of XV-12-INV-11-J-03189; and that as to the criminal charge docketed as XV-
03-INV-11-J-08553, the Office of the City Prosecutor of Quezon City had filed an
information against her in the Metropolitan Trial Court in Quezon City, but Branch 33
of that court had eventually dismissed the information upon the Prosecution's
motion for the withdrawal of the information with leave of court. 7

Issue

May the disbarment complaint against the respondent prosper?

Ruling of the Court

We rule in favor of the respondent. cDHAES

We observe that this administrative case started as a complaint to prevent the


respondent from being admitted to the Philippine Bar on the ground of the existence
of criminal charges brought against her for crimes involving moral turpitude.
Indeed, Section 2, Rule 138 of the Rules of Court requires that any applicant for
admission to the Bar must show that no charges against him or her for crimes
involving moral turpitude have been filed or are pending in any court in the
Philippines. However, this administrative case has since been converted to one for
disbarment, but without the complainant, which has all the while continued to
actively participate herein, alleging any ground for finding the respondent
administratively liable except those already averred in its letter to the OBC. The
complainant has not also shown that there were other criminal cases involving
moral turpitude filed against the respondent.

Under Section 27, 8 Rule 138 of the Rules of Court, a lawyer may be disbarred on
any of the following grounds, namely: (1) deceit; (2) malpractice; (3) gross
misconduct in office; (4) grossly immoral conduct; (5) conviction of a crime involving
moral turpitude; (6) violation of the lawyers oath; (7) willful disobedience of any
lawful order of a superior court; and (8) corruptly or willfully appearing as a lawyer
for a party to a case without authority so to do. In fine, in order to hold the lawyer
amenable to disbarment by reason of his or her having committed a crime involving
moral turpitude, it is not enough to show that there is a pending case involving
moral turpitude against him or her, because Section 27 of Rule 138 expressly
requires that he or she must have been found by final judgment guilty of the crime
involving moral turpitude.

The complainant did not allege, much less prove, that the respondent had been
convicted by final judgment of any criminal offense involving moral turpitude. On
the contrary, the criminal cases that were the sole bases for the complaint for
disbarment had already been dismissed after due proceedings. Although the
complainant might have availed itself of the available remedies to review or reverse
the dismissals, it behooves the Court to terminate this case against her now
considering that, as indicated, the mere existence or pendency of the criminal
charges for crimes involving moral turpitude is not a ground for disbarment or
suspension of an attorney. 9

WHEREFORE, the Court DISMISSES this disbarment case against respondent Atty.
Rebecca S. Francisco-Simbillo.

SO ORDERED. TCAScE

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

Footnotes

1. Rollo, pp. 1-2.

2. Id. at 295.

3. Id. at 297.

4. Id. at 296-301.

5. Id. at 302-303.

6. Id. at 310.

7. Id. at 329-330.

8. Section 27. Disbarment or suspension of attorneys by Supreme Court,


grounds therefor. A member of the bar may be disbarred or suspended from his
office as attorney by the Supreme Court for any deceit, malpractice, or other gross
misconduct in such office, grossly immoral conduct, or by reason of his conviction of
a crime involving moral turpitude, or for any violation of the oath which he is
required to take before admission to practice, or for a willful disobedience appearing
as an attorney for a party to a case without authority so to do. The practice of
soliciting cases at law for the purpose of gain, either personally or through paid
agents or brokers, constitutes malpractice.
The disbarment or suspension of a member of the Philippine Bar by a
competent court or other disciplinary agency in a foreign jurisdiction where he has
also been admitted as an attorney is a ground for his disbarment or suspension if
the basis of such action includes any of the acts hereinabove enumerated.

The judgment, resolution or order of the foreign court or disciplinary


agency shall be prima facie evidence of the ground for disbarment or suspension.
(As amended by SC Resolution dated February 13, 1992.)

9. Nuez v. Astorga, A.C. No. 6131, February 28, 2005, 452 SCRA 353, 361-362.

MARY JANE G. DY CHIAO, petitioner, vs. SEBASTIAN BOLIVAR, SHERIFF IV, REGIONAL
TRIAL COURT, BRANCH 19, IN NAGA CITY, respondent.

DECISION

BERSAMIN, J p:

A losing party cannot seek relief from the execution of a final judgment by bringing
a separate action to prevent the execution of the judgment against her by the
enforcing sheriff. Such action contravenes the policy on judicial stability. She should
seek the relief in the same court that issued the writ of execution.

The Case

The petitioner a subsidiary judgment debtor appeals the resolution


promulgated on November 12, 2009, 1 whereby the Court of Appeals (CA) denied
her Motion for Extension of Time to File Verified Petition for Review on Certiorari filed
in CA-G.R. SP No. 111113 entitled Mary Jane G. Dy Chiao v. Sebastian Bolivar,
Regional Trial Court of Naga City, and declared the case closed and terminated, on
the ground that her appeal by petition for review on certiorari could only be brought
to the Supreme Court.

Antecedents

The antecedents are not disputed. On March 31, 1999, the CA promulgated its
decision in CA-G.R. SP No. 44261 declaring the petitioner subsidiarily liable to pay
the exact amount of P5,711,164.00, to wit: HTcADC

WHEREFORE, judgment is hereby rendered declaring the assailed decision dated


December 13, 1993 of the respondent court as NULL and VOID and without legal
force and effect. Co[r]ollarily, the execution and the public auction sale held
thereunder are likewise VOID.

The Clerk of Court of the Regional Trial Court of Naga City is directed to deliver
within ten (10) days from finality of this judgment the amount of P15,482,200.00
together with all interests earned thereby, to the respondent court, which court is
hereby directed to distribute the aggregate amount to the buyers of the properties
of Benito Dy Chiao, Sr., in proportion to the amounts they paid therefor.

Benedick Arevalo, through his mother, Shirley Arevalo, is directed to turn over to the
respondent court within ten (10) days from finality of this judgment the amount of
P5,711,164.00 which she received from Sheriffs Rubio and Cledera, together with all
other amounts she might have been paid on the Compromise Agreement, without
prejudice to the buyer's right of recourse against Mary Jane, who is hereby declared
to be subsidiarily liable therefor. Upon receipt thereof, the respondent court shall
likewise return to the buyers the aggregate amount in the same proportion as above
stated.

Thereafter the properties shall be delivered to the intestate estate of Benito Dy


Chiao, Jr. for proper disposition by the intestate court.

Let a copy of this judgment be furnished the Office of the Court Administrator for
whatever action it might deem proper to take on the premises.

SO ORDERED. 2

The decision in CA-G.R. SP No. 44261 was ultimately affirmed by the Court, and thus
attained finality. Execution proceedings followed in due course upon issuance of the
writ of execution by the RTC (Branch 19) as the court of origin, but respondent
Branch Sheriff of the RTC (Branch 19) filed a sheriff's report to the effect that, one,
the amount of P5,711,164.00 could not be satisfied by principal obligor Benedick
Arevalo because he had no assets that could be levied on execution; and that, two,
the liability could be paid out of the assets of the petitioner under her subsidiary
liability as decreed in the final judgment. Accordingly, the respondent recommended
that an alias writ of execution be issued against the properties of the latter.

On June 12, 2008, the RTC (Branch 19) issued the writ of execution and directed the
respondent to levy as much properties of the petitioner as would be sufficient to
satisfy the amount of P5,711,164.00, and to sell the properties at public auction. 3
CAIHTE

On November 21, 2008, the respondent proceeded with the public auction of the
petitioner's levied properties, and sold two parcels of her realty with areas of 69
square meters and 85 square meters, both located in Naga City, to the highest
bidders for P8,000,000.00, namely: Jose R. Rivero, Jessie Rivero, Jr. and Amalia
Rivero Raosa. 4 In due course, the respondent issued a provisional certificate of
sale dated November 24, 2008.

The respondent, allegedly without any order from the Presiding Judge of the RTC
(Branch 19), or without an alias writ of execution being issued by the court, and
without notice to the petitioner, pursued further execution proceedings against the
petitioner. She learned of such proceedings only from Atty. Greta Paraiso, the
Registrar of Deeds of Naga City. 5

The notice of levy dated March 10, 2009 issued by the respondent, addressed to the
petitioner, identified the two parcels of land located in Naga City registered in her
name under Transfer Certificate of Title (TCT) No. 8933 of the Register of Deeds of
Camarines Sur. The first property had an area of 386 square meters, while the
second an area of 387 square meters. 6 Although the notice stated that it was being
issued by virtue of a writ of execution, it did not bear the date of its issuance.

On May 8, 2009, the petitioner received a notice of sale of real property on


execution dated April 15, 2009 stating that the two real properties of the petitioner
were being levied to satisfy the sum of P5,711,164.00; and that the public auction
was set from 9:00 a.m. to 3:00 p.m. on May 15, 2009.

To fend off the public auction, the petitioner filed on May 13, 2009 a so-called
Petition for Prohibition with Application for Temporary Restraining Order and
Preliminary Injunction. On the same date, the Executive Judge of the RTC in Naga
City issued at 72-hour temporary restraining order (TRO) enjoining the respondent
from conducting the scheduled public auction. 7 The case was raffled to the RTC
(Branch 23) in Naga City.

After receiving the respondent's comment and opposition, the petitioner's reply, and
the respondent's rejoinder, the RTC (Branch 23) dismissed the case for lack of
jurisdiction, 8 opining that the processes being undertaken by the respondent were
deemed proceedings in the same civil case assigned to and still pending before the
RTC (Branch 19); and that the RTC (Branch 19) continued to exercise general
supervision and control over such proceedings. 9

After the RTC (Branch 23) denied the petitioner's Motion for Reconsideration, she
filed in the CA her Motion for Extension of Time to File Verified Petition for Review on
Certiorari indicating therein that she would be raising a question of law. The case
was docketed as CA-G.R. SP No. 111113.

As stated, the CA promulgated the assailed resolution on November 12, 2009, 10


pertinently holding:

The motion must fail.

A motion praying for an extension of time to file a petition for review on certiorari
filed before this Court pursuant to Section 2 of Rule 45 of the Rules of Court raising
only questions of law is improper.

A petition for review on certiorari is governed by Section 1 of Rule 45, viz.: aScITE

"Section 1. Filing of petition with Supreme Court. A party desiring to appeal by


certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on certiorari. The
petition shall raise only questions of law which must be distinctly set forth."

Clearly therefore, the proper remedy under the afore-quoted rule where only
questions of law are raised or involved, is a petition for review on certiorari which
shall be filed with the Supreme Court and not with this Court.

Thus, the instant motion praying for an extension of time to file a petition for review
on certiorari must be denied outright pursuant to Supreme Court Circular No. 2-90
dated March 9, 1990 which mandates the dismissal of appeals involving pure
questions of law erroneously brought to the Court of Appeals, to wit:

"4. Erroneous appeals. An appeal taken to either the Supreme Court or the
Court of Appeals by the wrong or inappropriate mode shall be dismissed.

(c) Raising issues purely of law in the Court of Appeals, or appeal by wrong
mode. If an appeal under Rule 41 is taken from the Regional Trial Court to the
Court of Appeals and therein the appellant raises only questions of law, the appeal
shall be dismissed, issues purely of law not being reviewable by said court. . .

xxx xxx xxx"

WHEREFORE, the instant motion praying for an extension of thirty (30) days to file a
petition for review on certiorari is hereby DENIED and the above-entitled case is
considered CLOSED and TERMINATED.

Let this case be excluded from the Court's docket.

SO ORDERED. 11 DETACa

The petitioner filed a Motion for Reconsideration, but the CA denied the motion on
May 12, 2010. 12

Hence, this appeal by the petitioner.

Issues

The petitioner hereby urges the Court to consider:

WHETHER IT WAS PROPER FOR THE APPELLATE COURT TO DENY PETITIONER'S


MOTION FOR EXTENSION, WHICH INDICATED THAT IT WOULD BE RAISING A
QUESTION OF LAW, ON THE GROUND THAT IT SHOULD HAVE BEEN FILED BEFORE
THE SUPREME COURT DESPITE THE RECOGNIZED PRINCIPLE OF HIERARCHY OF
COURTS.
WHETHER OR NOT IT WAS PROPER FOR THE ORIGINAL PETITION FOR PROHIBITION
BEFORE THE REGIONAL TRIAL COURT TO BE DENIED ON THE GROUND OF LACK OF
JURISDICTION. 13

Ruling of the Court

We deny the petition for review on certiorari for its lack of merit.

First of all, the CA properly denied the petitioner's Motion for Extension of Time to
File Verified Petition for Review on Certiorari and justifiably considered the case
closed and terminated. The petitioner was patently guilty of taking an erroneous
appeal in view of her manifest intention to limit her appeal to questions of law. Such
an appeal would only be by petition for review on certiorari, to be filed in this Court
pursuant to Section 1, Rule 45 of the Rules of Court, as follows:

Section 1. Filing of petition with Supreme Court. A party desiring to appeal by


certiorari from a judgment, final order or resolution of the Court of Appeals, the
Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts,
whenever authorized by law, may file with the Supreme Court a verified petition for
review on certiorari. The petition may include an application for a writ of preliminary
injunction or other provisional remedies and shall raise only questions of law, which
must be distinctly set forth. The petitioner may seek the same provisional remedies
by verified motion filed in the same action or proceeding at any time during its
pendency.

Pursuant to Section 2, 14 Rule 50 of the Rules of Court, an appeal raising only


questions of law brought to the CA instead of to this Court shall be dismissed. The
same rule expressly forbids the erroneous appeal to be transferred to the Court.

Secondly, the petitioner, as the party appealing, had only a limited period of 15
days from notice of the judgment or final order appealed from within which to
perfect her appeal to the Court pursuant to Section 2, Rule 45 of the Rules of Court,
which states: HEITAD

Section 2. Time for filing; extension. The petition shall be filed within fifteen
(15) days from notice of the judgment or final order or resolution appealed from, or
of the denial of the petitioner's motion for new trial or reconsideration filed in due
time after notice of the judgment. On motion duly filed and served, with full
payment of the docket and other lawful fees and the deposit for costs before the
expiration of the reglementary period, the Supreme Court may for justifiable
reasons grant an extension of thirty (30) days only within which to file the petition.
(1a, 5a)

The petitioner obviously failed to perfect her appeal from the dismissal by the RTC
(Branch 23) of the case commenced through her so-called Petition with Application
for a Temporary Restraining Order and Preliminary Injunction. The consequence of
such failure to perfect the appeal was to render the dismissal final and immutable.
This meant that no court, including this Court, could thereafter alter, modify or
reverse the result. As such, her present appeal to this Court cannot but be viewed
and condemned as a futile attempt to resurrect the lost appeal.

And, lastly, the present appeal, even assuming that it was timely taken, would still
fail for its lack of merit. We would still uphold the dismissal of the case by RTC
(Branch 23) considering that the assailed actions and processes undertaken by the
respondent to levy the properties of the petitioner were deemed proceedings in the
same civil action assigned to the RTC (Branch 19) as the court that had issued the
writ of execution. Such proceedings, being incidents of the execution of the final and
executory decision of the RTC (Branch 19), remained within its exclusive control.

On the other hand, to allow the petitioner's action in the RTC (Branch 23) would
disregard the doctrine of judicial stability or non-interference, under which no court
has the power to interfere by injunction with the judgments or decrees of a court of
concurrent or coordinate jurisdiction. 15 Courts and tribunals with the same or equal
authority even those exercising concurrent and coordinate jurisdiction are not
permitted to interfere with each other's respective cases, much less their orders or
judgments therein. 16 This is an elementary principle of the highest importance
essential to the orderly administration of justice. 17 Its observance is not required
on the grounds of judicial comity and courtesy alone; it is enforced to prevent
unseemly, expensive, and dangerous conflicts of jurisdiction and of processes. 18 A
contrary rule would dangerously lead to confusion and seriously hamper the
administration of justice. 19

That the respondent was the sole party sought to be prevented from further acting
in the execution proceedings, or that the RTC (Branch 23) was not impleaded by the
petitioner did not matter. The effect is still an undue interference that disregarded
the doctrine of judicial stability or noninterference. The Court has made this
unsettling situation quite clear when it explicitly observed in Cabili v. Balindong: 20
aDSIHc

It is not a viable legal position to claim that a TRO against a writ of execution is
issued against an erring sheriff, not against the issuing Judge. A TRO enjoining the
enforceability of a writ addresses the writ itself, not merely the executing sheriff.
The duty of a sheriff in enforcing writs is ministerial and not discretionary. As
already mentioned above, the appropriate action is to assail the implementation of
the writ before the issuing court in whose behalf the sheriff acts, and, upon failure,
to seek redress through a higher judicial body.

Indeed, the respondent was under the direct control and supervision of the RTC
(Branch 19) as the court that had issued the writ of execution enforcing the final
decision of the CA against the petitioner. The determination of whether or not the
notice of levy was valid and proper rightfully fell within the exclusive prerogative of
the RTC (Branch 19) to ascertain and pronounce. If she doubted the authority of the
respondent to issue the notice of levy, she should have sought clarification of the
matter from the RTC (Branch 19), and should the outcome be adverse to her, she
could then have sought fitting redress from a superior court vested with authority to
review and reverse the action of the respondent instead of resorting to her action
before the RTC (Branch 23).

WHEREFORE, the Court AFFIRMS the decision promulgated on November 12, 2009
in CA-G.R. SP No. 111113; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

Footnotes

1. Rollo, pp. 32-34; Penned by Associate Justice Ramon M. Bato, Jr., with
Associate Justice Noel G. Tijam and Associate Justice Sixto C. Marella, Jr. concurring.

2. Id. at 339-340; penned by Associate Justice Delilah Vidallon-Magtolis, with


Associate Justices Cancio C. Garcia and Artemio G. Tuquero concurring.

3. Id. at 58-59.

4. Id. at 59.

5. Id. at 60.

6. Id.

7. Id. at 60-61.

8. Id. at 61.

9. Id. at 105.

10. Supra note 1.

11. Id. at 33-34.

12. Id. at 36-37.

13. Id. at 23.

14. Section 2. Dismissal of improper appeal to the Court of Appeals. An appeal


under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising
only questions of law shall be dismissed, issues purely of law not being reviewable
by said court. Similarly, an appeal by notice of appeal instead of by petition for
review from the appellate judgment of a Regional Trial Court shall be dismissed. (n)
An appeal erroneously taken to the Court of Appeals shall not be
transferred to the appropriate court but shall be dismissed outright. (3a)

15. Heirs of the late Spouses Laura Yadno and Pugsong Mat-an v. Heirs of the late
Spouses Mauro and Elisa Anchales, G.R. No. 174582, October 11, 2012, 684 SCRA
106, 115.

16. Pacific Ace Finance Ltd. (PAFIN) v. Yanagisawa, G.R. No. 175303, April 11,
2012, 669 SCRA 270, 281.

17. Republic v. Reyes, Nos. L-30263-5, October 30, 1987, 155 SCRA 313, 324.

18. Lee v. Presiding Judge, MTC of Legaspi City, Br. 1, No. L-68789, November 10,
1986, 145 SCRA 408, 416.

19. Ching v. Court of Appeals, G.R. No. 118830, February 24, 2003, 398 SCRA 88,
93.

20. A.M. No. RTJ-10-2225, September 6, 2011, 656 SCRA 747, 758.

[A.C. No. 2404. August 17, 2016.]

NILO B. DIONGZON, petitioner, vs. ATTY. WILLIAM MIRANO, respondent.

DECISION

BERSAMIN, J p:

A lawyer who agrees to represent a client's interests in the latter's business


dealings is duty-bound to keep the confidence of such client, even after their
lawyer-client relationship had ended. If he represents any other party in a case
against his former client over a business deal he oversaw during the time of their
professional relationship, he is guilty of representing conflicting interests, and
should be properly sanctioned for ethical misconduct.

The Case

Before the Court is the petition for review of the Resolution No. XX-2013-160
adopted by the Board of Governors of the Integrated Bar of the Philippines (IBP) on
the complaint for disbarment filed by the complainant against respondent Atty.
William Mirano, 1 whereby the IBP Board of Governors found the respondent guilty
of representing conflicting interest, and recommended the penalty of suspension
from the practice of law for one year. The respondent assails the recommendation of
the IBP Board of Governors. caITAC

Antecedents

On the dates material to this case, the complainant was a businessman engaged in
the fishing industry in Bacolod City, Negros Occidental. In 1979, he retained the
respondent as his legal counsel to represent him as the plaintiff in Civil Case No.
10679 then pending in the City Court of Bacolod City (Branch 1). In November 1981,
the complainant again retained the respondent as his lawyer in relation to the
execution of two deeds of sale covering the boats the former was selling to Spouses
Almanzur and Milagros Gonzales (Gonzaleses). 2 In January 1982, the parties herein
signed a retainer contract for legal services that covered legal representation in
cases and transactions involving the fishing business of the complainant. 3

In February 1982, the Gonzaleses sued the complainant for replevin and damages,
and sought the annulment of the aforementioned deeds of sale. 4 They were
represented by Atty. Romeo Flora, the associate of the respondent in his law office.
It appears that the bond they filed to justify the manual delivery of the boats subject
of the suit had been notarially acknowledged before the respondent without the
knowledge and prior consent of the complainant; 5 and that the respondent
eventually entered his appearance as the counsel for the Gonzaleses against the
respondent. 6

On May 24, 1982, therefore, the complainant initiated this administrative complaint
for disbarment against the respondent by verified letter-complaint. 7

The respondent thereafter sought several times the extension of the time for him to
file his comment.

In the meantime, Atty. Flora, in an attempt to explain why the respondent had
appeared as counsel for the Gonzaleses, filed a manifestation claiming that the
Gonzaleses had been his own personal clients, and that he had only requested the
respondent's appearance because he had been indisposed at the time. 8

The complainant belied the explanation of Atty. Flora, however, and pointed out that
Atty. Flora was actually a new lawyer then working in the law office of the
respondent. 9 As proof, the complainant submitted the stationery showing the
letterhead of the law office of the respondent that included Atty. Flora's name as an
associate. 10 TAIaHE

In his answer dated September 9, 1982, 11 the respondent stated that the
complainant had been his client in a different civil case; that the complainant had
never consulted him upon any other legal matter; that the complainant had only
presented the deeds of sale prepared by another lawyer because he had not been
contented with the terms thereof; that he had not been the complainant's retained
counsel because the retainer agreement did not take effect; that he had returned
the amount paid to him by the complainant; that he had appeared for the
Gonzaleses only after their evidence against the complainant had been presented;
that the complainant had approached him when he needed a lawyer to defend him
from an estafa charge; and that the complainant had even wanted him to falsify
documents in relation to that estafa case, but because he had refused his bidding,
the complainant had then filed this administrative case against him. 12
Proceedings before the IBP

The complaint was referred to the IBP for investigation. The case was heard over a
long period of time spanning 1985 to 2003, 13 and the IBP Board of Governors
finally recommended on February 13, 2013 that the respondent be held guilty of
conflict of interest for appearing as the counsel for the opponents of the
complainant with whom he had an existing lawyer-client relationship, a gross
violation of his ethical duties as an attorney; and that he should be punished with
suspension from the practice of law for one year.

The Court noted the resolution of the IBP Board of Governors on April 1, 2014.

The respondent filed in this Court a Manifestation with Motion and a Supplement to
Manifestation with Motion, wherein he proceeded to argue against the findings
although he initially claimed not to have been furnished with the IBP Board of
Governors' recommendation. He posited that he still had a pending Motion for
Reconsideration in the IBP, and requested that this case be remanded to the IBP for
disposition.

Ruling of the Court

We uphold the findings and recommendations of the IBP Board of Governors


because they were substantiated by the records.

On the preliminary matter of procedure being raised by the respondent, it is


unnecessary to remand this case to the IBP for further investigation and disposition
by the IBP. Remanding the case to the IBP would be superfluous and unnecessary.
The complaint was filed in 1982, and since then the case underwent three decades
of hearings before different investigating commissioners of the IBP. The matters
subject of the complaint were extensively covered and sifted. In our view, the
records are already adequate for resolution of the charge against the respondent,
which, after all, is something that only the Court can ultimately do.

Was the respondent guilty of representing conflict of interest?

The lawyer-client relationship begins from the moment a client seeks the lawyer's
advice upon a legal concern. The seeking may be for consultation on transactions or
other legal concerns, or for representation of the client in an actual case in the
courts or other fora. From that moment on, the lawyer is bound to respect the
relationship and to maintain the trust and confidence of his client. No written
agreement is necessary to generate a lawyer-client relationship, but in formalizing
it, the lawyer may present a retainer agreement to be considered and agreed to by
the client. As with all contracts, the agreement must contain all the terms and
conditions agreed upon by the parties. ICHDca

In this case, the respondent presented such a retainer contract to the complainant,
the terms of which are stated below:
The CLIENT retains and employs the ATTORNEY to take charge of the legal matters
of the former in connection with his fishing business, and the attorney accepts such
retainer and employment subject to the following terms and conditions, to wit:

1. That the term of this contract shall be for two "2" years beginning February,
1982 but is deemed automatically renewed for the same period if not terminated by
both parties by virtue of an agreement to that effect and signed by them;

2. That the compensation to be paid by the client for the services of the
attorney, shall be three hundred pesos (P300.00) a month;

3. That the attorney may be consulted at all times by CLIENT on all business
requiring his professional advice and opinion and when the ATTORNEY gives a
written opinion, a copy shall be sent to the CLIENT;

4. That the duties of the attorney in this retainer contract shall include
consultations, opinions, legal advices, preparations and drafting of contracts and
other legal papers, and other legal works, in connection with the business of the
CLIENT, except those cases involving trials in court, which if they are entrusted to
the ATTORNEY, shall be subject to a new agreement; 14

Both parties signed their retainer contract on January 20, 1982. Contrary to the
assertion of the respondent, the retainer agreement did not contain a suspensive
condition that affected its effectivity as of the date of its execution. It simply
stipulated that the respondent would represent the interests of the complainant in
all matters pertaining to his fishing business, thereby formalizing their lawyer-client
relationship. The respondent's insistence that the complainant should return all the
checks to the Gonzaleses relative to the sale of the fishing boats was clearly not
part of the contract.

The lawyer-client relationship between the parties was duly established beginning in
1979 and lasted until 1982. The respondent's claim that he returned the retainer fee
did not alter the juridical existence of their lawyer-client relationship. When the
complainant consulted him on the sale of the boats to the Gonzaleses, the
respondent reviewed the contracts of sale in the capacity of the complainant's
lawyer, and even notarized the same. He became aware of the details of the sale by
virtue of the confidentiality generated by his lawyer-client relationship with the
complainant. cDHAES

Canon 15 of the Code of Professional Responsibility enjoins lawyers to observe


candor, fairness and loyalty in all their dealings and transactions with their clients.
Specifically, Canon 15.03 demands that: "A lawyer shall not represent conflicting
interests except by written consent of all concerned given after a full disclosure of
the facts." A conflict of interest exists when a lawyer represents inconsistent
interests of two opposing parties, like when the lawyer performs an act that will
injuriously affect his first client in any matter in which he represented him, or when
the lawyer uses any knowledge he previously acquired from his first client against
the latter. 15 The prohibition against conflict of interest is founded on principles of
public policy and good taste, inasmuch as the lawyer-client relationship is based on
trust and confidence. 16 A lawyer has a duty to preserve his client's confidence in
him, even if their relationship ends. The purpose is to assure freedom of
communication between the lawyer and the client in order to enable the former to
properly represent and serve the latter's interests. To use against the latter any
information the former gains during the relationship is deplorable and unethical.

When he appeared in court for the benefit of the Gonzaleses to try the case against
the complainant, the respondent unquestionably incurred a conflict of interest.
Having become privy to the terms of the sale subject of the civil case, the conflict of
interest became unmitigated because the complainant had not expressly consented
in writing to his appearing in behalf of the Gonzaleses. It would have been more
prudent for him to have excused himself from representing either party in the civil
case.

In cavalier fashion, the respondent has cited his accomplishments as a member and
officer of the IBP in his region to buttress his claim of being more credible than the
complainant, supposedly a convicted felon. But such a defense is unworthy of
consideration in this instance because the praiseworthiness of one's
accomplishments and professional reputation never furnishes the license for any
ethical lawyer to flagrantly and knowingly violate the Code of Professional
Responsibility.

On the penalty, we note that suspension from the practice of law for one year was
imposed on the lawyer who had appeared as defense counsel for the accused in an
estafa case despite having written and sent the demand letter for the complainant
in the same case. 17 In another case, the same penalty was imposed on the lawyer
who had initially drafted a deed of sale for the client, and who eventually filed a
case against said client to annul the same contract. 18 Such penalty is appropriate
and commensurate for this case.

ACCORDINGLY, the Court AFFIRMS the Resolution adopted on February 13, 2013 by
the Board of Governors of the Integrated Bar of the Philippines; FINDS and
DECLARES Atty. William N. Mirano guilty of ethical misconduct due to conflict of
interest, and, ACCORDINGLY, SUSPENDS him from the practice of law for ONE YEAR,
effective immediately upon receipt of this decision.

Let copies of this decision be entered in the personal records of Atty. Mirano in the
Office of the Bar Confidant and the Integrated Bar of the Philippines; and a copy of
this decision be furnished to the Office of the Court Administrator for dissemination
to all courts in the country.

SO ORDERED. TCAScE
Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[G.R. No. 207342. August 16, 2016.]

GOVERNMENT OF HONGKONG SPECIAL ADMINISTRATIVE REGION, represented by


the PHILIPPINE DEPARTMENT OF JUSTICE, petitioner, vs. JUAN ANTONIO MUOZ,
respondent.

DECISION

BERSAMIN, J p:

This case is the third in the trilogy of cases that started with the 2000 case of
Cuevas v. Muoz, 1 which dealt with respondent Juan Antonio Muoz's provisional
arrest as an extraditee, and the 2007 case of Government of Hong Kong Special
Administrative Region v. Olalia, Jr., 2 which resolved the question of Muoz's right to
bail as a potential extraditee. Both rulings dealt with and resolved incidents arising
during the process of having Muoz extradited to Hong Kong under and pursuant to
the Agreement Between the Government of the Republic of the Philippines and the
Government of Hong Kong for the Surrender of Accused and Convicted Persons (RP-
HK Agreement). HTcADC

Up for our consideration and resolution in the current case is whether or not the
extradition request of the Government of Hong Kong Special Administrative Region
(HKSAR) sufficiently complied with the RP-HK Agreement and Presidential Decree
No. 1069 (Philippine Extradition Law). On November 28, 2006, the Regional Trial
Court (RTC), Branch 8, in Manila granted the request for the extradition of Muoz. 3
Although the CA at first ruled that Muoz could be tried in Hong Kong for the crimes
of conspiracy to defraud and accepting an advantage as an agent, it granted his
motion for reconsideration and promulgated the now assailed amended decision on
March 1, 2013 in CA-G.R. CV No. 88610, 4 in which it pronounced that the crime of
accepting an advantage as an agent should be excluded from the charges for which
he would be tried in Hong Kong due to non-compliance with the double criminality
rule. Also being challenged is the resolution promulgated on May 29, 2013 by the
CA (denying the motion for reconsideration of the petitioner). 5

Antecedents

As factual antecedents, the CA narrated the following:

Bared to its essentials, the record shows that in late 1991, respondent-appellant, as
Head of the Treasury Department of the Central Bank of the Philippines (CBP), was
instructed by its Governor to raise Seven Hundred Million US Dollars (US$700M) in
order to fund the buyback of Philippine debts and the purchase of zero coupon US
Treasury Bonds. To this end, respondent-appellant recommended that the amount
be obtained through gold loans/swaps, for which, seven (7) contracts of about One
Hundred Million US Dollars (US$100M) each were to be awarded to certain
accredited parties. Two (2) of these contracts were granted to Mocatta, London.
These in turn were rolled over as they matured, hence, totaling five (5) gold
loan/swap agreements in Mocatta, London's favor. CAIHTE

In relation to this, petitioner-appellee narrates:

xxx xxx xxx

2. At all material times, Mr. Juan Antonio E. MUOZ ("MUOZ") was the Head of
the Treasury Department of the Central Bank of the Philippines ("CBP"). In July 1993,
CBP changed its name to the Bangko Sentral ng Pilipinas.

3. At all material times, Mr. Ho CHI ("CHI") was the Chief Executive of Standard
Chartered Bank-The Mocatta Group (Hong Kong) ("MHK"). MHK was a branch of the
Mocatta Group in London ("Mocatta London") which was a division of the Standard
Chartered Bank.

4. CBP and MHK had been dealing in small gold transactions for several years
prior to 1991. During the latter part of 1991, MUOZ and CHI began negotiating
larger deals up to US$100 M. CBP were (sic) reluctant to deal with MHK for such
large amounts and wanted to deal directly with Mocatta (London).

5. CHI approached Philip WILSON ("WILSON"), the then Chief Dealer of Mocatta
(London) about the proposed deals. CHI indicated that to get business it would be
necessary for Mocatta (London) to pay rebates to an unnamed group of people at
CBP. WILSON told CHI that that was wrong in principal (sic). CHI, however,
approached Keith SMITH, the then Managing Director of Mocatta (London), who
approved the payments.

xxx xxx xxx

6. Between February 1992 to March 1993, there were a series of "gold swaps"
and gold backed loans between CBP (sic) and Mocatta (London) through MHK in
Hong Kong. The transactions were a means for CBP to raise finance.

xxx xxx xxx

9. As a result of these transactions, Mocatta (London) paid out rebates of


US$1,703,304.87 to an account ("the Sundry Creditors Account") held with MHK for
onward transmission by MHK to destinations as instructed by CHI. Funds from this
Sundry Creditors Account were subsequently disbursed to the benefit of CHI and
MUOZ personally (. . .).

xxx xxx xxx

10. In addition to the gold swaps and the gold backed loans referred to above,
there were option agreements created between CBP and MHK. Under an option
agreement, CBP granted a right to MHK to exercise (or not to exercise) the option to
buy gold at a fixed price on a fixed date. aScITE

11. As a result, between 27 July 1992 and 6 May 1993, MHK paid US$4,026,000
into the Sundry Creditors Account, ostensibly for CBP, as premiums for these
options. . . .

xxx xxx xxx

13. CHI operated an account at Mocatta Hong Kong, called the MHK No. 3
Account, purportedly on behalf of CBP, for trading in gold. Profits from the trading
were accrued to the amount of US$1,625,000. The trading and the profits were
unknown to CBP.

14. On 12 October 1993, this US$1,625,000 was transferred to the Sundry


Creditors Account. Funds from this Sundry Creditors Account were subsequently
disbursed to the benefit of CHI and MUOZ personally (. . .).

xxx xxx xxx

15. Apart from the aforesaid, there were other payments made by MHK to the
Sundry Creditors Account, ostensibly for CBP, namely:

commission on gold location swaps US$227,086.18

commission on silver location swaps US$47,524.69

commission on options US$9,750.00

interest US$32,889.61

16. None of the above payments were known to CBP and none of them ever
reached CBP. Funds from this Sundry Creditors Account were subsequently
disbursed to the benefit of CHI and MUOZ personally (. . .).

xxx xxx xxx

On the other hand, respondent-appellant gives his version, thus:

. . . the Central Bank executed all these gold loan/swap agreements with the same
counter party, namely, Mocatta London. Muoz signed in behalf of the Central Bank
while Phil Wilson signed for Mocatta London. DETACa

xxx xxx xxx

In late 1992 (around November or December), Muoz received a note from Mocatta
London requesting that their accreditation as official counter party of the Central
Bank be transferred to Standard Chartered Bank (SCB) in view of an ongoing
reorganization which will result in Mocatta London being a mere division of SCB.
Before such reorganization, both Mocatta London and Mocatta Hong Kong operated
as independent subsidiaries of SCB.

xxx xxx xxx

As mentioned earlier, the Monetary Board approved the transfer of the accreditation
of Mocatta London as authorized counter party of the bank to SCB sometime in
February or March of 1993. Mocatta London became known as SCB-The Mocatta
Group, or SCB-The Mocatta Group (sic), or SCB-The Mocatta Group London, while
Mocatta became known as SCB-the Mocatta Group Hong Kong. Phil Wilson was the
Chief Executive Officer for London, while Ho Chi was the Chief Executive for Hong
Kong. The Group Chief Executive Officer was Ron Altringham.

As can be seen in Annex 'C', even with the SCB reorganization, the gold [loan]/swap
agreements continued to be contracted with Mocatta London. As shown, both the
gold loan/swap agreements dated March 25, 1993 and June 30, 1993 were signed
by Phil Wilson for Mocatta London (SCB-The Mocatta Group London). With the
accreditation of SCB as the official counter party of the bank, however, CB did allow
the dealers to transact minor trading transactions with Mocatta Hong Kong. CB also
allowed Mocatta Hong Kong to quote on the gold and silver location swaps CB
periodically did to decongest its vaults at the gold plant in Quezon City. The gold
swap/loan agreements, however, as shown in the Annex, continued to be rolled over
with Mocatta London.

During Muoz's stay in Treasury at the bank as its Head, he did not involve himself
in the details of work done by the Dealing Group, Treasury Service Group (TSG) and
Accounting which were all headed by either Director or a Deputy Director who could
clarify any issue that may arise, and who consult with him on matters they were
unsure. The department had been operational over 6 years when Muoz joined, and
the Treasury transactions had already become routine for majority of the staff.
Muoz meet (sic) weekly with senior officers to inform of development and discuss
problems of the department. HEITAD

In respect to the five gold loan/swap agreements with Mocatta London (as well as
the agreements contracted with other official counter parties), upon the signing of
each agreement, a copy of the agreement was forwarded to the Dealing Group for
proper implementation. The Treasury dealers usually coordinated with dealers of the
counter party involved in effecting the necessary transactions.

These agreements are the subject of ten (10) criminal cases filed against
respondent-appellant in Hong Kong i.e., three (3) counts of accepting an
advantage as an agent, contrary to Section 9(1) (a) of the Prevention of Bribery
Ordinance, Cap. 201 and seven (7) counts of conspiracy to defraud, contrary to the
common law of HKSAR. 6
Invoking the Agreement Between the Government of the Republic of the Philippines
and the Government of Hong Kong for the Surrender of Accused and Convicted
Persons (RP-HK Agreement), which was signed in Hong Kong on January 30, 1995,
the Hong Kong Special Administrative Region (HKSAR) sent Note No. SBCR
11/1/2716/80 dated July 9, 1997 to the Philippine Consulate General in Hong Kong
to inquire on which agency of the Philippine Government should handle a request
for extradition under the RP-HK Agreement. The Philippine Consulate General
replied through Note No. 78-97 dated October 16, 1997 that the proper agency was
the Department of Justice (DOJ). 7 On September 13, 1999, therefore, the DOJ
received the request for the provisional arrest of Muoz pursuant to Article 11 (1) of
the RP-HK Agreement. On September 17, 1999, the National Bureau of Investigation
(NBI), acting for and in behalf of HKSAR, initiated the proceedings for his arrest in
the RTC, whose Branch 19 then issued on September 3, 1999 the order granting the
application for the provisional arrest of Muoz. Branch 19 consequently issued the
corresponding order of arrest. On October 14, 1999, Muoz challenged through
certiorari, prohibition and mandamus the validity of the order for his arrest in the
CA, which declared the order of arrest null and void in its judgment promulgated on
November 9, 1999. DOJ Secretary Serafin R. Cuevas consequently appealed the
decision of the CA to this Court, which reversed the CA on December 18, 2000 in
Cuevas v. Muoz, 8 disposing:

WHEREFORE, the petition is GRANTED, and the assailed Decision of the Court of
Appeals, dated November 9, 1999, in CA-G.R. SP No. 55343 is hereby REVERSED
and SET ASIDE. Respondent's "Urgent Motion for Release Pending Appeal" is hereby
DENIED.

SO ORDERED.

Meantime, on November 22, 1999, 9 the DOJ, representing the HKSAR, filed a
petition in the RTC for the surrender of Muoz to the HKSAR to face the criminal
charges against him in Hong Kong. He filed a petition for bail. Initially, on October 8,
2001, the RTC, through Presiding Judge Ricardo Bernardo, Jr. of Branch 10, denied
the petition for bail after hearing on the ground that there was no Philippine law that
allowed bail in extradition cases, and that he was a high "flight risk." But after the
case was re-assigned to Branch 8, presided by Judge Felixberto T. Olalia, Jr.,
following the inhibition of Judge Bernardo, Jr., Muoz filed his motion for
reconsideration against the denial of his petition for bail. Granting the motion for
reconsideration on December 20, 2001, 10 Judge Olalia, Jr. allowed bail to Muoz
under the conditions stated in the order of that date. Not satisfied, the DOJ assailed
the granting of bail to Muoz as a potential extraditee by petition for certiorari
directly filed in this Court. The matter of bail for Muoz was ultimately settled by the
Court in Government of Hong Kong Special Administrative Region v. Olalia, Jr., 11
viz.: aDSIHc
While our extradition law does not provide for the grant of bail to an extraditee,
however, there is no provision prohibiting him or her from filing a motion for bail, a
right to due process under the Constitution.

The applicable standard of due process, however, should not be the same as that in
criminal proceedings. In the latter, the standard of due process is premised on the
presumption of innocence of the accused. As Purganan correctly points out, it is
from this major premise that the ancillary presumption in favor of admitting to bail
arises. Bearing in mind the purpose of extradition proceedings, the premise behind
the issuance of the arrest warrant and the "temporary detention" is the possibility of
flight of the potential extraditee. This is based on the assumption that such
extraditee is a fugitive from justice. Given the foregoing, the prospective extraditee
thus bears the onus probandi of showing that he or she is not a flight risk and
should be granted bail.

The time-honored principle of pacta sunt servanda demands that the Philippines
honor its obligations under the Extradition Treaty it entered into with the Hong Kong
Special Administrative Region. Failure to comply with these obligations is a setback
in our foreign relations and defeats the purpose of extradition. However, it does not
necessarily mean that in keeping with its treaty obligations, the Philippines should
diminish a potential extraditee's rights to life, liberty, and due process. More so,
where these rights are guaranteed, not only by our Constitution, but also by
international conventions, to which the Philippines is a party. We should not,
therefore, deprive an extraditee of his right to apply for bail, provided that a certain
standard for the grant is satisfactorily met.

An extradition proceeding being sui generis, the standard of proof required in


granting or denying bail can neither be the proof beyond reasonable doubt in
criminal cases nor the standard of proof of preponderance of evidence in civil cases.
While administrative in character, the standard of substantial evidence used in
administrative cases cannot likewise apply given the object of extradition law which
is to prevent the prospective extraditee from fleeing our jurisdiction. In his Separate
Opinion in Purganan, then Associate Justice, now Chief Justice Reynato S. Puno,
proposed that a new standard which he termed "clear and convincing evidence"
should be used in granting bail in extradition cases. According to him, this standard
should be lower than proof beyond reasonable doubt but higher than
preponderance of evidence. The potential extraditee must prove by "clear and
convincing evidence" that he is not a flight risk and will abide with all the orders and
processes of the extradition court. ATICcS

In this case, there is no showing that private respondent presented evidence to


show that he is not a flight risk. Consequently, this case should be remanded to the
trial court to determine whether private respondent may be granted bail on the
basis of "clear and convincing evidence."
WHEREFORE, we DISMISS the petition. This case is REMANDED to the trial court to
determine whether private respondent is entitled to bail on the basis of "clear and
convincing evidence." If not, the trial court should order the cancellation of his bail
bond and his immediate detention; and thereafter, conduct the extradition
proceedings with dispatch.

SO ORDERED. 12

Eventually, on November 28, 2006, the RTC ruled on the main case of extradition by
holding that the extradition request sufficiently complied with the RP-HK Agreement
and Presidential Decree No. 1069. 13

In due course, Muoz elevated the adverse decision of November 28, 2006 to the
CA upon the following issues, namely: (1) the enforceability of the RP-HK
Agreement, including the HKSAR's personality to institute the petition under its
current status as a special administrative region; (2) the DOJ's authority to receive
the request for extradition and to file the petition despite Presidential Decree No.
1069 naming the Secretary of Foreign Affairs for that purpose; (3) the extraditability
of the offense, considering the nature of the crimes charged and the pieces of
evidence presented in support of the petition; and (4) the limits of the jurisdiction of
the extradition court, i.e., whether or not it included passing upon the defenses of
the person to be extradited. 14

In its decision promulgated on August 30, 2012, 15 the CA opined that although the
People's Republic of China resumed the exercise of jurisdiction over the HKSAR,
Article 96 16 of the latter's Basic Law still empowered it to enter into international
agreements in its own name, including extradition treaties; 17 that despite the
exception made in the Joint Declaration of the Government of the United Kingdom of
Great Britain and Northern Ireland and the Government of the People's Republic of
China on the Question of Hong Kong to the effect that the HKSAR would enjoy a high
degree of autonomy, except in foreign and defense affairs that were the
responsibilities of the Central People's Government, there was a status quo as
regards the laws currently in force in Hong Kong; that Article 153 of the Basic Law
explicitly provided that international agreements to which the People's Republic of
China was not a party but which were implemented in Hong Kong could continue to
be implemented in the HKSAR; that an Exchange of Notes between the
Governments of China and the Philippines confirmed the continuous enforceability
of the RP-HK Agreement; 18 that the DOJ had the authority to receive the request
for extradition by the HKSAR because the RP-Hong Kong Agreement referred to the
"appropriate authority" as would be identified from time to time by one party to the
other; 19 and that, as such, the reliance by Muoz on the provision of Presidential
Decree No. 1069 that only the Secretary of Foreign Affairs had the authority to
receive requests for extradition should be rejected. ETHIDa
The CA affirmed the RTC's conclusion that the crimes of conspiracy to defraud and
accepting an advantage as an agent were extraditable offenses; that not only was
conspiracy to defraud explicitly included in the offenses covered by the RP-HK
Agreement, but also that both crimes satisfied the double criminality rule, or the
principle to the effect that extradition was available only when the act was an
offense in the jurisdictions of both parties; and that it was not for the Philippine
court to determine the extent of the criminal jurisdiction of the foreign court
because entering into questions that were the prerogative of that other jurisdiction
was the function of the assisting authorities. 20

On September 14, 2012, 21 Muoz sought the reconsideration of the August 30,
2012 decision.

On March 1, 2013, 22 the CA promulgated its assailed amended decision by


partially granting Muoz's motion for reconsideration. Although affirming its
previous ruling, it concluded that the crime of accepting an advantage as an agent
should be excluded from the charges under which Muoz would be tried due to non-
compliance with the double criminality rule.

After the HKSAR's motion for reconsideration was denied on May 29, 2013, 23 it has
appealed by petition for review on certiorari.

Issue

The sole issue raised by the HKSAR relates to the propriety of the CA's conclusion
that the crime of accepting an advantage as an agent did not comply with the
double criminality rule. 24

Ruling of the Court

Upon thorough consideration, we DENY the petition for review.

Extradition is "the surrender by one nation to another of an individual accused or


convicted of an offense outside of its own territory, and within the territorial
jurisdiction of the other, which, being competent to try and to punish him, demands
the surrender." 25 It is not part of customary international law, although the duty to
extradite exists only for some international crimes. 26 Thus, a state must extradite
only when obliged by treaty to do so. 27 The right of a state to successfully request
the extradition of a criminal offender arises from a treaty with the requested state.
28 Absent the treaty, the duty to surrender a person who has sought asylum within
its boundaries does not inhere in the state, which, if it so wishes, can extend to him
a refuge and protection even from the state that he has fled. Indeed, in granting
him asylum, the state commits no breach of international law. But by concluding the
treaty, the asylum state imposes limitations on itself, because it thereby agrees to
do something it was free not to do. 29 The extradition treaty creates the reciprocal
obligation to surrender persons from the requested state's jurisdiction charged or
convicted of certain crimes committed within the requesting state's territory, and is
of the same level as a law passed by the Legislatures of the respective parties.
TIADCc

Presidential Decree No. 1069 defines the general procedure for the extradition of
persons who have committed crimes in a foreign country, and lays down the rules
to guide the Executive Department and the courts of the Philippines on the proper
implementation of the extradition treaties to which the country is a signatory.
Nevertheless, the particular treaties entered into by the Philippine Government with
other countries primarily govern the relationship between the parties.

The RP-HK Agreement is still in full force and effect as an extradition treaty. The
procedures therein delineated regulate the rights and obligations of the Republic of
the Philippines and the HKSAR under the treaty in the handling of extradition
requests.

For purposes of the extradition of Muoz, the HKSAR as the requesting state must
establish the following six elements, 30 namely: (1) there must be an extradition
treaty in force between the HKSAR and the Philippines; (2) the criminal charges that
are pending in the HKSAR against the person to be extradited; 31 (3) the crimes for
which the person to be extradited is charged are extraditable within the terms of
the treaty; 32 (4) the individual before the court is the same person charged in the
HKSAR; 33 (5) the evidence submitted establishes probable cause to believe that
the person to be extradited committed the offenses charged; 34 and (6) the
offenses are criminal in both the HKSAR and the Philippines (double criminality
rule).

The first five of the elements inarguably obtain herein, as both the RTC and the CA
found. To start with, the RP-Hong Kong Agreement subsists and has not been
revoked or terminated by either parties. Secondly, there have been 10 criminal
cases filed against Muoz in Hong Kong, specifically: three counts of accepting an
advantage as an agent and seven counts of conspiracy to defraud. 35 Thirdly, the
crimes of accepting an advantage as an agent and of conspiracy to defraud were
extraditable under the terms of the RP-Hong Kong Agreement. Fourthly, Muoz was
the very same person charged with such offenses based on the documents relied
upon by the DOJ, and the examination and determination of probable cause by the
RTC that led to the issuance of the order for the arrest of Muoz. And, lastly, there is
probable cause to believe that Muoz committed the offenses charged. cSEDTC

However, it was as to the sixth element that the CA took exception as not having
been established. Although the crime of conspiracy to defraud was included among
the offenses covered by the RP-Hong Kong Agreement, and the RTC and the CA
have agreed that the crime was analogous to the felony of estafa through false
pretense as defined and penalized under Article 315 (2) 36 of the Revised Penal
Code, it was disputed whether or not the other crime of accepting an advantage as
an agent was also punished as a crime in the Philippines. As such, the applicability
of the double criminality rule became the issue.

Under the double criminality rule, the extraditable offense must be criminal under
the laws of both the requesting and the requested states. 37 This simply means that
the requested state comes under no obligation to surrender the person if its laws do
not regard the conduct covered by the request for extradition as criminal. 38

The HKSAR defines the crime of accepting an advantage as an agent under Section
9 (1) (a) of the Prevention of Bribery Ordinance (POBO), Cap. 201, 39 to wit:

Section 9. Corrupt transactions with agents.

(1) Any agent who, without lawful authority or reasonable excuse, solicits or
accepts any advantage as an inducement to or reward for or otherwise on account
of his

(a) doing or forbearing to do, or having done or forborne to do, any act in relation
to his principal's affairs or business; or

xxx xxx xxx

A perusal of the decision of the RTC and the original decision of the CA show that
said courts determined that the crime of accepting an advantage as an agent was
analogous to the crime of corrupt practices of public officers as defined under
Section 3 40 of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act). In its
assailed amended decision, however, the CA reversed itself, and agreed with Muoz
to the effect that Section 9 (1) (a) of the POBO referred only to private individuals,
not to persons belonging to the public sector. It revised its determination by taking
into consideration the expert opinions on the nature and attributes of the crime of
accepting an advantage as an agent tendered by Clive Stephen Grossman, Senior
Counsel of the Hong Kong Bar Association, in behalf of Muoz, and Ian Charles
McWalters, Senior Assistant Director of Public Prosecutions in the Department of
Justice of the HKSAR, testifying on behalf of the HKSAR. Said experts shared the
opinion that the POBO was a two-part statute concerned with corruption by public
officials and corruption in the private sector. 41 However, McWalters gave the
following explanation regarding the nature of the offenses enumerated in Section 9
of the POBO, to wit: AIDSTE

8. A person can be guilty of a POBO bribery offense if he offers an advantage to


an agent, or being an agent, he solicits or accepts an advantage. However, there is
no mention of the word corruption, or variants of it, in these offences. Proof of
corruption comes from establishing that the advantage was offered, solicited or
accepted "as an inducement to, reward for or otherwise on account of" the agent
doing inter alia "an act in his capacity as a public servant" (public sector bribery) or
"an act in relation to his principal's affairs or business" (private sector bribery). The
private sector bribery offence is section 9 of the POBO and its language is derived
from section 1 of the United Kingdom's Prevention of Corruption Act of 1906. 42

Based on the foregoing, the CA ultimately concluded that the crime of accepting an
advantage as an agent did not have an equivalent in this jurisdiction considering
that when the unauthorized giving and receiving of benefits happened in the private
sector, the same was not a crime because there was no law that defined and
punished such act as criminal in this jurisdiction. 43

We uphold the conclusion and observation by the CA.

A careful reading shows that the foreign law subject-matter of this controversy deals
with bribery in both public and private sectors. However, it is also quite evident that
the particular provision of the POBO allegedly violated by Muoz, i.e., Section 9 (1)
(a), deals with private sector bribery this, despite the interpretation under
Section 2 of the POBO that an "agent includes a public servant and any person
employed by or acting for another." The POBO clearly states that the interpretation
shall apply unless the context otherwise requires.

It cannot be argued that Section 9 (1) (a) of the POBO encompasses both private
individuals and public servants. A Section 9 (1) (a) offense has a parallel POBO
provision applicable to public servants, to wit: 44

Private Sector Bribery Public Sector Bribery

Section 9. Corrupt transactions with Section 4. BRIBERY. . . . .

agents.

(1) Any agent who, without lawful (2) Any public servant who, whether in

authority or reasonable excuse, solicits or Hong Kong or elsewhere, without


lawful

accepts any advantage as an inducement authority or reasonable excuse, solicits


or

to or reward for or otherwise on account accepts any advantage as an


inducement

of his to or reward for or otherwise on account

of his (Amended 28 of 1980 s. 3)

(a) doing or forbearing to do, or

having done or forborne to do, any a. performing or abstaining from

act in relation to his principal's performing, or having performed or


affairs or business; or abstained from performing, any act in

his capacity as a public servant;

....

shall be guilty of an offence.

Considering that the transactions were entered into by and in behalf of the Central
Bank of the Philippines, an instrumentality of the Philippine Government, Muoz
should be charged for the offenses not as a regular agent or one representing a
private entity but as a public servant or employee of the Philippine Government.
Yet, because the offense of accepting an advantage as an agent charged against
him in the HKSAR is one that deals with private sector bribery, the conditions for the
application of the double criminality rule are obviously not met. Accordingly, the
crime of accepting an advantage as an agent must be dropped from the request for
extradition. Conformably with the principle of specialty embodied in Article 17 of the
RP-HK Agreement, Muoz should be proceeded against only for the seven counts of
conspiracy to defraud. As such, the HKSAR shall hereafter arrange for Muoz's
surrender within the period provided under Article 15 of the RP-HK Agreement.
SDAaTC

WHEREFORE, the Court DENIES the petition for review on certiorari; and AFFIRMS
the amended decision promulgated on March 1, 2013 in CA-G.R. SP No. 88610.

No pronouncement on costs of suit.

SO ORDERED.

Velasco, Jr., Leonardo-de Castro, Peralta, Del Castillo, Perez, Mendoza, Reyes, Perlas-
Bernabe, Jardeleza and Caguioa, JJ., concur.

Sereno, C.J., I join the dissent of J. Leonen.

Carpio, J., I join the dissenting opinion of J. Leonen.

Brion, * J., is on leave.

Leonen, J., I dissent. See separate opinion.

[G.R. No. 189185. August 16, 2016.]

WILFREDO MOSQUEDA, MARCELO VILLAGANES, JULIETA LAWAGON, CRISPIN


ALCOMENDRAS, CORAZON SABINADA, VIRGINIA CATA-AG, FLORENCIA SABANDON,
and LEDEVINA ADLAWAN, petitioners, vs. PILIPINO BANANA GROWERS & EXPORTERS
ASSOCIATION, INC., DAVAO FRUITS CORPORATION, and LAPANDAY AGRICULTURAL
AND DEVELOPMENT CORPORATION, respondents.
[G.R. No. 189305. August 16, 2016.]

CITY GOVERNMENT OF DAVAO, petitioner, vs. COURT OF APPEALS, PILIPINO BANANA


GROWERS & EXPORTERS ASSOCIATION (PBGEA), DAVAO FRUITS CORPORATION, and
LAPANDAY AGRICULTURAL AND DEVELOPMENT CORPORATION, respondents.

DECISION

BERSAMIN, J p:

This appeal through the consolidated petitions for review on certiorari assails the
decision promulgated on January 9, 2009, 1 whereby the Court of Appeals (CA)
reversed and set aside the judgment rendered on September 22, 2007 by the
Regional Trial Court (RTC), Branch 17, in Davao City upholding the validity and
constitutionality of Davao City Ordinance No. 0309-07, to wit:

WHEREFORE, premises considered, the appeal is GRANTED. The assailed September


22, 2007 Decision of the Regional Trial Court (RTC), 11th Judicial Region, Branch 17,
Davao City, upholding the validity and constitutionality of Davao City Ordinance No.
0309-07, is hereby REVERSED and SET ASIDE. HTcADC

FURTHER, the Writ of Preliminary Injunction dated 28 January 2008 enjoining the
City Government of Davao, and any other person or entity acting in its behalf, from
enforcing and implementing City Ordinance No. 0309-07, is hereby made
permanent.

SO ORDERED.

Antecedents

After several committee hearings and consultations with various stakeholders, the
Sangguniang Panlungsod of Davao City enacted Ordinance No. 0309, Series of
2007, to impose a ban against aerial spraying as an agricultural practice by all
agricultural entities within Davao City, viz.:

ORDINANCE NO. 0309-07

Series of 2007

AN ORDINANCE BANNING AERIAL SPRAYING AS AN AGRICULTURAL PRACTICE IN ALL


AGRICULTURAL ACTIVITIES BY ALL AGRICULTURAL ENTITIES IN DAVAO CITY

Be it enacted by the Sangguniang Panlungsod of Davao City in session assembled


that:

SECTION 1. TITLE. This Ordinance shall be known as "An Ordinance Banning


Aerial Spraying as an Agricultural Practice in all Agricultural Activities by all
Agricultural Entities in Davao City";
SECTION 2. POLICY OF THE CITY. It shall be the policy of the City of Davao to
eliminate the method of aerial spraying as an agricultural practice in all agricultural
activities by all entities within Davao City;

SECTION 3. DEFINITION OF TERMS:

a. Aerial Spraying refers to application of substances through the use of


aircraft of any form which dispenses the substances in the air.

b. Agricultural Practices refer to the practices conducted by agricultural


entities in relation to their agricultural activities;

c. Agricultural Activities refer to activities that include, but not limited to,
land preparation, seeding, planting, cultivation, harvesting and bagging;

d. Agricultural Entities refer to persons, natural or juridical, involved in


agricultural activities

e. Buffer Zone is an identified 30-meter zone within and around the


boundaries of agricultural farms/plantations that need special monitoring to avoid or
minimize harm to the environment and inhabitants pursuant to policies and
guidelines set forth in this Ordinance and other government regulations. It is an
area of land that must lie within the property which does not include public lands,
public thoroughfares or adjacent private properties. It must be planted with
diversified trees that grow taller than what are usually planted and grown in the
plantation to protect those within the adjacent fields, neighboring farms, residential
area, schools and workplaces.

SECTION 4. SCOPE AND APPLICABILITY. The provisions of this Ordinance shall


apply to all agricultural entities within the territorial jurisdiction of Davao City;
CAIHTE

SECTION 5. BAN OF AERIAL SPRAYING. A ban on aerial spraying shall be strictly


enforced in the territorial jurisdiction of Davao City three (3) months after the
effectivity of this Ordinance.

SECTION 6. BUFFER ZONE. Consistent with national legislation and government


regulations, all agricultural entities must provide for a thirty (30) meter buffer zone
within the boundaries of their agricultural farms/plantations. This buffer zone must
be properly identified through Global Positioning System (GPS) survey. A survey plan
showing the metes and bounds of each agricultural farm/plantation must be
submitted to the City Mayor's Office, with the buffer zone clearly identified therein;

SECTION 7. PENAL PROVISION. Violation of any provision of this Ordinance shall


be punished as follows:
a. First Offense: Fine of P5,000.00 and imprisonment of not less than one (1)
month but not more than three (3) months;

b. Second Offense: Fine of P5,000.00 and imprisonment of not less than three
(3) months but not more than six (6) months and suspension of City-issued permits
and licenses for one (1) year;

c. Third Offense: Fine of P5,000.00 and imprisonment of not less than six (6)
months but not more than one (1) year and perpetual cancellation of City-issued
permits and licenses;

Provided, that in case the violation has been committed by a juridical person, the
person in charge of the management thereof shall be held liable;

SECTION 8. REPEALING CLAUSE. Any Ordinance that is contrary to or inconsistent


with any of the provisions of this Ordinance shall be deemed amended or repealed
accordingly.

SECTION 9. EFFECTIVITY. This Ordinance shall take effect thirty (30) days from its
publication in a newspaper of general circulation in Davao City;

ENACTED, January 23, 2007 by a majority vote of all the Members of the
Sangguniang Panlungsod. 2 aScITE

City Mayor Rodrigo Duterte approved the ordinance on February 9, 2007. 3 The
ordinance took effect on March 23, 2007 after its publication in the newspaper
Mindanao Pioneer. 4 Pursuant to Section 5 of the ordinance, the ban against aerial
spraying would be strictly enforced three months thereafter.

The Pilipino Banana Growers and Exporters Association, Inc. (PBGEA) and two of its
members, namely: Davao Fruits Corporation and Lapanday Agricultural and
Development Corporation (PBGEA, et al.), filed their petition in the RTC to challenge
the constitutionality of the ordinance, and to seek the issuance of provisional reliefs
through a temporary restraining order (TRO) and/or writ of preliminary injunction. 5
They alleged that the ordinance exemplified the unreasonable exercise of police
power; violated the equal protection clause; amounted to the confiscation of
property without due process of law; and lacked publication pursuant to Section 511
6 of Republic Act No. 7160 (Local Government Code).

On May 8, 2007, the residents living within and adjacent to the banana plantations
in Davao City led by Wilfredo Mosqueda, 7 joined by other residents of Davao City, 8
(Mosqueda, et al.) submitted their Motion for Leave to Intervene and Opposition to
the Issuance of a Preliminary Injunction. 9 The RTC granted their motion on June 4,
2007. 10

On June 20, 2007, the RTC granted the prayer for issuance of the writ of preliminary
injunction, and subsequently issued the writ. 11
Judgment of the RTC

On September 22, 2007, after trial, the RTC rendered judgment declaring Ordinance
No. 0309-07 valid and constitutional, decreeing thusly:

WHEREFORE, finding the subject [O]rdinance No. 0309-07 valid and constitutional in
all aspect of the grounds assailed by the petitioner, said [C]ity [O]rdinance No.
0309-07, is sustained of its validity and constitutionality.

Accordingly, the order of this court dated June 20, 2007, granting the writ of
preliminary injunction as prayed for by petitioner is ordered cancelled and set aside
as a result of this decision.

SO ORDERED. 12 DETACa

The RTC opined that the City of Davao had validly exercised police power 13 under
the General Welfare Clause of the Local Government Code; 14 that the ordinance,
being based on a valid classification, was consistent with the Equal Protection
Clause; that aerial spraying was distinct from other methods of pesticides
application because it exposed the residents to a higher degree of health risk
caused by aerial drift; 15 and that the ordinance enjoyed the presumption of
constitutionality, and could be invalidated only upon a clear showing that it had
violated the Constitution. 16

However, the RTC, recognizing the impracticability of the 3-month transition period
under Section 5 of Ordinance No. 0309-07, recommended the parties to agree on an
extended transition period. 17

Decision of the CA

PBGEA, et al. appealed, 18 and applied for injunctive relief from the CA, 19 which
granted the application 20 and consequently issued a TRO to meanwhile enjoin the
effectivity of the ordinance. 21

On January 9, 2009, the CA promulgated its assailed decision reversing the


judgment of the RTC. 22 It declared Section 5 of Ordinance No. 0309-07 as void and
unconstitutional for being unreasonable and oppressive; found the three-month
transition period impractical and oppressive in view of the engineering and
technical requirements of switching from aerial spraying to truck-mounted boom
spraying; and opined that the ban ran afoul with the Equal Protection Clause
inasmuch as Section 3 (a) of the ordinance which defined the term aerial
spraying did not make reasonable distinction between the hazards, safety and
beneficial effects of liquid substances that were being applied aerially; the different
classes of pesticides or fungicides; and the levels of concentration of these
substances that could be beneficial and could enhance agricultural production.
The CA did not see any established relation between the purpose of protecting the
public and the environment against the harmful effects of aerial spraying, on one
hand, and the imposition of the ban against aerial spraying of all forms of
substances, on the other. It ruled that the maintenance of the 30-meter buffer zone
within and around the agricultural plantations under Section 6 of Ordinance No.
0309-07 constituted taking of property without due process because the landowners
were thereby compelled to cede portions of their property without just
compensation; that the exercise of police power to require the buffer zone was
invalid because there was no finding that the 30-meter surrounding belt was
obnoxious to the public welfare; and that, accordingly, Ordinance No. 0309-07 was
unconstitutional because of the absence of a separability clause. HEITAD

The City of Davao and the intervenors filed their respective motions for
reconsideration, but the CA denied the motions on August 7, 2009. 23

Hence, the separate, but now consolidated, appeals by petition for review on
certiorari.

Issues

In G.R. No. 189185, petitioners Mosqueda, et al. rely on the following grounds,
namely:

THE COURT OF APPEALS IGNORED FUNDAMENTAL PRECEPTS AND CONCEPTS OF


LAW WHICH, PROPERLY CONSIDERED, NECESSARILY LEAD TO THE CONCLUSION
THAT THE DAVAO ORDINANCE IS CONSTITUTIONAL AND VALID

II

THE DAVAO ORDINANCE IS CONSISTENT WITH THE EQUAL PROTECTION CLAUSE

III

THE MEANS EMPLOYED BY THE DAVAO ORDINANCE IS MORE THAN REASONABLY


RELATED TO THE PURPOSE IT SEEKS TO ACHIEVE

IV

THE DAVAO ORDINANCE IS VALID, BEING DEMONSTRABLY REASONABLE AND FAIR

THE REQUIREMENT RELATING TO THE 30-METER BUFFER ZONE ARE [SIC]


CONSISTENT WITH DUE PROCESS OF LAW, BEING A VALID EXERCISE OF POLICE
POWER aDSIHc
Mosqueda, et al. state that the CA ignored well-established precepts like the
primacy of human rights over property rights and the presumption of validity in
favor of the ordinance; that the CA preferred the preservation of the profits of
respondents PBGEA, et al. to the residents' right to life, health and ecology, 24
thereby disregarding the benevolent purpose of the ordinance; that the CA assumed
the functions of the lawmaker when it set aside the wisdom behind the enactment
of the ordinance; that the CA failed to apply the precautionary principle, by which
the State was allowed to take positive actions to prevent harm to the environment
and to human health despite the lack of scientific certainty; that the CA erred in
applying the "strict scrutiny method" in holding that the ordinance violated the
Equal Protection Clause because it only thereby applied in reviewing classifications
that affected fundamental rights; that there was nothing wrong with prohibiting
aerial spraying per se considering that even the aerial spraying of water produced
drift that could affect unwilling neighbors whose constitutional right to a clean and
healthy environment might be impinged; 25 that as far as the three-month period
was concerned, the CA should have considered that manual spraying could be
conducted while the PBGEA, et al. laid down the preparations for the conduct of
boom spraying; 26 that "reasonableness" could be more appropriately weighed by
balancing the interests of the parties against the protection of basic rights, like the
right to life, to health, and to a balanced and healthful ecology; 27 that PBGEA, et
al. did not substantiate their claim of potential profit losses that would result from
the shift; that business profits should remain inferior and subordinate to their
fundamental rights as residents of Davao City, which were the rights that the
assailed ordinance has sought to protect; 28 that PBGEA, et al. did not explore other
modes of pesticide treatment either as a stop-gap or as a temporary measure while
shifting to truck mounted boom spraying; 29 that the imposition of the 30-meter
buffer zone was a valid exercise of police power that necessarily flowed from the
protection afforded by the ordinance from the unwanted effects of ground spraying;
that the imposition of the buffer zone did not constitute compensable taking under
police power, pursuant to the pronouncements in Seng Kee & Co. v. Earnshaw and
Piatt, 30 Patalinghug v. Court of Appeals, 31 and Social Justice Society (SJS) v.
Atienza, Jr.; 32 and that the 30-meter buffer zone conformed with the ISO 14000 33
and the DENR Environmental Compliance Certificate (ECC) requirement. 34

In G.R. No. 189305, petitioner City of Davao submits the following as the issues to
be considered and resolved, to wit:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT


SECTION 5 OF ORDINANCE NO. 0309-07, SERIES OF 2007 IS OPPRESSIVE AND AN
UNREASONABLE EXERCISE OF DELEGATED POLICE POWER

II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
ORDINANCE NO. 0309-07 IS VIOLATIVE OF THE EQUAL PROTECTION CLAUSE OF THE
CONSTITUTION;

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT


ORDINANCE NO. 0309-07 CONSTITUTES TAKING OF PROPERTY WITHOUT
COMPENSATION, THUS, VIOLATIVE OF THE DUE PROCESS CLAUSE OF THE
CONSTITUTION ATICcS

IV

WHETHER OR NOT AERIAL SPRAYING OF FUNGICIDES IS SAFE TO THE PEOPLE AND


THE ENVIRONMENT

The City of Davao explains that it had the authority to enact the assailed ordinance
because it would thereby protect the environment and regulate property and
business in the interest of the general welfare pursuant to Section 458 of the Local
Government Code; 35 that the ordinance was enacted to carry out its mandate of
promoting the public welfare under the General Welfare Clause (Section 16 of the
Local Government Code); that the ordinance did not violate the Equal Protection
Clause because the distinction lies in aerial spray as a method of application being
more deleterious than other modes; that aerial spraying produces more drift that
causes discomfort, and an extremely offensive and obnoxious experience on the
part of the residents; that spray drift cannot be controlled even with the use by the
respondents of highly advanced apparatus, such as the Differential Global
Positioning System, Micronair Rotary Drift Control Atomizers, Intellimap, Intelliflow
Spray Valve System, Control and Display Unit and the Target Flow Spray Valve
Switch System; 36 that because of the inherent toxicity of Mancozeb (the fungicide
aerially applied by the respondents), there is no need to provide for a substantial
distinction based on the level of concentration; 37 that as soon as fungicides are
released in the air, they become air pollutants pursuant to Section 5 of Republic Act
No. 8749 (Philippine Clean Air Act of 1999), 38 and the activity thus falls under the
authority of the local government units to ban; and that the ordinance does not only
seek to protect and promote human health but also serves as a measure against air
pollution.

The City of Davao insists that it validly exercised police power because it does not
thereby oblige the shift from aerial to truck-mounted boom spraying; that the
respondents only choose boom spraying to justify the alleged impracticability of the
transition period by erroneously adding the months required for each of the stages
without considering other steps that may be simultaneously undertaken; 39 that the
Court should apply its ruling in Social Justice Society v. Atienza, Jr., 40 by which the
six-month period for the folding-up of business operations was declared a legitimate
exercise of police power; that the respondents did not present any documentary
evidence on the feasibility of adopting other methods; 41 that only 1,800 hectares
out of 5,200 hectares of plantations owned and operated by PBGEA's members use
aerial spraying, hence, the perceived ominous consequence of imposing a ban on
aerial spray to the banana industry is entirely misleading; 42 that the urgency of
prohibiting aerial spray justifies the three-month transition period; that the
complaints of the community residents ranging from skin itchiness, contraction
and/or tightening in the chest, nausea, appetite loss and difficulty in breathing after
exposure to spray mist only prove that aerial spraying brings discomfort and
harm to the residents; that considering that the testimony of Dr. Lynn Crisanta R.
Panganiban, a pharmacologist and toxicologist, established that fungicides could
cause debilitating effects on the human body once inhaled or digested, the CA erred
in holding that there was no correlation between aerial application and the
complaints of the residents; that given that aerial spray produces more drift and is
uncontrollable compared to the other methods of applying fungicides, the ordinance
becomes reasonable; 43 and that the medical-related complaints of the residents
need not be proven by medical records considering that these were based on
personal knowledge. 44 ETHIDa

The City of Davao contends that the imposition of the 30-meter buffer zone is a
valid exercise of police power, rendering the claim for just compensation untenable;
that the maintenance of the buffer zone does not require the respondents to cede a
portion of their landholdings; that the planting of diversified trees within the buffer
zone will serve to insulate the residents from spray drift; that such buffer zone does
not deprive the landowners of the lawful and beneficial use of their property; 45 and
that the buffer zone is consistent with the Constitution, which reminds property
owners that the use of property bears a social function. 46

In their comment, the respondents posit that the petition of the City of Davao
should be dismissed for failure to attach material portions of the records, and for
raising factual errors that are not within the realm of this appeal by petition for
review on certiorari; 47 that the CA correctly declared the ordinance as
unreasonable due to the impossibility of complying with the three-month transition
period; that shifting from aerial to truck-mounted boom spraying will take at least
three years and entails careful planning, equipment and machineries, civil works,
and capital funding of at least P400,000,000.00; 48 that the Court could rely on its
ruling in City of Manila v. Laguio, Jr., 49 where an ordinance directing an existing
establishment to wind up or to transfer its business was declared as confiscatory in
nature, and, therefore, unconstitutional; 50 that the total ban against aerial
spraying, coupled with the inadequate time to shift to truck-mounted boom
spraying, effectively deprives the respondents with an efficient means to control the
spread of the Black Sigatoka disease that threatens the banana plantations; that the
ordinance will only expose the plantations to the virulent disease that is capable of
infecting 60% of the plantations on a single cycle 51 missed; 52 that compared with
other modes of application, aerial spraying is more cost-efficient, safe and accurate;
that truck-mounted boom spraying, for instance, requires 80-200 liters of solution
per hectare, 53 while manual spraying uses 200-300 liters of solution per hectare;
that aerial spraying only requires 30 liters per hectare; that in terms of safety and
accuracy, manual spraying is the least safe and accurate, 54 and produces more
drift than aerial spraying; 55 that due to the 300-liter solution required, the workers
will be more exposed to the solution during manual application and such application
will thus be more in conflict with the purpose of the ordinance to prevent human
exposure; 56 that the respondents also find the irrigation sprinklers suggested by
the City of Davao as wasteful, unsafe and impractical because it cannot provide the
needed coverage for application of the solution to effectively control the Black
Sigatoka disease; that in contrast, aerial application, coupled with the latest state-
of-the art technology and equipment, ensures accuracy, effectiveness, efficiency
and safety compared to the other methods of application; that the respondents
vouch for the safety of the fungicides they use by virtue of such fungicides having
been registered with the Fertilizer and Pesticide Authority (FPA) and classified as
Category IV, 57 and found to be mild; and that oral ingestion in large doses is
required before any adverse effects to humans may result. 58 TIADCc

The respondents lament that the ban was imposed without any scientific basis; that
the report 59 prepared by a fact-finding team (composed of the Vice Mayor, the City
Health Officer, The City Planning and Development Coordinator and the Assistance
City Planning and Development Coordinator) organized by the City of Davao
revealed that there was no scientific evidence to support the clamor for the ban
against aerial spraying; that furthermore, national government agencies like the
Department of Agriculture (DA), Department of Health (DOH) and the Department of
Trade and Industry (DTI) similarly concluded that there was no scientific evidence to
support the ban; 60 that for four decades since the adoption of aerial spraying,
there has been no reported outbreak or any predisposition to ailment connected
with the pesticides applied; that the testimonies of the residents during the trial
were mere "emotional anecdotal evidence" that did not establish any scientific or
medical bases of any causal connection between the alleged health conditions
complained of and the fungicides applied during aerial spraying; 61 that the
allegations of health and environmental harm brought by the pesticides used to
treat the banana plantations were unfounded; that the 2001 study of the
International Agency for Research on Cancer showed that, contrary to the claim of
Dra. Panganiban, the by-product of Mancozeb (Ethylenethiourea or ETU) was "non-
genotoxic" and not expected to produce thyroid cancer; 62 that Carlos Mendoza, a
geo-hydrologist and geophysicist, testified that underground water contamination
through aerial spraying would be impossible because of the presence of latex, thick
layers of clay and underlying rock formations; 63 that even the study conducted by
the Philippine Coconut Authority (PCA) showed that the rhinoceros beetle infestation
in coconut plantations adjacent to the banana plantations was due to the farmer's
failure to observe phytosanitary measures, not to aerial spraying; 64 that
furthermore, aerial spraying is internationally accepted as a "Good Agricultural
Practice" (GAP) 65 under the International Code of Conduct on the Distribution and
Use of Pesticides by the United Nations-Food and Agricultural Organization (UN-
FAO); that as such, they observe the standards laid down by the UN-FAO, and utilize
aerial spraying equipment that will ensure accuracy, safety and efficiency in
applying the substances, and which more than complies with the requirement under
the Guidelines on Good Practice for Aerial Application of Pesticides (Rome 2001); 66
that in addition, they strictly observe standard operating procedures prior to take-
off, 67 in-flight 68 and post-flight; 69 that they substantially invested in state-of-the-
art technology and equipment designed to ensure safety, accuracy, and
effectiveness of aerial spraying operations, to avoid aerial drift; 70 that their
equipment include: wind meters (to measure the wind velocity in a specific area),
wind cones (to determine the wind direction, and whether the wind is a headwind,
tailwind or a crosswind); central weather station (to measure wind speed, the
temperature and relative humidity), Differential Global Positioning System (DGPS),
71 Intellimap, 72 Control and Display Unit, 73 Micronair Rotary Drift Control
Atomizers (AU 5000 Low-Drift model), 74 Intelliflow Spray Valve System, 75 and
Target Flow Spray Valve Switch System; 76 and that they want to minimize, if not,
eliminate the occurrence of spray drift in order to minimize wastage of resources
and reduced efficiency of spraying programs implemented to control the Black
Sigatoka disease. 77 cSEDTC

The respondents maintain that Ordinance No. 0309-07 will regulate aerial spraying
as a method of application, instead of the substances being used therein; that the
prohibition is overbroad in light of other available reasonable measures that may be
resorted to by the local government; that the ordinance is unreasonable, unfair,
oppressive, and tantamount to a restriction or prohibition of trade; 78 that the
ordinance will effectively impose a prohibition against all pesticides, including
fungicides that fall under the mildest type of substance; that as such, the petitioner
has disregarded existing valid and substantive classifications established and
recognized by the World Health Organization (WHO) that are adopted by the FPA;
that the FPA is the national agency armed with the professional competence,
technical expertise, and legal mandate to deal with the issue of use and application
of pesticides in our country; that the fungicides they administer are duly registered
with the FPA, and with other more developed countries that have observed a stricter
environmental and public health regulation such as the United States Environmental
Protection Agency (EPA) and the European Union (EU); that as such, the City of
Davao has disregarded valid, substantial and significant distinctions between levels
of concentration of the fungicides in the water solution aerially sprayed; that it is
the FPA that regulates the level of concentration of agricultural chemicals prior to
commercial distribution and use in the country; that the members of PBGEA only
spray a water solution (water cocktail) containing 0.1 liter to 1.5 liters of the active
ingredient of fungicide in a 30-liter water solution per hectare that has undergone
rigorous testing and evaluation prior to registration by the FPA; that the active
ingredients of the fungicide are so diluted that no harm may be posed to public
health or to the environment through aerial application; 79 that the ordinance was
so broad that it prohibits aerial application of any substance, including water; 80
and that aside from fungicides, the respondents also aerially apply vitamins,
minerals and organic fertilizers. 81

The respondents submit that the maintenance of the 30-meter buffer zone under
Section 5 of the ordinance constitutes an improper exercise of police power; that
the ordinance will require all landholdings to maintain the buffer zone, thereby
diminishing to a mere 1,600 square meters of usable and productive land for every
hectare of the plantation bounding residential areas, with the zone being reserved
for planting "diversified trees;" that this requirement amounts to taking without just
compensation or due process; and that the imposition of the buffer zone unduly
deprives all landowners within the City of Davao the beneficial use of their property;
82 that the precautionary principle cannot be applied blindly, because its
application still requires some scientific basis; that the principle is also based on a
mere declaration that has not even reached the level of customary international
law, not on a treaty binding on the Government. 83

The respondents argue that the illegality of the transition period results in the
invalidity of the ordinance as it does not carry a separability clause; and that the
absence of such clause signifies the intention of the Sangguniang Panlungsod of
City of Davao to make the ordinance effective as a whole. 84 AIDSTE

The main issue is whether or not Ordinance No. 0309-07 is unconstitutional on due
process and equal protection grounds for being unreasonable and oppressive, and
an invalid exercise of police power: (a) in imposing a ban on aerial spraying as an
agricultural practice in Davao City under Section 5; (b) in decreeing a 3-month
transition period to shift to other modes of pesticide application under Section 5;
and (c) in requiring the maintenance of the 30-meter buffer zone under Section 6
thereof in all agricultural lands in Davao City.

Ruling of the Court

We deny the petitions for review for their lack of merit.

Preliminary considerations:

The significant role of the banana industry

in ensuring economic stability and food security

There is no question that the implementation of Ordinance No. 0309-07, although


the ordinance concerns the imposition of the ban against aerial spraying in all
agricultural lands within Davao City, will inevitably have a considerable impact on
the country's banana industry, particularly on export trading.
Banana exportation plays a significant role in the maintenance of the country's
economic stability and food security. Banana is a consistent dollar earner and the
fourth largest produced commodity in the Philippines. 85 In 2010, the Philippines
figured among the top three banana producing countries in the world. 86 In 2014,
fresh bananas accounted for 17% of the country's top agricultural export
commodities, gaining a close second to coconut oil with 18%. 87 The Davao Region
(Region XI) 88 was the top banana producing region in 2013, with a production
growth rate of 16.4%, and 33.76% share in the total agricultural output of the
Region. 89

Despite these optimistic statistics, the banana industry players struggle to keep up
with the demands of the trade by combatting the main threat to production posed
by two major fungal diseases: the Panama Disease Tropical Race 4 (Fusarium
oxysprum f.sp. cubense) and the Black Sigatoka leaf spot disease (Mycosphaerella
fjiensis morelet). Pesticides have proven to be effective only against the Black
Sigatoka disease. There is yet no known cure for the Panama disease. 90

The menace of the Black Sigatoka disease cannot be taken lightly. The disease
causes destruction of the plant by significantly reducing the leaf area, leading to
premature ripening of the produce and resulting in yield losses of at least 50%. 91
Due to its effects on banana export trading, the disease has emerged as a global
concern that has correspondingly forced banana producers to increase the use of
chemical pesticides. 92 Protectant fungicides such as Mancozeb, chlorothalonil and
Propiconazole are applied to combat the disease. 93 These agricultural chemicals
are aerially applied by the respondents in the banana plantations within the
jurisdiction of Davao City to arrest the proliferation of the disease. SDAaTC

Considering that banana export plantations exist in vast monocultures, effective


treatment of the Black Sigatoka disease is done by frequent aerial application of
fungicides. This is an expensive practice because it requires permanent landing
strips, facilities for the mixing and loading of fungicides, and high recurring expense
of spray materials. 94 The cost of aerial spraying accounts to 15-20% of the final
retail price of the crop, making the technology essentially unavailable to small
landholdings that are more vulnerable to the disease. 95

Aerial spraying has become an agricultural practice in Davao City since the
establishment of the banana plantations in 1960. 96 Out of the 5,205 hectares of
commercial plantations devoted to Cavendish banana being operated by the
respondents in Davao City, 97 around 1,800 hectares receive treatment through
aerial application. These plantations are situated in Barangays Sirib, Manuel
Guianga, Tamayong, Subasta Dacudao, Lasang, Mandug, Waan, Tigatto and Callawa,
98 and are affected by the ban imposed by Ordinance No. 0309-07. The DTI has
issued a statement to the effect that the ban against aerial spraying in banana
plantations "is expected to kill the banana industry," affects the socio-economic
development of the barangays hosting the affected plantations, and has a
disastrous impact on export trading. The DTI has forecasted that the ban would
discourage the entry of new players in the locality, which would have a potential
drawback in employment generation. 99

II

The Sangguniang Bayan of Davao City

enacted Ordinance No. 0309-07

under its corporate powers

The petitioners assert that Ordinance No. 0309-07 is a valid act of the Sangguniang
Bayan of Davao City pursuant to its delegated authority to exercise police power in
the furtherance of public welfare and in ensuring a sound and balanced
environment for its constituents. The respondents negate this assertion, describing
the ordinance as unreasonable, discriminatory and oppressive.

The petitioners' assertion of its authority to enact Ordinance No. 0309-07 is upheld.

To be considered as a valid police power measure, an ordinance must pass a two-


pronged test: the formal (i.e., whether the ordinance is enacted within the corporate
powers of the local government unit, and whether it is passed in accordance with
the procedure prescribed by law); and the substantive (i.e., involving inherent merit,
like the conformity of the ordinance with the limitations under the Constitution and
the statutes, as well as with the requirements of fairness and reason, and its
consistency with public policy). 100 AaCTcI

The formalities in enacting an ordinance are laid down in Section 53 101 and
Section 54 102 of The Local Government Code. These provisions require the
ordinance to be passed by the majority of the members of the sanggunian
concerned, and to be presented to the mayor for approval. With no issues regarding
quorum during its deliberation having been raised, and with its approval of by City
Mayor Duterte not being disputed, we see no reason to strike down Ordinance No.
0309-07 for non-compliance with the formal requisites under the Local Government
Code.

We next ascertain whether the City of Davao acted within the limits of its corporate
powers in enacting Ordinance No. 0309-07.

The corporate powers of the local government unit confer the basic authority to
enact legislation that may interfere with personal liberty, property, lawful
businesses and occupations in order to promote the general welfare. 103 Such
legislative powers spring from the delegation thereof by Congress through either
the Local Government Code or a special law. The General Welfare Clause in Section
16 of the Local Government Code embodies the legislative grant that enables the
local government unit to effectively accomplish and carry out the declared objects
of its creation, and to promote and maintain local autonomy. 104 Section 16 reads:

Sec. 16. General Welfare. Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and effective governance, and
those which are essential to the promotion of the general welfare. Within their
respective territorial jurisdictions, local government units shall ensure and support
among other things, the preservation and enrichment of culture, promote health
and safety, enhance the right of the people to a balanced ecology, encourage and
support the development of appropriate and self-reliant scientific and technological
capabilities, improve public morals, enhance economic prosperity and social justice,
promote full employment among their residents, maintain peace and order, and
preserve the comfort and convenience of their inhabitants.

Section 16 comprehends two branches of delegated powers, namely: the general


legislative power and the police power proper. General legislative power refers to
the power delegated by Congress to the local legislative body, or the Sangguniang
Panlungsod in the case of Davao City, 105 to enable the local legislative body to
enact ordinances and make regulations. This power is limited in that the enacted
ordinances must not be repugnant to law, and the power must be exercised to
effectuate and discharge the powers and duties legally conferred to the local
legislative body. The police power proper, on the other hand, authorizes the local
government unit to enact ordinances necessary and proper for the health and
safety, prosperity, morals, peace, good order, comfort, and convenience of the local
government unit and its constituents, and for the protection of their property. 106

Section 458 of the Local Government Code explicitly vests the local government
unit with the authority to enact legislation aimed at promoting the general welfare,
viz.: acEHCD

Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang
panlungsod, as the legislative body of the city, shall enact ordinances, approve
resolutions and appropriate funds for the general welfare of the city and its
inhabitants pursuant to Section 16 of this Code and in the proper exercise of the
corporate powers of the city as provided for under Section 22 of this Code, . . .

In terms of the right of the citizens to health and to a balanced and healthful
ecology, the local government unit takes its cue from Section 15 and Section 16,
Article II of the 1987 Constitution. Following the provisions of the Local Government
Code and the Constitution, the acts of the local government unit designed to ensure
the health and lives of its constituents and to promote a balanced and healthful
ecology are well within the corporate powers vested in the local government unit.
Accordingly, the Sangguniang Bayan of Davao City is vested with the requisite
authority to enact an ordinance that seeks to protect the health and well-being of its
constituents.

The respondents pose a challenge against Ordinance No. 0309-07 on the ground
that the Sangguniang Bayan of Davao City has disregarded the health of the
plantation workers, contending that by imposing the ban against aerial spraying the
ordinance would place the plantation workers at a higher health risk because the
alternatives of either manual or truck-boom spraying method would be adopted;
and that exposing the workers to the same risk sought to be prevented by the
ordinance would defeat its purported purpose.

We disagree with the respondents.

With or without the ban against aerial spraying, the health and safety of plantation
workers are secured by existing state policies, rules and regulations implemented
by the FPA, among others, which the respondents are lawfully bound to comply
with. The respondents even manifested their strict compliance with these rules,
including those in the UN-FAO Guidelines on Good Practice for Aerial Application of
Pesticides (Rome 2001). We should note that the Rome 2001 guidelines require the
pesticide applicators to observe the standards provided therein to ensure the health
and safety of plantation workers. As such, there cannot be any imbalance between
the right to health of the residents vis--vis the workers even if a ban will be
imposed against aerial spraying and the consequent adoption of other modes of
pesticide treatment.

Furthermore, the constitutional right to health and maintaining environmental


integrity are privileges that do not only advance the interests of a group of
individuals. The benefits of protecting human health and the environment transcend
geographical locations and even generations. This is the essence of Sections 15 and
16, Article II of the Constitution. In Oposa v. Factoran, Jr. 107 we declared that the
right to a balanced and healthful ecology under Section 16 is an issue of
transcendental importance with intergenerational implications. It is under this milieu
that the questioned ordinance should be appreciated. EcTCAD

Advancing the interests of the residents who are vulnerable to the alleged health
risks due to their exposure to pesticide drift justifies the motivation behind the
enactment of the ordinance. The City of Davao has the authority to enact pieces of
legislation that will promote the general welfare, specifically the health of its
constituents. Such authority should not be construed, however, as a valid license for
the City of Davao to enact any ordinance it deems fit to discharge its mandate. A
thin but well-defined line separates authority to enact legislations from the method
of accomplishing the same.

By distinguishing authority from method we face this question: Is a prohibition


against aerial spraying a lawfully permissible method that the local government unit
of Davao City may adopt to prevent the purported effects of aerial drift? To resolve
this question, the Court must dig deeper into the intricate issues arising from these
petitions.

II

Ordinance No. 0309-07 violates

the Due Process Clause

A valid ordinance must not only be enacted within the corporate powers of the local
government and passed according to the procedure prescribed by law. 108 In order
to declare it as a valid piece of local legislation, it must also comply with the
following substantive requirements, namely: (1) it must not contravene the
Constitution or any statute; (2) it must be fair, not oppressive; (3) it must not be
partial or discriminatory; (4) it must not prohibit but may regulate trade; (5) it must
be general and consistent with public policy; and (6) it must not be unreasonable.
109

In the State's exercise of police power, the property rights of individuals may be
subjected to restraints and burdens in order to fulfill the objectives of the
Government. 110 A local government unit is considered to have properly exercised
its police powers only if it satisfies the following requisites, to wit: (1) the interests
of the public generally, as distinguished from those of a particular class, require the
interference of the State; and (2) the means employed are reasonably necessary for
the attainment of the object sought to be accomplished and not unduly oppressive.
111 The first requirement refers to the Equal Protection Clause of the Constitution;
the second, to the Due Process Clause of the Constitution. 112

Substantive due process requires that a valid ordinance must have a sufficient
justification for the Government's action. 113 This means that in exercising police
power the local government unit must not arbitrarily, whimsically or despotically
enact the ordinance regardless of its salutary purpose. So long as the ordinance
realistically serves a legitimate public purpose, and it employs means that are
reasonably necessary to achieve that purpose without unduly oppressing the
individuals regulated, the ordinance must survive a due process challenge. 114
SDHTEC

The respondents challenge Section 5 of Ordinance No. 0309-07 for being


unreasonable and oppressive in that it sets the effectivity of the ban at three
months after publication of the ordinance. They allege that three months will be
inadequate time to shift from aerial to truck-mounted boom spraying, and
effectively deprives them of efficient means to combat the Black Sigatoka disease.

The petitioners counter that the period is justified considering the urgency of
protecting the health of the residents.

We find for the respondents.


The impossibility of carrying out a shift to another mode of pesticide application
within three months can readily be appreciated given the vast area of the affected
plantations and the corresponding resources required therefor. To recall, even the
RTC recognized the impracticality of attaining a full-shift to other modes of spraying
within three months in view of the costly financial and civil works required for the
conversion. 115 In the assailed decision, the CA appropriately observed:

There appears to be three (3) forms of ground spraying, as distinguished from aerial
spraying, which are: 1. "Truck-mounted boom spraying;" 2. "manual or backpack
spraying." and 3. "sprinkler spraying." Petitioners-appellants claim that it was
physically impossible for them to shift to "truck-mounted boom spraying" within
three (3) months before the aerial spraying ban is actually enforced. They cited the
testimony of Dr. Maria Emilia Rita G. Fabregar, Ph.D, PBGEA Chairperson, to the
effect that since banana plantations in Davao City were configured for aerial
spraying, the same lack the road network to make "truck-mounted boom spraying"
possible. According to Dr. Fabregar, it was impossible to construct such road
networks in a span of three (3) months. Engr. Magno P. Porticos, Jr., confirmed that
the shift demands the construction of three hundred sixty (360) linear kilometers of
road which cannot be completed in three (3) months.

In their separate testimonies, Dr. Fabregar and Engr. Porticos explained that a shift
to "truck-mounted boom spraying" requires the following steps which may be
completed in three (3) years:

1. six (6) months for planning the reconfiguration of banana plantations to


ensure effective truck-mounted boom spraying for the adequate protections of the
plantations from the Black Sigatoka fungus and other diseases, while maximizing
land use; HSAcaE

2. two (2) months to secure government permits for infrastructure works to be


undertaken thereon;

3. clearing banana plants and dismantling or reconstructing fixed


infrastructures, such as roads, drains, cable ways, and irrigation facilities, which
phase may be completed in eighteen (18) months;

4. importation and purchase of trucks mounted with boom spraying, nurse


trucks and protective gears. The placing of orders and delivery of these equipment,
including the training [of] the personnel who would man the same, would take six
(6) months; and

5. securing the needed capitalization to finance these undertakings would take


six (6) months to a year.

Ms. Maria Victoria E. Sembrano, CPA, Chairperson of the PBGEA Finance Committee,
testified that her committee and the Technical Committee and Engineering Group of
PBGEA conducted a feasibility study to determine the cost in undertaking the shift
to ground spraying. Their findings fixed the estimated cost for the purpose at
Php400 Million.

xxx xxx xxx

Both appellees failed to rebut the foregoing testimonies with empirical findings to
the contrary.

xxx xxx xxx

Thus, in view of the infrastructural requirements as methodically explained, We are


convinced that it was physically impossible for petitioners-appellants to carry out a
carefully planned configuration of vast hectares of banana plantations and be able
to actually adopt "truck-mounted boom spraying" within three (3) months. To
compel petitioners-appellants to abandon aerial spraying in favor of "manual or
backpack spraying" or "sprinkler spraying" within 3 months puts petitioners-
appellants in a vicious dilemma between protecting its investments and the health
of its workers, on the one hand, and the threat of prosecution if they refuse to
comply with the imposition. We even find the 3-months transition period insufficient,
not only in acquiring and gearing-up the plantation workers of safety
appurtenances, but more importantly in reviewing safety procedures for "manual or
backpack spraying" and in training such workers for the purpose. Additionally, the
engineering works for a sprinkler system in vast hectares of banana plantations
could not possibly be completed within such period, considering that safety and
efficiency factors need to be considered in its structural re-designing. AScHCD

xxx xxx xxx

Respondent-appellee argues that the Ordinance merely banned an agricultural


practice and did not actually prohibit the operation of banana plantations; hence, it
is not oppressive. While We agree that the measure did not impose a closure of a
lawful enterprise, the proviso in Section 5, however, compels petitioners-appellants
to abandon aerial spraying without affording them enough time to convert and
adopt other spraying practices. This would preclude petitioners-appellants from
being able to fertilize their plantations with essential vitamins and minerals
substances, aside from applying thereon the needed fungicides or pesticides to
control, if not eliminate the threat of, plant diseases. Such an apparent eventuality
would prejudice the operation of the plantations, and the economic repercussions
thereof would just be akin to shutting down the venture.

This Court, therefore, finds Section 5 of Ordinance No. 0309-07 an invalid provision
because the compulsion thereunder to abandon aerial spraying within an
impracticable period of "three (3) months after the effectivity of this Ordinance" is
"unreasonable, oppressive and impossible to comply with." 116
The required civil works for the conversion to truck-mounted boom spraying alone
will consume considerable time and financial resources given the topography and
geographical features of the plantations. 117 As such, the conversion could not be
completed within the short timeframe of three months. Requiring the respondents
and other affected individuals to comply with the consequences of the ban within
the three-month period under pain of penalty like fine, imprisonment and even
cancellation of business permits would definitely be oppressive as to constitute
abuse of police power.

The respondents posit that the requirement of maintaining a buffer zone under
Section 6 of the ordinance violates due process for being confiscatory; and that the
imposition unduly deprives all agricultural landowners within Davao City of the
beneficial use of their property that amounts to taking without just compensation.

The position of the respondents is untenable.

In City of Manila v. Laguio, Jr., 118 we have thoroughly explained that taking only
becomes confiscatory if it substantially divests the owner of the beneficial use of its
property, viz.:

An ordinance which permanently restricts the use of property that it cannot be used
for any reasonable purpose goes beyond regulation and must be recognized as a
taking of the property without just compensation. It is intrusive and violative of the
private property rights of individuals.

The Constitution expressly provides in Article III, Section 9, that "private property
shall not be taken for public use without just compensation." The provision is the
most important protection of property rights in the Constitution. This is a restriction
on the general power of the government to take property. The constitutional
provision is about ensuring that the government does not confiscate the property of
some to give it to others. In part too, it is about loss spreading. If the government
takes away a person's property to benefit society, then society should pay. The
principal purpose of the guarantee is "to bar the Government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be
borne by the public as a whole. HESIcT

There are two different types of taking that can be identified. A "possessory" taking
occurs when the government confiscates or physically occupies property. A
"regulatory" taking occurs when the government's regulation leaves no reasonable
economically viable use of the property.

In the landmark case of Pennsylvania Coal v. Mahon, it was held that a taking also
could be found if government regulation of the use of property went "too far." When
regulation reaches a certain magnitude, in most if not in all cases there must be an
exercise of eminent domain and compensation to support the act. While property
may be regulated to a certain extent, if regulation goes too far it will be recognized
as a taking.

No formula or rule can be devised to answer the questions of what is too far and
when regulation becomes a taking. In Mahon, Justice Holmes recognized that it was
"a question of degree and therefore cannot be disposed of by general propositions."
On many other occasions as well, the U.S. Supreme Court has said that the issue of
when regulation constitutes a taking is a matter of considering the facts in each
case. The Court asks whether justice and fairness require that the economic loss
caused by public action must be compensated by the government and thus borne
by the public as a whole, or whether the loss should remain concentrated on those
few persons subject to the public action.

What is crucial in judicial consideration of regulatory takings is that government


regulation is a taking if it leaves no reasonable economically viable use of property
in a manner that interferes with reasonable expectations for use. A regulation that
permanently denies all economically beneficial or productive use of land is, from the
owner's point of view, equivalent to a "taking" unless principles of nuisance or
property law that existed when the owner acquired the land make the use
prohibitable. When the owner of real property has been called upon to sacrifice all
economically beneficial uses in the name of the common good, that is, to leave his
property economically idle, he has suffered a taking.

A regulation which denies all economically beneficial or productive use of land will
require compensation under the takings clause. Where a regulation places
limitations on land that fall short of eliminating all economically beneficial use, a
taking nonetheless may have occurred, depending on a complex of factors including
the regulation's economic effect on the landowner, the extent to which the
regulation interferes with reasonable investment-backed expectations and the
character of government action. These inquiries are informed by the purpose of the
takings clause which is to prevent the government from forcing some people alone
to bear public burdens which, in all fairness and justice, should be borne by the
public as a whole. AcICHD

A restriction on use of property may also constitute a "taking" if not reasonably


necessary to the effectuation of a substantial public purpose or if it has an unduly
harsh impact on the distinct investment-backed expectations of the owner. (bold
emphasis supplied)

The establishment of the buffer zone is required for the purpose of minimizing the
effects of aerial spraying within and near the plantations. Although Section 3 (e) of
the ordinance requires the planting of diversified trees within the identified buffer
zone, the requirement cannot be construed and deemed as confiscatory requiring
payment of just compensation. A landowner may only be entitled to compensation if
the taking amounts to a permanent denial of all economically beneficial or
productive uses of the land. The respondents cannot be said to be permanently and
completely deprived of their landholdings because they can still cultivate or make
other productive uses of the areas to be identified as the buffer zones.

III

Ordinance No. 0309-07 violates

the Equal Protection Clause

A serious challenge being posed against Ordinance No. 0309-07 rests on its
supposed collision with the Equal Protection Clause. The respondents submit that
the ordinance transgresses this constitutional guaranty on two counts, to wit: (1) by
prohibiting aerial spraying per se, regardless of the substance or the level of
concentration of the chemicals to be applied; and (2) by imposing the 30-meter
buffer zone in all agricultural lands in Davao City regardless of the sizes of the
landholding.

The constitutional right to equal protection requires that all persons or things
similarly situated should be treated alike, both as to rights conferred and
responsibilities imposed. It requires public bodies and institutions to treat similarly
situated individuals in a similar manner. The guaranty of equal protection secures
every person within the State's jurisdiction against intentional and arbitrary
discrimination, whether occasioned by the express terms of a statute or by its
improper execution through the State's duly constituted authorities. The concept of
equal justice under the law demands that the State governs impartially, and not to
draw distinctions between individuals solely on differences that are irrelevant to the
legitimate governmental objective. 119

Equal treatment neither requires universal application of laws to all persons or


things without distinction, 120 nor intends to prohibit legislation by limiting the
object to which it is directed or by the territory in which it is to operate. 121 The
guaranty of equal protection envisions equality among equals determined according
to a valid classification. 122 If the groupings are characterized by substantial
distinctions that make real differences, one class may be treated and regulated
differently from another. 123 In other words, a valid classification must be: (1) based
on substantial distinctions; (2) germane to the purposes of the law; (3) not limited
to existing conditions only; and (4) equally applicable to all members of the class.
124

Based on these parameters, we find for the respondents. caITAC

The reasonability of a distinction and sufficiency of the justification given by the


Government for its conduct is gauged by using the means-end test. 125 This test
requires analysis of: (1) the interests of the public that generally require its exercise,
as distinguished from those of a particular class; and (2) the means employed that
are reasonably necessary for the accomplishment of the purpose and are not unduly
oppressive upon individuals. 126 To determine the propriety of the classification,
courts resort to three levels of scrutiny, viz.: the rational scrutiny, intermediate
scrutiny and strict scrutiny.

The rational basis scrutiny (also known as the rational relation test or rational basis
test) demands that the classification reasonably relate to the legislative purpose.
127 The rational basis test often applies in cases involving economics or social
welfare, 128 or to any other case not involving a suspect class. 129

When the classification puts a quasi-suspect class at a disadvantage, it will be


treated under intermediate or heightened review. Classifications based on gender or
illegitimacy receives intermediate scrutiny. 130 To survive intermediate scrutiny, the
law must not only further an important governmental interest and be substantially
related to that interest, but the justification for the classification must be genuine
and must not depend on broad generalizations. 131

The strict scrutiny review applies when a legislative classification impermissibly


interferes with the exercise of a fundamental right or operates to the peculiar class
disadvantage of a suspect class. The Government carries the burden to prove that
the classification is necessary to achieve a compelling state interest, and that it is
the least restrictive means to protect such interest. 132

The petitioners advocate the rational basis test. In particular, the petitioning
residents of Davao City argue that the CA erroneously applied the strict scrutiny
approach when it declared that the ordinance violated the Equal Protection Clause
because the ban included all substances including water and vitamins. The
respondents agree with the CA, however, and add that the ordinance does not rest
on a valid distinction because it has lacked scientific basis and has ignored the
classifications of pesticides observed by the FPA.

We partly agree with both parties.

In our view, the petitioners correctly argue that the rational basis approach
appropriately applies herein. Under the rational basis test, we shall: (1) discern the
reasonable relationship between the means and the purpose of the ordinance; and
(2) examine whether the means or the prohibition against aerial spraying is based
on a substantial or reasonable distinction. A reasonable classification includes all
persons or things similarly situated with respect to the purpose of the law. 133
TAIaHE

Applying the test, the established classification under Ordinance No. 0309-07 is to
be viewed in relation to the group of individuals similarly situated with respect to
the avowed purpose. This gives rise to two classes, namely: (1) the classification
under Ordinance No. 0309-07 (legislative classification); and (2) the classification
based on purpose (elimination of the mischief). The legislative classification found in
Section 4 of the ordinance refers to "all agricultural entities" within Davao City.
Meanwhile, the classification based on the purpose of the ordinance cannot be
easily discerned because the ordinance does not make any express or implied
reference to it. We have to search the voluminous records of this case to divine the
animus behind the action of the Sangguniang Panglungsod in prohibiting aerial
spraying as an agricultural activity. The effort has led us to the following proposed
resolution of the Sangguniang Panglungsod, 134 viz.:

RESOLUTION NO. _______

Series of 2007

A RESOLUTION TO ENACT AN ORDINANCE BANNING AERIAL SPRAYING AS AN


AGRICULTURAL PRACTICE IN ALL AGRICULTURAL ENTITIES IN DAVAO CITY

WHEREAS, the City of Davao, with fertile lands and ideal climactic condition, hosts
various large farms planted with different crops;

WHEREAS, these farms lay adjacent to other agricultural businesses and that
residential areas abuts these farm boundaries;

WHEREAS, aerial spraying as a mode of applying chemical substances such as


fungicides and pesticides is being used by investors/companies over large
agricultural plantations in Davao City;

WHEREAS, the Davao City watersheds and ground water sources, located within and
adjacent to Mount Apo may be affected by the aerial spraying of chemical
substances on the agricultural farms and plantations therein;

WHEREAS, the effects of aerial spraying are found to be detrimental to the health of
the residents of Davao City most especially the inhabitants nearby agricultural
plantations practicing aerials spraying;

WHEREAS, the unstable wind direction during the conduct of aerial spray application
of these chemical substances pose health hazards to people, animals, other crops
and ground water sources; ICHDca

WHEREAS, in order to achieve sustainable development, politics must be based on


the Precautionary Principle. Environment measures must anticipate, prevent, and
attack the causes of environmental degradation. Where there are threats of serious,
irreversible damage, lack of scientific certainty should not be used as a reason for
postponing measures to prevent environmental degradation;

WHEREAS, it is the policy of the City of Davao to ensure the safety of its inhabitants
from all forms of hazards, especially if such hazards come from development
activities that are supposed to be beneficial to everybody;
WHEREAS, pesticides are by its nature poisonous, it is all the more dangerous when
dispensed aerially through aircraft because of unstable wind conditions which in
turn makes aerial spray drifting to unintended targets a commonplace.

WHEREAS, aerial spraying of pesticides is undeniably a nuisance.

WHEREAS, looking at the plight of the complainants and other stakeholders opposed
to aerial spraying, the issue of aerial spraying of pesticides is in all fours a nuisance.
Given the vastness of the reach of aerial spraying, the said form of dispensation
falls into the category of a public nuisance. Public nuisance is defined by the New
Civil Code as one which affects a community or neighborhood or any considerable
number of persons, although the extent of the annoyance, danger or damage upon
individuals may be unequal.

WHEREAS, the General Welfare Clause of the Local Government Code empowers
Local Government Units to enact ordinances that provide for the health and safety,
promote the comfort and convenience of the City and the inhabitants thereof.

NOW THEREFORE, BE IT RESOLVED AS IT IS HEREBY RESOLVED, that for the health,


safety and peace of mind of all the inhabitants of Davao City, let an ordinance be
enacted banning aerial spraying as an agricultural practice in all agricultural entities
in Davao City. cDHAES

xxx xxx xxx

The proposed resolution identified aerial spraying of pesticides as a nuisance


because of the unstable wind direction during the aerial application, which (1) could
potentially contaminate the Davao City watersheds and ground water sources; (2)
was detrimental to the health of Davao City residents, most especially those living
in the nearby plantations; and (3) posed a hazard to animals and other crops.
Plainly, the mischief that the prohibition sought to address was the fungicide drift
resulting from the aerial application; hence, the classification based on the intent of
the proposed ordinance covered all agricultural entities conducting aerial spraying
of fungicides that caused drift.

The assailed ordinance thus becomes riddled with several distinction issues.

A brief discussion on the occurrence of the drift that the ordinance seeks to address
is necessary.

Pesticide treatment is based on the use of different methods of application and


equipment, 135 the choice of which methods depend largely on the objective of
distributing the correct dose to a defined target with the minimum of wastage due
to "drift." 136 The term "drift" refers to the movement of airborne spray droplets,
vapors, or dust particles away from the target area during pesticide application. 137
Inevitably, any method of application causes drift, which may either be primary or
secondary. As fittingly described by scholars: 138
Primary drift is the off-site movement of spray droplets at, or very close to, the time
of application. For example, a field application using a boom in a gusty wind
situation could easily lead to a primary drift. Primary spray drift is not product
specific, and the active ingredients do not differ in their potential to drift. However,
the type of formulation, surfactant, or other adjuvant may affect spray drift
potential. TCAScE

Secondary drift is associated with pesticide vapor. Pesticide vapor drift is the
movement of the gas that forms when an active ingredient evaporates from plants,
soil, or other surfaces. And while vapor drift is an important issue, it only pertains to
certain volatile products. Vapor drift and other forms of secondary drift are product
specific. Water-based sprays will volatize more quickly than oil-based sprays.
However, oil-based sprays can drift farther, especially above 95F, because they are
lighter.

Understandably, aerial drift occurs using any method of application, be it through


airplanes, ground sprayers, airblast sprayers or irrigation systems. 139 Several
factors contribute to the occurrence of drift depending on the method of application,
viz.:

AERIAL AIRBLAST GROUND CHEMIGATION

Droplet size Crop canopy Droplet size Application height

Application height Droplet size Boom height Wind speed

Wind speed Wind speed Wind speed

Swath adjustment

Canopy

Boom length

Tank mix physical

properties

Source: F.M. Fishel and J.A. Ferrell, "Managing Pesticide Drift," available at
http://edis.ifas.edu/pi232, citing Pesticide Notes, MSU Extension.

The four most common pesticide treatment methods adopted in Davao City are
aerial, truck-mounted boom, truck-mounted mechanical, and manual spraying. 140
However, Ordinance No. 0309-07 imposes the prohibition only against aerial
spraying.
Davao City justifies the prohibition against aerial spraying by insisting that the
occurrence of drift causes inconvenience and harm to the residents and degrades
the environment. Given this justification, does the ordinance satisfy the requirement
that the classification must rest on substantial distinction?

We answer in the negative. ASEcHI

The occurrence of pesticide drift is not limited to aerial spraying but results from the
conduct of any mode of pesticide application. Even manual spraying or truck-
mounted boom spraying produces drift that may bring about the same
inconvenience, discomfort and alleged health risks to the community and to the
environment. 141 A ban against aerial spraying does not weed out the harm that
the ordinance seeks to achieve. 142 In the process, the ordinance suffers from
being "underinclusive" because the classification does not include all individuals
tainted with the same mischief that the law seeks to eliminate. 143 A classification
that is drastically underinclusive with respect to the purpose or end appears as an
irrational means to the legislative end because it poorly serves the intended
purpose of the law. 144

The claim that aerial spraying produces more aerial drift cannot likewise be
sustained in view of the petitioners' failure to substantiate the same. The
respondents have refuted this claim, and have maintained that on the contrary,
manual spraying produces more drift than aerial treatment. 145 As such, the
decision of prohibiting only aerial spraying is tainted with arbitrariness.

Aside from its being underinclusive, the assailed ordinance also tends to be
"overinclusive" because its impending implementation will affect groups that have
no relation to the accomplishment of the legislative purpose. Its implementation will
unnecessarily impose a burden on a wider range of individuals than those included
in the intended class based on the purpose of the law. 146

It can be noted that the imposition of the ban is too broad because the ordinance
applies irrespective of the substance to be aerially applied and irrespective of the
agricultural activity to be conducted. The respondents admit that they aerially treat
their plantations not only with pesticides but also vitamins and other substances.
The imposition of the ban against aerial spraying of substances other than
fungicides and regardless of the agricultural activity being performed becomes
unreasonable inasmuch as it patently bears no relation to the purported
inconvenience, discomfort, health risk and environmental danger which the
ordinance seeks to address. The burden now will become more onerous to various
entities, including the respondents and even others with no connection whatsoever
to the intended purpose of the ordinance.

In this respect, the CA correctly observed:


Ordinance No. 0309-07 defines "aerial spraying" as the "application of substances
through the use of aircraft of any form which dispenses the substances in the air."
Inevitably, the ban imposed therein encompasses aerial application of practically all
substances, not only pesticides or fungicides but including water and all forms of
chemicals, regardless of its elements, composition, or degree of safety. cTDaEH

Going along with respondent-appellee's ratiocination that the prohibition in the


Ordinance refers to aerial spraying as a method of spraying pesticides or fungicides,
there appears to be a need to single out pesticides or fungicides in imposing such a
ban because there is a striking distinction between such chemicals and other
substances (including water), particularly with respect to its safety implications to
the public welfare and ecology.

xxx xxx xxx

We are, therefore, convinced that the total ban on aerial spraying runs afoul with
the equal protection clause because it does not classify which substances are
prohibited from being applied aerially even as reasonable distinctions should be
made in terms of the hazards, safety or beneficial effects of liquid substances to the
public health, livelihood and the environment. 147

We clarify that the CA did not thereby apply the strict scrutiny approach but only
evaluated the classification established by the ordinance in relation to the purpose.
This is the essence of the rational basis approach. The petitioners should be made
aware that the rational basis scrutiny is not based on a simple means-purpose
correlation; nor does the rational basis scrutiny automatically result in a
presumption of validity of the ordinance or deference to the wisdom of the local
legislature. 148 To reiterate, aside from ascertaining that the means and purpose of
the ordinance are reasonably related, the classification should be based on a
substantial distinction.

However, we do not subscribe to the respondents' position that there must be a


distinction based on the level of concentration or the classification imposed by the
FPA on pesticides. This strenuous requirement cannot be expected from a local
government unit that should only be concerned with general policies in local
administration and should not be restricted by technical concerns that are best left
to agencies vested with the appropriate special competencies. The disregard of the
pesticide classification is not an equal protection issue but is more relevant in
another aspect of delegated police power that we consider to be more appropriate
in a later discussion.

The overinclusiveness of Ordinance No. 0309-07 may also be traced to its Section 6
by virtue of its requirement for the maintenance of the 30-meter buffer zone. This
requirement applies regardless of the area of the agricultural landholding,
geographical location, topography, crops grown and other distinguishing
characteristics that ideally should bear a reasonable relation to the evil sought to be
avoided. As earlier discussed, only large banana plantations could rely on aerial
technology because of the financial capital required therefor. ITAaHc

The establishment and maintenance of the buffer zone will become more
burdensome to the small agricultural landholders because: (1) they have to reserve
the 30-meter belt surrounding their property; (2) that will have to be identified
through GPS; (3) the metes and bounds of the buffer zone will have to be plotted in
a survey plan for submission to the local government unit; and (4) will be limited as
to the crops that may be cultivated therein based on the mandate that the zone
shall be devoted to "diversified trees" taller than what are being grown therein. 149
The arbitrariness of Section 6 all the more becomes evident when the land is
presently devoted to the cultivation of root crops and vegetables, and trees or
plants slightly taller than the root crops and vegetables are then to be planted. It is
seriously to be doubted whether such circumstance will prevent the occurrence of
the drift to the nearby residential areas.

Section 6 also subjects to the 30-meter buffer zone requirement agricultural entities
engaging in organic farming, and do not contribute to the occurrence of pesticide
drift. The classification indisputably becomes arbitrary and whimsical.

A substantially overinclusive or underinclusive classification tends to undercut the


governmental claim that the classification serves legitimate political ends. 150
Where overinclusiveness is the problem, the vice is that the law has a greater
discriminatory or burdensome effect than necessary. 151 In this light, we strike
down Section 5 and Section 6 of Ordinance No. 0309-07 for carrying an invidious
classification, and for thereby violating the Equal Protection Clause.

The discriminatory nature of the ordinance can be seen from its policy as stated in
its Section 2, to wit:

Section 2. POLICY OF THE CITY. It shall be the policy of the City of Davao to
eliminate the method of aerial spraying as an agricultural practice in all agricultural
activities by all entities within Davao City.

Evidently, the ordinance discriminates against large farmholdings that are the only
ideal venues for the investment of machineries and equipment capable of aerial
spraying. It effectively denies the affected individuals the technology aimed at
efficient and cost-effective operations and cultivation not only of banana but of
other crops as well. The prohibition against aerial spraying will seriously hamper the
operations of the banana plantations that depend on aerial technology to arrest the
spread of the Black Sigatoka disease and other menaces that threaten their
production and harvest. As earlier shown, the effect of the ban will not be limited to
Davao City in view of the significant contribution of banana export trading to the
country's economy.
The discriminatory character of the ordinance makes it oppressive and
unreasonable in light of the existence and availability of more permissible and
practical alternatives that will not overburden the respondents and those dependent
on their operations as well as those who stand to be affected by the ordinance. In
the view of Regional Director Roger C. Chio of DA Regional Field Unit XI, the alleged
harm caused by aerial spraying may be addressed by following the GAP that the DA
has been promoting among plantation operators: He explained his view thusly:
cSaATC

The allegation that aerial spraying is hazardous to animal and human being remains
an allegation and assumptions until otherwise scientifically proven by concerned
authorities and agencies. This issue can be addressed by following Good Agricultural
Practices, which DA is promoting among fruit and vegetable growers/plantations.
Any method of agri-chemical application whether aerial or non-aerial if not properly
done in accordance with established procedures and code of good agricultural
practices and if the chemical applicators and or handlers lack of necessary
competency, certainly it could be hazardous. For the assurance that commercial
applicators/aerial applicators possessed the competency and responsibility of
handling agri-chemical, such applicators are required under Article III, Paragraph 2
of FPA Rules and Regulation No. 1 to secure license from FPA.

Furthermore users and applicators of agri-chemicals are also guided by Section 6


Paragraph 2 and 3 under column of Pesticides and Other agricultural Chemicals of
PD 11445 which stated: "FPA shall establish and enforce tolerance levels and good
agricultural practices in raw agricultural commodities; to restrict or ban the use of
any chemical or the formulation of certain pesticides in specific areas or during
certain period upon evidence that the pesticide is eminent [sic] hazards has caused,
or is causing widespread serious damage to crops, fish, livestock or to public health
and environment."

Besides the aforecited policy, rules and regulation enforced by DA, there are other
laws and regulations protecting and preserving the environment. If the
implementation and monitoring of all these laws and regulation are closely
coordinated with concerned LGUs, Gas and NGAs and other private sectors, perhaps
we can maintain a sound and health environment . . . . 152

Indeed, based on the Summary Report on the Assessment and Factfinding Activities
on the Issue of Aerial Spraying in Banana Plantations, 153 submitted by the fact-
finding team organized by Davao City, only three out of the 13 barangays consulted
by the fact-finding team opposed the conduct of aerial spraying; and of the three
barangays, aerial spraying was conducted only in Barangay Subasta. In fact, the
fact-finding team found that the residents in those barangays were generally in
favor of the operations of the banana plantations, and did not oppose the conduct
of aerial spraying.
IV

The Precautionary Principle

still requires scientific basis

The petitioners finally plead that the Court should look at the merits of the
ordinance based on the precautionary principle. They argue that under the
precautionary principle, the City of Davao is justified in enacting Ordinance No.
0309-07 in order to prevent harm to the environment and human health despite the
lack of scientific certainty. CHTAIc

The petitioners' plea and argument cannot be sustained.

The principle of precaution originated as a social planning principle in Germany. In


the 1980s, the Federal Republic of Germany used the Vorsogeprinzip ("foresight
principle") to justify the implementation of vigorous policies to tackle acid rain,
global warming and pollution of the North Sea. 154 It has since emerged from a
need to protect humans and the environment from increasingly unpredictable,
uncertain, and unquantifiable but possibly catastrophic risks such as those
associated with Genetically Modified Organisms and climate change, 155 among
others. The oft-cited Principle 15 of the 1992 Rio Declaration on Environment and
Development (1992 Rio Agenda), first embodied this principle, as follows:

Principle 15

In order to protect the environment, the precautionary approach shall be widely


applied by States according to their capabilities. Where there are threats of serious
or irreversible damage, lack of full scientific certainty shall not be used as a reason
for postponing cost-effective measures to prevent environmental degradation.

In this jurisdiction, the principle of precaution appearing in the Rules of Procedure


for Environmental Cases (A.M. No. 09-6-8-SC) involves matters of evidence in cases
where there is lack of full scientific certainty in establishing a causal link between
human activity and environmental effect. 156 In such an event, the courts may
construe a set of facts as warranting either judicial action or inaction with the goal
of preserving and protecting the environment. 157

It is notable, therefore, that the precautionary principle shall only be relevant if


there is concurrence of three elements, namely: uncertainty, threat of
environmental damage and serious or irreversible harm. In situations where the
threat is relatively certain, or that the causal link between an action and
environmental damage can be established, or the probability of occurrence can be
calculated, only preventive, not precautionary measures, may be taken. Neither will
the precautionary principle apply if there is no indication of a threat of
environmental harm, or if the threatened harm is trivial or easily reversible. 158
We cannot see the presence of all the elements. To begin with, there has been no
scientific study. Although the precautionary principle allows lack of full scientific
certainty in establishing a connection between the serious or irreversible harm and
the human activity, its application is still premised on empirical studies. Scientific
analysis is still a necessary basis for effective policy choices under the
precautionary principle. 159

Precaution is a risk management principle invoked after scientific inquiry takes


place. This scientific stage is often considered synonymous with risk assessment.
160 As such, resort to the principle shall not be based on anxiety or emotion, but
from a rational decision rule, based in ethics. 161 As much as possible, a complete
and objective scientific evaluation of the risk to the environment or health should be
conducted and made available to decision-makers for them to choose the most
appropriate course of action. 162 Furthermore, the positive and negative effects of
an activity is also important in the application of the principle. The potential harm
resulting from certain activities should always be judged in view of the potential
benefits they offer, while the positive and negative effects of potential
precautionary measures should be considered. 163 cHDAIS

The only study conducted to validate the effects of aerial spraying appears to be the
Summary Report on the Assessment and Fact-Finding Activities on the Issue of
Aerial Spraying in Banana Plantations. 164 Yet, the fact-finding team that generated
the report was not a scientific study that could justify the resort to the
precautionary principle. In fact, the Sangguniang Bayan ignored the findings and
conclusions of the fact-finding team that recommended only a regulation, not a ban,
against aerial spraying. The recommendation was in line with the advocacy of
judicious handling and application of chemical pesticides by the DOH-Center for
Health Development in the Davao Region in view of the scarcity of scientific studies
to support the ban against aerial spraying. 165

We should not apply the precautionary approach in sustaining the ban against aerial
spraying if little or nothing is known of the exact or potential dangers that aerial
spraying may bring to the health of the residents within and near the plantations
and to the integrity and balance of the environment. It is dangerous to quickly
presume that the effects of aerial spraying would be adverse even in the absence of
evidence. Accordingly, for lack of scientific data supporting a ban on aerial spraying,
Ordinance No. 0309-07 should be struck down for being unreasonable.

Ordinance No. 0309-07 is an ultra vires act

The Court further holds that in addition to its unconstitutionality for carrying an
unwarranted classification that contravenes the Equal Protection Clause, Ordinance
No. 0309-07 suffers from another legal infirmity.
The petitioners represent that Ordinance No. 0309-07 is a valid exercise of
legislative and police powers by the Sangguniang Bayan of Davao City pursuant to
Section 458 in relation to Section 16 both of the Local Government Code. The
respondents counter that Davao City thereby disregarded the regulations
implemented by the Fertilizer and Pesticide Authority (FPA), including its
identification and classification of safe pesticides and other agricultural chemicals.

We uphold the respondents.

An ordinance enjoys the presumption of validity on the basis that:

The action of the elected representatives of the people cannot be lightly set aside.
The councilors must, in the very nature of things, be familiar with the necessities of
their particular municipality and with all the facts and circumstances which surround
the subject, and necessities of their particular municipality and with all the facts and
circumstances which surround the subject, and necessitate action. The local
legislative body, by enacting the ordinance, has in effect given notice that the
regulations are essential to the well-being of the people. 166 EATCcI

Section 5 (c) of the Local Government Code accords a liberal interpretation to its
general welfare provisions. The policy of liberal construction is consistent with the
spirit of local autonomy that endows local government units with sufficient power
and discretion to accelerate their economic development and uplift the quality of
life for their constituents.

Verily, the Court has championed the cause of public welfare on several occasions.
In so doing, it has accorded liberality to the general welfare provisions of the Local
Government Code by upholding the validity of local ordinances enacted for the
common good. For instance, in Social Justice Society (SJS) v. Atienza, Jr., 167 the
Court validated a zoning ordinance that reclassified areas covered by a large oil
depot from industrial to commercial in order to ensure the life, health and property
of the inhabitants residing within the periphery of the oil depot. Another instance is
Gancayco v. City Government of Quezon City, 168 where the Court declared as valid
a city ordinance ordering the construction of arcades that would ensure the health
and safety of the city and its inhabitants, improvement of their morals, peace, good
order, comfort and convenience, as well as the promotion of their prosperity. Even in
its early years, the Court already extended liberality towards the exercise by the
local government units of their legislative powers in order to promote the general
welfare of their communities. This was exemplified in United States v. Salaveria, 169
wherein gambling was characterized as "an act beyond the pale of good morals"
that the local legislative council could validly suppress to protect the well-being of
its constituents; and in United States v. Abendan, 170 whereby the right of the then
Municipality of Cebu to enact an ordinance relating to sanitation and public health
was upheld.
The power to legislate under the General Welfare Clause is not meant to be an
invincible authority. In fact, Salaveria and Abendan emphasized the reasonableness
and consistency of the exercise by the local government units with the laws or
policies of the State. 171 More importantly, because the police power of the local
government units flows from the express delegation of the power by Congress, its
exercise is to be construed in strictissimi juris. Any doubt or ambiguity arising out of
the terms used in granting the power should be construed against the local
legislative units. 172 Judicial scrutiny comes into play whenever the exercise of
police power affects life, liberty or property. 173 The presumption of validity and the
policy of liberality are not restraints on the power of judicial review in the face of
questions about whether an ordinance conforms with the Constitution, the laws or
public policy, or if it is unreasonable, oppressive, partial, discriminating or in
derogation of a common right. The ordinance must pass the test of constitutionality
and the test of consistency with the prevailing laws. 174 ISHCcT

Although the Local Government Code vests the municipal corporations with
sufficient power to govern themselves and manage their affairs and activities, they
definitely have no right to enact ordinances dissonant with the State's laws and
policy. The Local Government Code has been fashioned to delineate the specific
parameters and limitations to guide each local government unit in exercising its
delegated powers with the view of making the local government unit a fully
functioning subdivision of the State within the constitutional and statutory
restraints. 175 The Local Government Code is not intended to vest in the local
government unit the blanket authority to legislate upon any subject that it finds
proper to legislate upon in the guise of serving the common good.

The function of pesticides control, regulation and development is within the


jurisdiction of the FPA under Presidential Decree No. 1144. 176 The FPA was
established in recognition of the need for a technically oriented government entity
177 that will protect the public from the risks inherent in the use of pesticides. 178
To perform its mandate, it was given under Section 6 of Presidential Decree No.
1144 the following powers and functions with respect to pesticides and other
agricultural chemicals, viz.:

Section 6. Powers and functions. The FPA shall have jurisdiction, on over all
existing handlers of pesticides, fertilizers and other agricultural chemical inputs. The
FPA shall have the following powers and functions:

xxx xxx xxx

III. Pesticides and Other Agricultural Chemicals

1. To determine specific uses or manners of use for each pesticide or pesticide


formulation;
2. To establish and enforce levels and good agricultural practices for use of
pesticides in raw agricultural commodities;

3. To restrict or ban the use of any pesticide or the formulation of certain


pesticides in specific areas or during certain periods upon evidence that the
pesticide is an imminent hazard, has caused, or is causing widespread serious
damage to crops, fish or livestock, or to public health and environment;

xxx xxx xxx

5. To inspect the establishment and premises of pesticide handlers to insure


that industrial health and safety rules and anti-pollution regulations are followed;

6. To enter and inspect farmers' fields to ensure that only the recommended
pesticides are used in specific crops in accordance with good agricultural practice;

xxx xxx xxx (Emphasis supplied). DHITCc

Evidently, the FPA was responsible for ensuring the compatibility between the usage
and the application of pesticides in agricultural activities and the demands for
human health and environmental safety. This responsibility includes not only the
identification of safe and unsafe pesticides, but also the prescription of the safe
modes of application in keeping with the standard of good agricultural practices.

On the other hand, the enumerated devolved functions to the local government
units do not include the regulation and control of pesticides and other agricultural
chemicals. 179 The non-inclusion should preclude the Sangguniang Bayan of Davao
City from enacting Ordinance No. 0309-07, for otherwise it would be arrogating unto
itself the authority to prohibit the aerial application of pesticides in derogation of the
authority expressly vested in the FPA by Presidential Decree No. 1144.

In enacting Ordinance No. 0309-07 without the inherent and explicit authority to do
so, the City of Davao performed an ultra vires act. As a local government unit, the
City of Davao could act only as an agent of Congress, and its every act should
always conform to and reflect the will of its principal. 180 As clarified in Batangas
CATV, Inc. v. Court of Appeals: 181

[W]here the state legislature has made provision for the regulation of conduct, it
has manifested its intention that the subject matter shall be fully covered by the
statute, and that a municipality, under its general powers, cannot regulate the same
conduct. In Keller vs. State, it was held that: "Where there is no express power in
the charter of a municipality authorizing it to adopt ordinances regulating certain
matters which are specifically covered by a general statute, a municipal ordinance,
insofar as it attempts to regulate the subject which is completely covered by a
general statute of the legislature, may be rendered invalid. . . . Where the subject is
of statewide concern, and the legislature has appropriated the field and declared
the rule, its declaration is binding throughout the State." A reason advanced for this
view is that such ordinances are in excess of the powers granted to the municipal
corporation.

Since E.O. No. 205, a general law, mandates that the regulation of CATV operations
shall be exercised by the NTC, an LGU cannot enact an ordinance or approve a
resolution in violation of the said law.

It is a fundamental principle that municipal ordinances are inferior in status and


subordinate to the laws of the state. An ordinance in conflict with a state law of
general character and statewide application is universally held to be invalid. The
principle is frequently expressed in the declaration that municipal authorities, under
a general grant of power, cannot adopt ordinances which infringe the spirit of a
state law or repugnant to the general policy of the state. In every power to pass
ordinances given to a municipality, there is an implied restriction that the
ordinances shall be consistent with the general law. 182 (Emphasis ours) CAacTH

For sure, every local government unit only derives its legislative authority from
Congress. In no instance can the local government unit rise above its source of
authority. As such, its ordinance cannot run against or contravene existing laws,
precisely because its authority is only by virtue of the valid delegation from
Congress. As emphasized in City of Manila v. Laguio, Jr.: 183

The requirement that the enactment must not violate existing law gives stress to
the precept that local government units are able to legislate only by virtue of their
derivative legislative power, a delegation of legislative power from the national
legislature. The delegate cannot be superior to the principal or exercise powers
higher than those of the latter.

This relationship between the national legislature and the local government units
has not been enfeebled by the new provisions in the Constitution strengthening the
policy of local autonomy. The national legislature is still the principal of the local
government units, which cannot defy its will or modify or violate it. 184

Moreover, Ordinance No. 0309-07 proposes to prohibit an activity already covered


by the jurisdiction of the FPA, which has issued its own regulations under its
Memorandum Circular No. 02, Series of 2009, entitled Good Agricultural Practices
for Aerial Spraying of Fungicide in Banana Plantations. 185 While Ordinance No.
0309-07 prohibits aerial spraying in banana plantations within the City of Davao,
Memorandum Circular No. 02 seeks to regulate the conduct of aerial spraying in
banana plantations 186 pursuant to Section 6, Presidential Decree No. 1144, and in
conformity with the standard of Good Agricultural Practices (GAP). Memorandum
Circular No. 02 covers safety procedures, 187 handling 188 and post-application,
189 including the qualifications of applicators, 190 storing of fungicides, 191 safety
and equipment of plantation personnel, 192 all of which are incompatible with the
prohibition against aerial spraying under Ordinance No. 0309-07.
Although Memorandum Circular No. 02 and Ordinance No. 0309-07 both require the
maintenance of the buffer zone, they differ as to their treatment and maintenance
of the buffer zone. Under Memorandum Circular No. 02, a 50-meter "no-spray
boundary" buffer zone should be observed by the spray pilots, 193 and the
observance of the zone should be recorded in the Aerial Spray Final Report (ASFR)
as a post-application safety measure. 194 On the other hand, Ordinance No. 0309-
07 requires the maintenance of the 30-meter buffer zone to be planted with
diversified trees. 195

Devoid of the specific delegation to its local legislative body, the City of Davao
exceeded its delegated authority to enact Ordinance No. 0309-07. Hence, Ordinance
No. 0309-07 must be struck down also for being an ultra vires act on the part of the
Sangguniang Bayan of Davao City. cEaSHC

We must emphasize that our ruling herein does not seek to deprive the LGUs their
right to regulate activities within their jurisdiction. They are empowered under
Section 16 of the Local Government Code to promote the general welfare of the
people through regulatory, not prohibitive, ordinances that conform with the policy
directions of the National Government. Ordinance No. 0309-07 failed to pass this
test as it contravenes the specific regulatory policy on aerial spraying in banana
plantations on a nationwide scale of the National Government, through the FPA.

Finally, the unconstitutionality of the ban renders nugatory Ordinance No. 0309-07
in its entirety. Consequently, any discussion on the lack of the separability clause
becomes entirely irrelevant.

WHEREFORE, the Court DENIES the consolidated petitions for review on certiorari
for their lack of merit; AFFIRMS the decision promulgated on January 9, 2009 in C.A.-
G.R. CV No. 01389-MIN. declaring Ordinance No. 0309-07 UNCONSTITUTIONAL;
PERMANENTLY ENJOINS respondent City of Davao, and all persons or entities acting
in its behalf or under its authority, from enforcing and implementing Ordinance No.
0309-07; and ORDERS the petitioners to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Velasco, Jr., Leonardo-de Castro, Peralta, Del Castillo, Perez, Mendoza,
Reyes, Perlas-Bernabe, Jardeleza and Caguioa, JJ., concur.

Carpio, * J., took no part; former law partners are counsels.

Brion, ** J., is on leave.

Leonen, J., see separate concurring opinion.

[P.E.T. No. 004. August 16, 2016.]

MANUEL A. ROXAS, protestant, vs. JEJOMAR C. BINAY, protestee.


RESOLUTION

BERSAMIN, J p:

On June 9, 2010, Congress, in joint session assembled and sitting as the National
Board of Canvassers (NBOC), proclaimed protestee Jejomar C. Binay as the Vice
President duly elected in the May 10, 2010 National and Local Elections after
garnering 14,645,574 votes. Protestant Manuel A. Roxas came in second with
13,918,490 votes, 1 or a margin of 727,084 votes in favor of the protestee.

On July 9, 2010, the protestant initiated this protest, 2 whereby he prayed as


follows:

WHEREFORE, protestant respectfully prays that the Honorable Tribunal:

1. Immediately upon the filing of the instant Protest, ISSUE a Precautionary


Protection Order:

a. DIRECTING all City/Municipal Treasurers, Regional Election Directors,


Provincial Election Supervisors, Election Officers, responsible personnel and
custodians nationwide to take immediate steps and measures to safeguard the
integrity of all ballot boxes and their contents, lists of voters with voting records,
books of voters, audit logs, statistics report and any and all other documents or
paraphernalia used in the 10 May 2010 elections, as well as data storage devices
containing electronic data evidencing the conduct and the results of elections in all
contested clustered precincts nationwide; and HTcADC

b. DIRECTING the Chairman, Commissioners, Executive Director, Department


Directors, Division Chiefs/Heads, responsible personnel and custodians nationwide
to take immediate steps and measurers to safeguard the integrity of the following:

i. The Automated Election System, which includes but is not limited to, the
Electoral Management System and the Election Day Management Platform and their
hardware and software components, including the source code, all encryption,
decryption and conversion keys, passwords, viewing systems, readers and all
necessary and incidental peripheral/collateral systems;

ii. Back-up compact discs of the Consolidation and Canvassing Systems at the
city/municipal/provincial levels;

iii. Main and back-up compact flash cards of the Precinct Count Optical Scan
machines containing the election returns as electronically transmitted to the
city/municipal/provincial Boards of Canvassers; and

iv. Any and all other available sources of election data;

2. CREATE and CONSTITUTE a Technical Panel composed of independent experts


appointed by the Honorable Tribunal to undertake and supervise the conduct of a
comprehensive, system-wide forensic analysis of the Automated Election System,
which includes but is not limited to, the Electoral Management System and the
Election Day Management Platform, and their hardware and software components;

3. ORDER the conduct of a comprehensive, system-wide forensic analysis and


comparison (which would not even require the bringing or transmittal of the ballot
boxes) of the following, among others;

a. The Automated Election System, which includes but is not limited to, the
Election Management System and the Election Day Management Platform, and their
hardware and software components, including the PCOS machine, source code, all
encryption, decryption and conversion keys, passwords, viewing systems, readers
and all necessary and incidental peripheral/collateral systems; and CAIHTE

b. The genuineness, accuracy and integrity of, among others, the:

i. Printed and electronically-generated official ballots and election returns;

ii. Back-up compact discs of the Consolidating and Canvassing Systems at the
city/municipal/provincial levels;

iii. Main and back-up compact flash cards of the Precinct Optical Scan machines
containing the election returns as electronically transmitted to the
city/municipal/provincial Board of Canvassers;

iv. Printed and electronically-generated Statement of Votes by Precinct; and

v. Other available sources of election data, such as and compared with the
Random Manual Audit Report and Reconciliation Reports;

4. ORDER the conduct of a proper, independent and transparent Random


Manual Audit of votes cast for Vice-President as required by Section 29 of Republic
Act No. 8436, as amended by Republic Act No. 9369, by comparing the votes
contained in the official ballots with the votes as recorded by the compact flash
cards;

5. ORDER the conduct of a manual revision of votes in the contested/affected


clustered precincts based on the results of the forensic analysis and Random Manual
Audit, and in connection therewith:

a. ORDER the ballot boxes and their contents with their keys, lists of voters with
voting records, books of voters, audit logs, statistics report, electronic data storage
devices and any and all other documents, paraphernalia or equipment relative to
the contested clustered precincts to be brought before the Honorable Tribunal;

b. CONSTITUTE such number of Revision Committees as may be necessary to


conduct the manual revision or votes; and
c. ORDER the necessary reconciliation, correction and completion of the
affected Election Returns and Certificate of Canvass;

6. ANNUL and SET ASIDE the proclamation of protestee Jejomar C. Binay as the
duly elected Vice-President of the Republic of the Philippines; and aScITE

7. PROCLAIM protestant Manuel A. Roxas as the duly elected Vice-President of


the Republic of the Philippines. 3

Upon being served with summons and the protest, 4 the protestee submitted his
Answer with Motion for Preliminary Hearing on Affirmative Defenses and Counter-
Protest with Motion for Precautionary Protection Order, 5 whereby he posited that
the Tribunal had no jurisdiction over the protest because the protest was seeking to
invalidate not only his election as the Vice President, but also the May 10, 2012
National and Local Elections "as a whole." 6 By way of counter-protest, the
protestee claimed that fraud, anomalies and irregularities had occurred in 14,111
clustered precincts (or 59,696 established precincts) in the provinces comprising
Regions VI, VII and CARAGA (specifically the Provinces of Aklan, Iloilo, Negros
Occidental, Cebu, Bohol, Negros Oriental, Agusan del Norte and Agusan del Sur)
that had unduly favored the protestant. 7 He prayed, inter alia, that a preliminary
hearing of his affirmative defenses be held, and that the protest be dismissed.

On August 31, 2010, the Tribunal, acting on the protest and counter-protest, issued
a precautionary protection order (PPO) 8 covering all the 76,340 clustered precincts,
to wit:

NOW, THEREFORE, pursuant to Rule 36 of the 2010 Rules of the Presidential


Electoral Tribunal, You, the Commission on Elections, your agents, representatives,
or persons acting in your place or stead, including the municipal treasurers,
elections officers, and the responsible personnel and custodians, are hereby
DIRECTED to PRESERVE and SAFEGUARD the integrity of the ballot boxes, their
contents and keys, list of voters with voting records, books of voters and other
documents and paraphernalia used in the May 2010 elections for the position of
Vice-President of the Republic of the Philippines, as well as the data storage devices
containing the electronic data evidencing the results of elections in the contested
76,340 clustered precincts subject of the Protest and Counter-Protest, effective
immediately and continuing until further orders from this Tribunal.

The Tribunal thereafter set the preliminary conference on September 30, 2010, and
designated Associate Justice Bernardo P. Pardo (Ret.) as the hearing commissioner. 9
However, because the parties were unable to agree on the common issues, as well
as on the procedure to expedite the proceedings at said preliminary conference,
Justice Pardo advised them to file their respective desired motions with the Tribunal,
including those for the deferment of the retrieval of ballot boxes, and for the
disposition of threshold issues. 10
On September 24, 2012, the Tribunal held another preliminary conference 11 in
order to thresh out the various motions and requests filed by the Commission on
Elections (COMELEC). 12 DETACa

Meanwhile, the Tribunal received the letter 13 from Executive Director Jose M.
Tolentino, Jr., of the Project Management Office (PMO) of the COMELEC requesting
authority to conduct the mandatory Hardware Acceptance Test (HAT) of the PCOS
Machines and other IT equipment for use during the May 13, 2013 Synchronized
Automated National, Local and ARMM Regional Elections. After hearing the
concerned parties, the Tribunal granted the request subject to certain conditions
stated in the resolution. 14

Consequently, the COMELEC issued Resolution No. 13-0135, 15 whereby it


scheduled the retrieval of the ballot boxes for use in the May 13, 2013 National and
Local Elections to commence on February 19, 2013 until March 15, 2013.

Anent the submission of inventory reports by the retrieval committees, the Chief
Justice issued an order dated March 26, 2013 16 modifying the Guidelines on the
Retrieval of Ballot Boxes for the August 8, 2011 ARMM Elections. The Tribunal
ratified the order dated March 26, 2013 on April 2, 2013. 17

Noting that the parties had filed their certificates of candidacy for the Presidency in
the May 9, 2016 National and Local Elections, the Tribunal directed them to move in
the premises 18 by expressing their interest in pursuing the case. Neither of the
parties has complied with the directive as of date.

In view of the holding of the May 9, 2016 National and Local Elections, and in
response to the letter request 19 of COMELEC Executive Director Tolentino for the
lifting of the PPO, the Tribunal lifted the PPO on February 23, 2016. 20

After the holding of the National and Local Elections on May 9, 2016, the Philippines
elected a new set of national and local officials. On May 30, 2016, the NBOC
officially proclaimed Rodrigo R. Duterte as the newly elected President of the
Philippines, and Ma. Leonor G. Robredo as the newly elected Vice President of the
Philippines. Both of them took their respective oaths of office and assumed office at
noon of June 30, 2016.

The term of the office of Vice President being contested by the parties had expired
at noon of June 30, 2016. Vice President Robredo has assumed the office thereby
contested. Clearly, the protest and the counter-protest that are the subject matter
of this case have become moot and academic. As such, the Tribunal is constrained
to dismiss the protest and the counter-protest. It is settled rule that the Tribunal
should not anymore proceed in this case because any decision that may be
rendered hereon will have no practical or useful purpose, and cannot be enforced.
21 Proceeding in this case until its resolution will then be an exercise in futility
considering that there is no longer any practical reason why the Tribunal should still
determine who had won as Vice President in the 2010 National and Local Elections if
the term of such office had already expired. HEITAD

WHEREFORE, the Tribunal DISMISSES the protest filed by protestant Manuel A.


Roxas, and the counter-protest filed by protestee Jejomar C. Binay on the ground of
mootness.

No pronouncement on costs of suit.

SO ORDERED.

Sereno, C.J., Velasco, Jr., Leonardo-de Castro, Perez, Mendoza, Reyes, Perlas-
Bernabe, Leonen, Jardeleza and Caguioa, JJ., concur.

Carpio, * J., took no part, prior inhibition.

Brion, ** J., is on leave.

Peralta *** and Del Castillo, **** JJ., took no part.

[G.R. No. 177875. August 8, 2016.]

ATTY. RODOLFO D. MATEO, complainant, vs. EXECUTIVE SECRETARY ALBERTO G.


ROMULO, DEPUTY EXECUTIVE SECRETARY ARTHUR P. AUTEA, PRESIDENTIAL ANTI-
GRAFT COMMISSION, OFFICE OF THE PRESIDENT, JOSE J. BELTRAN, EVELYN F.
DACUYCUY, C.G. DUMATAY, HIGINO C. MANGOSING, JOEY C. CASTRO, PACITA F.
BARBA, RICARDO OLARTE, BELEN I. JUAREZ, LIZA T. OLIVAR, LUISA C. BOKINGO,
SANDRO JESUS T. SALES, EDGARDO T. AGBAY, EDUARDO F. PACIO, MILDRED V.
BEADOY, FRANCIS B. HILARIE, MA. NERIZZA L. BERDIN, LUIS S. RONGAVILLA,
ARLENE C. DIAZ, MARY JANE M. LAPIDEZ, MELCHOR P. ABRIL, VILMA A. VERGARA,
MA. ISABEL S. NOFUENTE, BEATRIZ N. SORIANO, MA. ANNABELLE S. LUSUNG, JAIME
M. NOFUENTE, ERLINDA RIZO, MA. CHARINA S. GONZALES, LILIAN P. GACUSAN, MA.
ANGELICA R. RONGAVILLA, EVELYN V. AYSON, CHARITO M. MENGUITO, ARLEEN E.
BATAC, RENATO R. RIZO, EDUARDO D. ADINO, MILAGROS M. VELASCO, BELEN T.
TORMON, RENATO P. GOJO CRUZ and EMMIE L. RUALES, respondents.

DECISION

BERSAMIN, J p:

The failure of a public servant to disclose in his personal data sheet (PDS) the fact of
his conviction by final judgment of a crime punished with reclusion temporal is
guilty of dishonesty, and may be dismissed from the service even if the charge is
committed for the first time. SDAaTC

Antecedents
The petitioner was first employed on May 28, 1990 by the National Water Resources
Board (NWRB) as Attorney IV. He was later on appointed as Executive Director of
NWRB, and took his oath of office as such on January 29, 2002.

On April 4, 2003, 38 NWRB employees (respondents herein) lodged a complaint


affidavit with the Presidential Anti-Graft Commission (PAGC) charging the petitioner
with dishonesty, usurpation of authority and conduct prejudicial to the interest of
the service. 1 They alleged therein that he had not disclosed the existence of a prior
criminal conviction for homicide in his PDS on file with the NWRB; that he had
approved and issued numerous water permits without or in excess of his authority,
or in conflict with prior action by the Board; and that he had approved and issued
certificates of public convenience without the certificates being first passed upon by
the Board as a collegial body; that he had been indiscriminately reassigning
personnel in complete disregard of their rank, status and safety to purposely
dislocate them; and that he had acted without due process in certain disciplinary
actions taken against subordinates. acEHCD

Finding sufficient basis to commence an administrative investigation against the


petitioner, the PAGC required him to file a counter-affidavit or answer to the
complaint. He complied on May 26, 2003. 2

After the formal hearing, the PAGC ordered the parties to submit their respective
memoranda or position papers on or before June 9, 2003. Only the respondents filed
their memorandum/position paper. 3

Findings of the PAGC

The PAGC issued its resolution dated June 25, 2003, whereby it found the petitioner
administratively liable as charged.

On the allegation of falsification of the PDS, the findings of the PAGC were as
follows:

In Respondent Mateo's Personal Data Sheet, dated March 12, 1997 (Rollo, p. 629),
Item No. 25 states that "Have you been convicted of any crime or violated any law,
decree, ordinance or regulations by any court or tribunal?" The answer is a mark [x]
on the printed box provided for the NO answer. Similarly, in Respondent's Personal
Data Sheet, dated November 6, 2000, (Rollo, p. 630), Item No. 26, states that
"Have you ever been convicted of any crime or violation of any law, degree [sic],
ordinance or regulations by any court or tribunal?" The answer is a mark [x] printed
on the box provided for the NO answer.

At this point, it must be stated that herein Respondent Mateo was charged of
Homicide (Criminal Case No. 93594) before the Court of First Instance of Manila,
now Regional Trial Court, Branch VIII. Subsequently, he was convicted of the same
crime and sentenced on August 10, 1976 by the same court, to serve 6 years and 1
day imprisonment to a maximum of 14 years, 8 months and 1 day imprisonment
and to pay an indemnity of P12,000.00 (Rollo, pp. 650-651). Thereafter, herein
Respondent was granted conditional pardon by then President Ferdinand E. Marcos,
on June 12, 1979. Respondent was then discharged from the New Bilibid Prison,
Muntinlupa, Rizal, on July 1979. 4

The PAGC observed that the penalty of reclusion temporal imposed on the petitioner
included the accessory penalty of perpetual absolute disqualification from holding
public office or employment; and that such accessory penalty remained even if the
petitioner had been pardoned, unless the pardon expressly remitted such accessory
penalty. 5 It went on to explain that although the records showed that he had been
granted a conditional pardon, the terms of the pardon did not expressly restore his
right to hold public office or to have public employment; hence, he was not eligible
to be appointed to his posts in the NWPB. It concluded that his failure to disclose the
truth in his PDS had constituted dishonest conduct prior to entering the government
service and had caused undue injury to the Government; and that he should be
dismissed from the service considering that his dishonesty, albeit not committed in
the course of the performance of duty, had still affected his right to continue in
office. 6 SDHTEC

Anent the charge of usurpation of authority, the PAGC indicated that Article 80 of
the Water Code of the Philippines authorized the NWRB to deputize any official or
government agency to perform any of its specific functions or activities; 7 that
during its March 11, 2002 meeting, the Board had resolved as follows:

a. "to authorize the Executive Director to grant Temporary Permits for the
appropriation of water pursuant to Section 26, Rule 1 of Implementing Rules and
Regulations of the Water Code of the Philippines (PD 1067)" (Resolution No. 1313-A
(As Amended))

b. "to grant authority to the Executive Director of NWRB to sign all decisions
made by the Board." (Resolution No. 1424-A (As Amended))

c. "to authorize the Executive Director to pass upon application/petition for


power cost adjustment, using as guidelines Board Resolution No. 03-0591 provided
that, the Board shall be informed of the action made on the matter. Provided,
further that the resulting Billing Multiplier shall not exceed 5%." (Resolution No. 01-
0593-A (As Amended))

d. "to authorize the Executive Director to approve water permit applications for
0.05 lps and below excepting those applications for golf courses, industrial
purposes, big projects and with formal oppositions or legal protests." (Resolution No.
02-0499-A) (As Amended) 8

that the petitioner had issued Office Order No. 26 on September 11, 2002 stating in
part that the Executive Director would be the official who would approve all Water
Rights Permits and Certificates of Public of Convenience and Necessity by virtue of
the failure of the Board to convene; that such approval was valid and had the same
effect as if approved by the Board itself, subject to the confirmation by the Board
once it reconvened legally; that from September 2002 to January 2003, he had
signed and approved 324 water permit applications despite the applications
exceeding the 0.05 LPS limit imposed by NWRB Resolution No. 02-0499-A; and that
such acts constituted grave misconduct on his part. 9

As to the allegation that the petitioner had reassigned personnel without authority,
the PAGC considered the Office Orders dated February 6, 2002 and February 23,
2003, and the Memorandum dated February 3, 2003 as having been issued under
the pretext of reorganization within the agency; that no such reorganization had
been undertaken; that, consequently, he had taken upon himself to reassign and
transfer the detail of certain office personnel without the approval of the Board; that
such action had been in violation of the Civil Service Laws and Republic Act No.
6656; and that he had also suspended two employees for insubordination, but the
suspensions were without legal basis without the Board's approval, pursuant to
NWRB Resolution dated March 11, 2002. 10 AScHCD

Opining that the narration of facts by the respondents as the complainants was
substantial evidence adequate to support the conclusion that the petitioner was
liable as charged, the PAGC recommended to the President that the penalty of
dismissal from the service with forfeiture of retirement benefits and perpetual
disqualification from reemployment in the government service be imposed on the
petitioner. 11

Ruling of the Office of the President (OP)

The matter was elevated to the OP, which rendered the resolution dated August 20,
2003 through Deputy Executive Secretary Arthur P. Autea, whereby the OP
concurred with the findings and recommendation of the PAGC. The OP stated that
the charge of dishonesty alone already warranted the dismissal of the petitioner
from the service even if committed for the first time; and that he had actually
committed dishonesty on two separate occasions by having falsely denied his
conviction of any crime or violation of law by a competent court or tribunal 12 in the
two PDSs filed in 1997 and 2000. Accordingly, it affirmed his dismissal from the
service with forfeiture of retirement and all other benefits, observing that there was
no need to decree his disqualification from reemployment in the government
service because his perpetual disqualification stemming from his criminal conviction
still stood. 13

The petitioner sought reconsideration, claiming that he had been also granted an
absolute pardon on May 27, 1987 by President Corazon C. Aquino; that he had relied
in good faith on such absolute pardon completely erasing his criminal conviction,
thereby removing the need for him to disclose his conviction in his PDSs; and that
evidence had not been presented in his case because the PAGC did not conduct
formal hearings. 14

The OP denied the motion for reconsideration, holding that the PAGC did actually
conduct formal hearings in which the petitioner had been given the opportunity to
be heard; that he had participated in the hearings by filing his verified answer to the
complaint; that he had also been accorded the opportunity to submit his
memorandum or position paper, but he had failed to do so; 15 that he had been
silent about the absolute pardon granted by President Aquino on May 27, 1987,
alleging it for the first time only in the motion for reconsideration; and that the
pardon, being the private act of the President, must still be pleaded and proved by
him as the person claiming to have been pardoned. 16 AcICHD

Decision of the Court of Appeals (CA)

The petitioner appealed to the CA, docketed as CA-G.R. SP No. 80689, insisting that
the OP and the PAGC had committed serious errors of fact and law; had exceeded
their jurisdiction; and had gravely abused their discretion in not affording him his
constitutional right to confront his accusers, thereby violating his right to
administrative due process. He assailed the public respondents for recommending
and ordering his dismissal without factual, legal, and evidentiary basis. 17

The CA promulgated its assailed decision on October 30, 2006, 18 denying the
petition for review and affirming the ruling of the OP. The CA held that the essence
of administrative due process was an opportunity to be heard, or to explain one's
side, or to seek the reconsideration of the action or ruling complained of; 19 that
the petitioner had been given the opportunity to be heard; that the PAGC had
conducted formal hearings in which he had submitted his verified answer to the
complaint; that he had been ordered to submit his memorandum or position paper,
but he had failed to do so; that the requirements of due process in administrative
proceedings were not the same as those in judicial proceedings because the trial-
type proceedings, with an opportunity for face-to-face confrontation, were not
necessary in administrative proceedings; that it sufficed for a party to be afforded
the ample opportunity to present his side; 20 that the penalty imposed on him had
been based on the finding to the effect that he had been truly guilty of dishonesty,
usurpation of authority and conduct prejudicial to the best interest of the service;
that such factual findings by the OP in the exercise of its quasi-judicial function were
to be generally accorded respect; and that the OP did not gravely abuse its
discretion because the resolutions in question had not been issued arbitrarily or in
disregard of the evidence on record. 21

Issues

In this appeal, the petitioner raises the following issues, to wit:

A
THE RESPONDENTS RECOMMENDED AND/OR ORDERED THE DISMISSAL OF
PETITIONER FROM PUBLIC SERVICE WITHOUT AFFORDING THE LATTER HIS
CONSTITUTIONAL RIGHT TO CONFRONT HIS ACCUSERS AND WITHOUT AFFORDING
HIM ADMINISTRATIVE DUE PROCESS.

THE RESPONDENTS RECOMMENDED AND/OR IMPOSED THE VERY HARSH PENALTY


OF DISMISSAL FROM SERVICE WITHOUT VALID FACTUAL, LEGAL AND EVIDENTIARY
BASIS.

Ruling of the Court

The petition for review on certiorari lacks merit. TAIaHE

Firstly of all, the petitioner contends that the right to due process in administrative
proceedings should include the right to confront his accusers; that he invoked his
right to confrontation and sought a formal hearing through his motion for
reconsideration in the OP; and that the violation of his rights rendered any evidence
presented against him inadmissible.

We cannot uphold the contention of the petitioner. As the CA correctly pointed out,
administrative due process simply means the opportunity to be heard or to explain
one's side, or to seek a reconsideration of the action or ruling complained of. For
him to insist on a formal trial-type hearing in which he could confront his accusers
was bereft of legal basis considering that he had been duly notified of the complaint
against him and of the formal hearings conducted by the PAGC. He had also filed his
answer to the complaint and participated in the formal hearings. For sure, the trial-
type hearing was not indispensable in administrative cases. The requirements of
administrative due process were satisfied once the parties were afforded the fair
and reasonable opportunity to explain their respective sides. The administrative
agency could resolve the issues based solely on position papers, affidavits or
documentary evidence submitted by the parties. 22

Secondly, it is notable that the petitioner did not raise in his answer to the
complaint the absolute pardon purportedly granted to him by President Aquino; that
he did not also submit proof on the absolute pardon in the hearings held before the
PAGC; that he did not file his memorandum or position paper despite being ordered
to do so; and that he did not advert to the absolute pardon when the case had been
elevated to the OP. Being the part plainly at fault, his unexplained failure to submit
his evidence could not be counted against the PAGC.

In reality, the petitioner's plea of good faith vis--vis the charge of dishonesty, in
that the absolute pardon had led him to believe that he no longer needed to divulge
the conviction in his PDSs, was unworthy of credence. For one, he was quite aware
that the penalty meted on him upon his conviction was reclusion temporal, which,
pursuant to Article 41 of the Revised Penal Code, carried with it the accessory
penalties of civil interdiction during the period of the sentence, and of perpetual
absolute disqualification that he would suffer "even though pardoned as to the
principal penalty, unless the same shall have been expressly remitted in the
pardon." Under Article 30 of the Revised Penal Code, the effects of the accessory
penalty of perpetual absolute disqualification included the following:

1. The deprivation of the public offices and employments which the offender
may have held even if conferred by popular election.

2. The deprivation of the right to vote in any election for any popular office or to
be elected to such office.

3. The disqualification for the offices or public employments and for the exercise
of any of the rights mentioned.

xxx xxx xxx

4. The loss of all rights to retirement pay or other pension for any office formerly
held.

Although the petitioner submitted photocopies of supposed clearances from the


National Bureau of Investigation (NBI) indicating that he had no criminal record, his
silence about the absolute pardon granted on May 27, 1987 until he alleged it for
the first time in his motion for reconsideration in the PAGC did not also substantiate
his plea of good faith. The submitted documents were mere photocopies, and as
such were bereft of faith and credit. Indeed, he did not suitably explain his silence
about the absolute pardon considering that he must plead and prove such pardon
due to its being the private act of the Chief Executive. 23 The failure to establish the
absolute pardon in the administrative proceedings held before the PAGC and the OP
rendered the absolute pardon inadmissible for purposes of his administrative case,
and effectively removed any legal obligation on the part of the CA to consider the
effects of the purported absolute pardon in his case. Worthy to stress, too, is that
this Court, not being a trier of facts, cannot but disallow the consideration of such
factual issue of whether or not he had truly been granted the absolute pardon, for it
can take cognizance only of questions of law. cDHAES

Thirdly, the petitioner claims on the issue of usurpation of authority that there was
absolutely no evidence showing that he had acted without any authority from the
Board. To bolster this claim, he relies on the fact that the Board had not declared his
acts as unauthorized; and on the fact that none of the members of the Board had
brought any complaint against him in respect thereof. He posits that his approval of
the water permit applications had been authorized by NWRB Resolution No. 02-
0499-A.
The petitioner's claim is unwarranted. The PAGC and the OP both found that he had
gone beyond his express authority in signing and approving the 324 applications for
water permits on various dates, including September 5, 16, and 23, October 17,
November 12, December 3, 12, and 18, 2002, and January 2 and 15, 2003. 24 They
noted that, indeed, the applications he had approved had exceeded the 0.05 LPS
limit imposed in Resolution No. 02-0499-A. His excess of the authority granted to
him by the Board amounted to misconduct.

Fourthly, the petitioner argues that dismissal was a penalty too harsh where a lesser
one would suffice. He prays that the Court should consider his 13 years of public
service, and the fact that no graft charges had been filed against him. He reminds
that he had been set to retire as early as in April 2004.

We do not find any reversible error in the CA's affirmance of the OP's imposition on
him of the penalty of dismissal. Under the previous and current rules on
administrative cases, dishonesty and grave misconduct have been classified as
grave offenses punishable by dismissal. 25 These offenses reveal defects in the
respondent official's character, affecting his right to continue in office, and are
punishable by dismissal even if committed for the first time. 26 ASEcHI

Lastly, the petitioner has repeatedly insinuated that the administrative charge
brought against him resulted out of the machinations of various powerful political
personalities. This insinuation, even if accurate or true, has no bearing in the
consideration and resolution of the legal question now squarely before us, which is
whether or not the administrative charge against him was disposed of properly.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the
decision and resolution promulgated by the Court of Appeals in CA-G.R. SP No.
80689 on October 30, 2006 and April 25, 2007, respectively; and ORDERS the
petitioner to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[G.R. No. 167082. August 3, 2016.]

TERESITA I. BUENAVENTURA, petitioner, vs. METROPOLITAN BANK AND TRUST


COMPANY, respondent.

DECISION

BERSAMIN, J p:

A duly executed contract is the law between the parties, and, as such, commands
them to comply fully and not selectively with its terms. A contract of adhesion, of
itself, does not exempt the parties from compliance with what was mutually agreed
upon by them. ICHDca

The Case

In this appeal, the petitioner seeks the reversal of the decision promulgated on April
23, 2004, 1 whereby the Court of Appeals (CA) affirmed with modification the
judgment 2 rendered on July 11, 2002 by the Regional Trial Court (RTC), Branch 61,
in Makati City. Also being appealed is the resolution 3 promulgated on February 9,
2005, whereby the CA denied her motion for reconsideration.

Antecedents

The following factual and procedural antecedents are narrated by the CA in its
assailed decision, to wit:

On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or "appellant")
executed Promissory Note (or "PN") Nos. 232663 and 232711, respectively, each in
the amount of P1,500,000.00 and payable to Metropolitan Bank and Trust Company
(or "appellee"). PN No. 232663 was to mature on July 1, 1997, with interest and
credit evaluation and supervision fee (or "CESF") at the rate of 17.532% per annum,
while PN No. 232711 was to mature on April 7, 1998, with interest and CESF at the
rate of 14.239% per annum. Both PNs provide for penalty of 18% per annum on the
unpaid principal from date of default until full payment of the obligation.

Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the
amounts of P2,061,208.08 and P1,492,236.37, respectively, as of July 15, 1998,
inclusive of interest and penalty. Consequently, appellee filed an action against
appellant for recovery of said amounts, interest, penalty and attorney's fees before
the Regional Trial Court of Makati City (Branch 61). cDHAES

In answer, appellant averred that in 1997, she received from her nephew, Rene
Imperial (or "Imperial"), three postdated checks drawn against appellee (Tabaco
Branch), i.e., Check No. TA 1270484889PA dated January 5, 1998 in the amount of
P1,200,000.00, Check No. 1270482455PA dated March 31, 1998 in the amount of
P1,197,000.00 and Check No. TA1270482451PA dated March 31, 1998 in the
amount of P500,000.00 (or "subject checks"), as partial payments for the purchase
of her properties; that she rediscounted the subject checks with appellee (Timog
Branch), for which she was required to execute the PNs to secure payment thereof;
and that she is a mere guarantor and cannot be compelled to pay unless and until
appellee shall have exhausted all the properties of Imperial. 4

On July 11, 2002, the RTC rendered its judgment, 5 viz.:

WHEREFORE, in view of the foregoing, the Court finds in favor of plaintiff


METROPOLITAN BANK AND TRUST COMPANY and against defendant TERESITA
BUENAVENTURA.
As a consequence of this judgment, defendant Buenaventura is directed to pay
plaintiff bank the amount of P3,553,444.45 plus all interest and penalties due as
stipulated in Promissory Notes Nos. 232663 and 232711 beginning July 15, 1998
until the amount is fully paid and 10% of the total amount due as attorney's fees.

SO ORDERED.

Dissatisfied, the petitioner appealed, assigning the following as errors, namely:

THE TRIAL COURT ERRED IN HOLDING THAT THE REDISCOUNTING TRANSACTION


BETWEEN APPELLANT AND METROBANK RESULTED TO A LOAN OBLIGATION
SECURED BY THE SUBJECT CHECKS AND PROMISSORY NOTES.

A. Rediscounting transactions do not create loan obligations between the


parties.

B. By the rediscounting, Metrobank subrogated appellant as creditor of Rene


Imperial, the issuer of the checks.

C. Legal subrogation was presumed when Metrobank paid the obligation of Mr.
Imperial with the latter's knowledge and consent.

II

THE TRIAL COURT ERRED IN GRANTING METROBANK'S CLAIMS ON THE BASIS OF


THE PROMISSORY NOTES.

A. The promissory notes are null and void for being simulated and fictitious.
TCAScE

B. Assuming that the promissory notes are valid, these only serve as guaranty
to secure the payment of the rediscounted checks.

III

THE TRIAL COURT ERRED IN NOT RULING THAT APPELLANT IS ENTITLED TO HER
COUNTERCLAIMS FOR EXEMPLARY DAMAGES, ATTORNEY'S FEES, LITIGATION
EXPENSES AND COSTS OF SUIT. 6

On April 23, 2004, the CA promulgated the assailed decision affirming the decision
of the RTC with modification, 7 as follows:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION of the second


paragraph of its dispositive portion, which should now read:

"As a consequence of this judgment, defendant Buenaventura is directed to pay


plaintiff bank the amount of P3,553,444.45 plus interest and penalty therein at
14.239% per annum and 18% per annum, respectively, from July 15, 1998 until fully
paid and 10% of said amount as attorney's fees."

SO ORDERED. 8

On May 21, 2004, the petitioner moved for the reconsideration of the decision, but
the CA denied her motion for that purpose on February 9, 2005. 9

Hence, this appeal by the petitioner.

Issues

The petitioner ascribes the following errors to the CA, to wit:

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE UNDER


THE PROMISSORY NOTES.

A. The promissory notes executed by petitioner are null and void for being
simulated and fictitious.

B. Even assuming that the promissory notes are valid, these are intended as
mere guaranty to secure Rene Imperial's payment of the rediscounted checks.
Hence, being a mere guarantor, the action against petitioner under the said
promissory notes is premature.

C. Metrobank is deemed to have subrogated petitioner as creditor of Mr.


Imperial (the issuer of the checks). Hence, Metrobank's recourse as creditor, is
against Mr. Imperial. ASEcHI

II

THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONER IS ENTITLED TO


HER COUNTER-CLAIM FOR EXEMPLARY DAMAGES, ATTORNEY'S FEES, LITIGATION
EXPENSES AND COSTS OF SUIT. 10

Ruling

The appeal lacks merit.

First of all, the petitioner claims that the promissory notes she executed were
contracts of adhesion because her only participation in their execution was affixing
her signature; 11 and that the terms of the promissory notes should consequently
be strictly construed against the respondent as the party responsible for their
preparation. 12 In contrast, the respondent counters that the terms and conditions
of the promissory notes were clear and unambiguous; hence, there was no room or
need for interpretation thereof. 13
The respondent is correct.

The promissory notes were written as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank
and Trust Company, at its office . . . the principal sum of PESOS . . ., Philippine
currency, together with interest and credit evaluation and supervision fee (CESF)
thereon at the effective rate of . . . per centum . . . per annum, inclusive, from date
hereof and until fully paid. 14

What the petitioner advocates is for the Court to now read into the promissory notes
terms and conditions that would contradict their clear and unambiguous terms in
the guise of such promissory notes being contracts of adhesion. This cannot be
permitted, for, even assuming that the promissory notes were contracts of
adhesion, such circumstance alone did not necessarily entitle her to bar their literal
enforcement against her if their terms were unequivocal. It is preposterous on her
part to disparage the promissory notes for being contracts of adhesion, for she
thereby seems to forget that the validity and enforceability of contracts of adhesion
were the same as those of other valid contracts. The Court has made this plain in
Avon Cosmetics, Inc. v. Luna, 15 stating:

A contract of adhesion is so-called because its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion thereto.
Such contract is just as binding as ordinary contracts.

It is true that we have, on occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not
invalid per se and they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely, if he adheres, he gives his consent.
cTDaEH

xxx xxx xxx

Accordingly, a contract duly executed is the law between the parties, and they are
obliged to comply fully and not selectively with its terms. A contract of adhesion is
no exception.

As a rule, indeed, the contract of adhesion is no different from any other contract.
Its interpretation still aligns with the literal meaning of its terms and conditions
absent any ambiguity, or with the intention of the parties. 16 The terms and
conditions of the promissory notes involved herein, being clear and beyond doubt,
should then be enforced accordingly. In this regard, we approve of the observation
by the CA, citing Cruz v. Court of Appeals, 17 that the intention of the parties should
be "deciphered not from the unilateral post facto assertions of one of the parties,
but from the language used in the contract." 18 As fittingly declared in The Insular
Life Assurance Company, Ltd. vs. Court of Appeals and Sun Brothers & Company, 19
"[w]hen the language of the contract is explicit leaving no doubt as to the intention
of the drafters thereof, the courts may not read into it any other intention that
would contradict its plain import." Accordingly, no court, even this Court, can "make
new contracts for the parties or ignore those already made by them, simply to avoid
seeming hardships. Neither abstract justice nor the rule of liberal construction
justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract of an obligation not
assumed." 20

Secondly, the petitioner submits that the promissory notes were null and void for
being simulated and fictitious; hence, the CA erred in enforcing them against her.

The submission contradicts the records and the law pertinent to simulated
contracts.

Based on Article 1345 21 of the Civil Code, simulation of contracts is of two kinds,
namely: (1) absolute; and (2) relative. Simulation is absolute when there is color of
contract but without any substance, the parties not intending to be bound thereby.
22 It is relative when the parties come to an agreement that they hide or conceal in
the guise of another contract. 23

The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to
wit:

Art. 1346. An absolutely simulated or fictitious contract is void. A relative


simulation, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement.

The burden of showing that a contract is simulated rests on the party impugning the
contract. This is because of the presumed validity of the contract that has been duly
executed. 24 The proof required to overcome the presumption of validity must be
convincing and preponderant. Without such proof, therefore, the petitioner's
allegation that she had been made to believe that the promissory notes would be
guaranties for the rediscounted checks, not evidence of her primary and direct
liability under loan agreements, 25 could not stand. ITAaHc

Moreover, the issue of simulation of contract was not brought up in the RTC. It was
raised for the first time only in the CA. 26 Such belatedness forbids the
consideration of simulation of contracts as an issue. Indeed, the appellate courts,
including this Court, should adhere to the rule that issues not raised below should
not be raised for the first time on appeal. Basic considerations of due process and
fairness impel this adherence, for it would be violative of the right to be heard as
well as unfair to the parties and to the administration of justice if the points of law,
theories, issues and arguments not brought to the attention of the lower courts
should be considered and passed upon by the reviewing courts for the first time.

Thirdly, the petitioner insists that the promissory notes, even if valid, were meant as
guaranties to secure payment of the checks by the issuer, Rene Imperial; hence, her
liability was that of a guarantor, and would take effect only upon exhaustion of all
properties and after resort to all legal remedies against Imperial. 27

The insistence of the petitioner is bereft of merit.

The CA rejected this insistence, expounding as follows:

A guaranty is not presumed; it must be expressed (Art. 2055, New Civil Code). The
PNs provide, in clear language, that appellant is primarily liable thereunder. On the
other hand, said PNs do not state that Imperial, who is not even privy thereto, is the
one primarily liable and that appellant is merely a guarantor. Parenthetically, the
disclosure statement (Exh. "D") executed by appellant states that PN No. 232711 is
"secured by postdated checks". In other words, it does not appear that the PNs were
executed as guaranty for the payment of the subject checks.

Nevertheless, appellant insists that she did not obtain a short-term loan from
appellee but rediscounted the subject checks, with the PNs as guaranty. The
contention is untenable.

In Great Asian Sales Center Corporation vs. Court of Appeals (381 SCRA 557), which
was cited in support of appellant's claim, the Supreme Court explained the meaning
of "discounting line", thus:

"In the financing industry, the term 'discounting line' means a credit facility with a
financing company or bank which allows a business entity to sell, on a continuing
basis, its accounts receivable at a discount. The term 'discount' means the sale of a
receivable at less than its face value. The purpose of a discounting line is to enable
a business entity to generate instant cash out of its receivables which are still to
mature at future dates. The financing company or bank which buys the receivables
makes its profit out of the difference between the face value of the receivable and
the discounted price." cSaATC

A guarantor may bind himself for less, but not for more than the principal debtor,
both as regards the amount and the onerous nature of the conditions (Art. 2054,
id.). Curiously, the face amounts of the PNs (totaling P3,000,000.00) are more than
those of the subject checks (totaling P2,897,000.00). And unlike the subject checks,
the PNs provide for interest, CESF and penalty.

Moreover, the maturity date (July 1, 1997) of PN No. 232663 is ahead of the dates
(January 5, 1998 and March 31, 1998) of the subject checks. In other words,
appellant, as "guarantor," was supposed to make good her "guaranty," i.e., PNs in
question, even before the "principal" obligations, i.e., subject checks, became due.
It is also noted that the rediscounting of the subject checks (in January 1997)
occurred months ahead of the execution of PN No. 232711 (on April 17, 1997) even
as the PNs were supposedly a precondition to said rediscounting.

xxx xxx xxx

Stated differently, appellant is primarily liable under the subject checks. She is a
principal debtor and not a guarantor. Consequently, the benefit of excussion may
not be interposed as a defense in an action to enforce appellant's warranty as
indorser of the subject checks.

Moreover, it is absurd that appellant (as maker of the PNs) may act as guarantor of
her own obligations (as indorser of the subject checks). Thus, Art. 2047 of the New
Civil Code provides that "(b)y guaranty, a person called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case the latter should
fail to do so." 28 (Emphasis supplied)

The CA was correct. A contract of guaranty is one where a person, the guarantor,
binds himself or herself to another, the creditor, to fulfill the obligation of the
principal debtor in case of failure of the latter to do so. 29 It cannot be presumed,
but must be express and in writing to be enforceable, 30 especially as it is
considered a special promise to answer for the debt, default or miscarriage of
another. 31 It being clear that the promissory notes were entirely silent about the
supposed guaranty in favor of Imperial, we must read the promissory notes literally
due to the absence of any ambiguities about their language and meaning. In other
words, the petitioner could not validly insist on the guaranty. In addition, the
disclosure statements 32 and the statements of loan release 33 undeniably
identified her, and no other, as the borrower in the transactions. Under such
established circumstances, she was directly and personally liable for the obligations
under the promissory notes.

Fourth, the petitioner argues that the respondent was immediately subrogated as
the creditor of the accounts by its purchase of the checks from her through its
rediscounting facility; 34 and that legal subrogation should be presumed because
the petitioner, a third person not interested in the obligation, paid the debt with the
express or tacit approval of the debtor. 35 CHTAIc

The argument is barren of factual and legal support.

Legal subrogation finds no application because there is no evidence showing that


Imperial, the issuer of the checks, had consented to the subrogation, expressly or
impliedly. 36 This circumstance was pointed out by the RTC itself. 37 Also, as the CA
emphatically observed, 38 the argument was off-tangent because the suit was not
for the recovery of money by virtue of the checks of Imperial but for the
enforcement of her obligation as the maker of the promissory notes.
Fifth, the petitioner posits that she was made to believe by the manager of the
respondent's Timog Avenue, Quezon City Branch that the promissory notes would
be mere guaranties for the rediscounted checks; 39 that despite the finding of the
RTC and the CA that she was a seasoned businesswoman presumed to have read
and understood all the documents given to her for signature, she remained a
layman faced with and puzzled by complex banking terms; and that her acceding to
signing the promissory notes should not be taken against her as to conclude her. 40

The petitioner's position is unworthy of serious consideration.

After having determined that the terms and conditions of the promissory notes were
clear and unambiguous, and thus should be given their literal meaning and not be
interpreted differently, we insist and hold that she should be bound by such terms
and conditions. Verily, the promissory notes as contracts should bind both
contracting parties; hence, the validity or compliance therewith should not be left to
the will of the petitioner. 41 Otherwise, she would contravene and violate the
principles of mutuality and of the obligatory force of contracts. A respected
commentator on civil law has written in this respect:

The binding effect of the contract on both parties is based on the principles (1) that
obligations arising from contracts have the force of law between the contracting
parties; and (2) that there must be mutuality between the parties based on their
essential equality, to which is repugnant to have one party bound by the contract
leaving the other tree therefrom.

xxx xxx xxx

Just as nobody can be forced to enter into a contract, in the same manner once a
contract is entered into, no party can renounce it unilaterally or without the consent
of the other. It is a general principle of law that no one may be permitted to change
his mind or disavow and go back upon his own acts, or to proceed contrary thereto,
to the prejudice of the other party.

If, after a perfect and binding contract has been executed between the parties, it
occurs to one of them to allege some defect therein as a reason for annulling it, the
alleged defect must be conclusively proven, since the validity and fulfillment of
contracts cannot be left to the will of one of the contracting parties. The fact that a
party may not have fully understood the legal effect of the contract is no ground for
setting it aside. 42 cHDAIS

And, lastly, there is need to revise the monetary awards by the CA. Although no
issue is raised by the petitioner concerning the monetary awards, the Court feels
bound to make this revision as a matter of law in order to arrive at a just resolution
of the controversy.
Involved here are two loans of the petitioner from the respondent, specifically: (1)
the principal amount of P1,500,000.00 covered by Promissory Note No. 232663 to
be paid on or before July 1, 1997 with interest and credit evaluation and supervision
fee (CESF) at the rate of 17.532% per annum and penalty charge of 18% per annum
based on the unpaid principal to be computed from the date of default until full
payment of the obligation; and (2) the principal amount of P1,500,000.00 covered
by Promissory Note No. 232711 to be paid on or before April 7, 1998 with interest
and CESF at the rate of 14.239% per annum and penalty charge of 18% per annum
based on the unpaid principal to be computed from the date of default until full
payment of the obligation.

The RTC adjudged the petitioner liable to pay to the respondent the total of
P3,553,444.45 representing her outstanding obligation, including accrued interests
and penalty charges under the promissory notes, plus attorney's fees. 43 On
appeal, the CA ruled that she was liable to the respondent for the sum of
P3,553,444.45 with interest and penalties at 14.239% per annum and 18% per
annum, respectively, from July 15, 1998 until fully paid. 44

The bases of the amounts being claimed from the petitioner were apparently the
two statements of past due interest and penalty charges as of July 15, 1998, one
corresponding to Promissory Note No. 232711, 45 and the other to Promissory Note
No. 232663. 46 Respondent's witness Patrick N. Miranda, testifying on the obligation
and the computation thereof, 47 attested as follows:

1. What is the amount of her loan obligation?

-Under Promissory Note No. 232663, her loan obligation is P1,492,236.37 inclusive
of interest and penalty charges as of July 15, 1998. Under Promissory Note No.
232711, her loan obligation is P2,061,208.08, inclusive of interest and penalty
charges as of July 15, 1998. Thus, the total is P3,553,444.45 as of July 15, 1998. Two
(2) Statements of Account were prepared to show the computation and penalty
charges.

2. Do you have these Statements of Account?

-Yes, sir. (Copies are hereto attached as Exhibits "H" and "I.") 48

The two statements of past due interest and penalty charges as of July 15, 1998
explained how the respondent had arrived at the petitioner's outstanding liabilities
as of July 15, 1998, thusly: EATCcI

Promissory Note No. 232711 49

PRINCIPAL AMOUNT P1,500,000.00

PAST DUE INTEREST 334 days @ 34.991%


fr. Aug. 15, 1997 to July 15, 1998 P486,958.08

PENALTY CHARGES 99 days @ 18.0%

fr. April 07, 1998 to July 15, 1998 P74,250.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P2,061,208.08

===========

Promissory Note No. 232663 50

PRINCIPAL AMOUNT P1,200,000.00

PAST DUE INTEREST 191 days @ 27.901%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P177,636.37

PENALTY CHARGES 191 days @ 18.0%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P114,600.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P1,492,236.37

==========

The total of P3,553,444.45 was the final sum of the computations contained in the
statements of past due interest and penalty charges as of July 15, 1998, and was
inclusive of interest at the rate of 34.991% (on the principal of P1,500,000.00) and
27.901% (on the principal of P1,200,000.00). Yet, such interest rates were different
from the interest rates stipulated in the promissory notes, namely: 14.239% for
Promissory Note No. 232711 and 17.532% for Promissory Note No. 232663. As a
result, the P3,553,444.45 claimed by the respondent as the petitioner's aggregate
outstanding loan obligation included interests of almost double the rates stipulated
by the parties.

We hold that the respondent had no legal basis for imposing rates far higher than
those agreed upon and stipulated in the promissory notes. It did not suitably justify
the imposition of the increased rates of 34.991% and 27.901%, as borne out by the
statements of past due interest and penalty charges as of July 15, 1998, although it
certainly was its burden to show the legal and factual support for the imposition. We
need not remind that the burden of proof is the duty of any party to present
evidence to establish its claim or defense by the amount of evidence required by
law, which in civil cases is preponderance of evidence. 51 Consequently, we have to
strike down the imposition.

Parenthetically, we observe that the stipulation in the promissory notes on the


automatic increase of the interest rate to the prevailing rate 52 did not justify the
increase of the interest rates because the respondent did not adduce evidence
about the prevailing rates at the time material to this case. ISHCcT

On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas, in the
exercise of its statutory authority to review and fix interest rates, issued Circular No.
799, Series of 2013 to lower to 6% per annum the rate of interest for loan or
forbearance of any money, goods or credits, and the rate allowed in judgment. 53
The revised rate applies only in the absence of stipulation in loan contracts. Hence,
the contractual stipulations on the rates of interest contained in the promissory
notes remained applicable.

Considering that, as mentioned, the P3,553,444.45 was an aggregate inclusive of


the interest (i.e., at the rates of 34.991% and 27.901% per annum); and that the
penalty charges contravened the express provisions of the promissory notes, the
RTC and the CA both erred on a matter of law, and we should correct their error as a
matter of law in the interest of justice.

It is further held that the CA could not validly apply the lower interest rate of
14.239% per annum to the whole amount of P3,553,444.45 in contravention of the
stipulation of the parties. In Mallari v. Prudential Bank, 54 the Court declared that
the interest rate of "3% per month and higher are excessive, unconscionable and
exorbitant, hence, the stipulation was void for being contrary to morals." Even so,
the Court did not consider as unconscionable the interest rate of 23% per annum
agreed upon by the parties. Upholding the 23% per annum interest rate agreed
upon, the Court instead opined that "the borrowers cannot renege on their
obligation to comply with what is incumbent upon them under the contract of loan
as the said contract is the law between the parties and they are bound by its
stipulations." 55 Consequently, the respondent could not impose the flat interest
rate of 14.239% per annum on the petitioner's loan obligation. Verily, the obligatory
force of the stipulations between the parties called for the imposition of the interest
rates stipulated in the promissory notes.

To accord with the prevailing jurisprudence, the Court pronounces that the
respondent was entitled to recover the principal amount of P1,500,000.00 subject to
the stipulated interest of 14.239% per annum from date of default until full
payment; 56 and the principal amount of P1,200,000.00 subject to the stipulated
interest of 17.532% per annum from date of default until full payment. 57

The next matter to be considered and determined is the date of default.


According to Article 1169 of the Civil Code, there is delay or default from the time
the obligee judicially or extrajudicially demands from the obligor the fulfillment of
his or her obligation. The records reveal that the respondent did not establish when
the petitioner defaulted in her obligation to pay based on the two promissory notes.
As such, its claim for payment computed from July 15, 1998 until full payment of the
obligation had no moorings other than July 15, 1998 being the date reflected in the
statements of past due interest and penalty charges as of July 15, 1998.
Nonetheless, its counsel, through the letter dated July 7, 1998, 58 made a final
demand in writing for the petitioner to settle her total obligation within five days
from receipt. As the registry return receipt indicated, 59 the final demand letter was
received for the petitioner by one Elisa dela Cruz on July 28, 1998. Hence, the
petitioner had five days from such receipt, or until August 2, 1998, within which to
comply. The reckoning date of default is, therefore, August 3, 1998. DHITCc

As to the penalty charge, the same was warranted for being expressly stipulated in
the promissory notes, to wit:

I/we further agree to pay the Bank, in addition to the agreed interest rate, a penalty
charge of eighteen per centum (18%) per annum based on any unpaid principal to
be computed from date of default until full payment of the obligation. 60

Verily, a penal clause is an accessary undertaking attached to a principal obligation.


It has for its purposes, firstly, to provide for liquidated damages; and, secondly, to
strengthen the coercive force of the obligation by the threat of greater responsibility
in the event of breach of obligation. 61 Under Article 1226 of the Civil Code, 62 a
penal clause is a substitute indemnity for damages and the payment of interests in
case of noncompliance, unless there is a stipulation to the contrary. In Tan v. Court
of Appeals, 63 the Court has elaborated on the nature of a penalty clause in the
following:

Penalty on delinquent loans may take different forms. In Government Service


Insurance System v. Court of Appeals, this Court has ruled that the New Civil Code
permits an agreement upon a penalty apart from the monetary interest. If the
parties stipulate this kind of agreement, the penalty does not include the monetary
interest, and as such the two are different and distinct from each other and may be
demanded separately. Quoting Equitable Banking Corp. v. Liwanag, the GSIS case
went on to state that such a stipulation about payment of an additional interest rate
partakes of the nature of a penalty clause which is sanctioned by law, more
particularly under Article 2229 of the New Civil Code which provides that:

If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and the absence of stipulation, the
legal interest, which is six per cent per annum.
The penalty charge of two percent (2%) per month in the case at bar began to
accrue from the time of default by the petitioner. There is no doubt that the
petitioner is liable for both the stipulated monetary interest and the stipulated
penalty charge. The penalty charge is also called penalty or compensatory interest.
CAacTH

The Court has explained the rate of compensatory interest on monetary awards
adjudged in decisions of the Court in Planters Development Bank v. Lopez, 64 citing
Nacar v. Gallery Frames, 65 to wit:

With respect to the computation of compensatory interest, Section 1 of Bangko


Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013, which took effect on July
1, 2013, provides:

Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as
to such rate of interest, shall be six percent (6%) per annum.

This provision amends Section 2 of Central Bank (CB) Circular No. 905-82, Series of
1982, which took effect on January 1, 1983. Notably, we recently upheld the
constitutionality of CB Circular No. 905-82 in Advocates for Truth in Lending, Inc., et
al. v. Bangko Sentral ng Pilipinas Monetary Board, etc. Section 2 of CB Circular No.
905-82 provides:

Section 2. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as to
such rate of interest, shall continue to be twelve percent (12%) per annum.

Pursuant to these changes, this Court modified the guidelines in Eastern Shipping
Lines, Inc. v. Court of Appeals in the case of Dario Nacar v. Gallery Frames, et al.
(Nacar). In Nacar, we established the following guidelines:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-


contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of


money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code. (emphasis and underscore supplied) cEaSHC

2. When an obligation, not constituting a loan or forbearance of money, is


breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become final and executory
prior to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.

To accord with the foregoing rulings, the 17.532% and 14.239% annual interest
rates shall also respectively earn a penalty charge of 18% per annum reckoned on
the unpaid principals computed from the date of default (August 3, 1998) until fully
paid. This is in line with the express agreement between the parties to impose such
penalty charge.

Article 2212 of the Civil Code requires that interest due shall earn legal interest from
the time it is judicially demanded, although the obligation may be silent upon this
point. Accordingly, the interest due shall itself earn legal interest of 6% per annum
from the date of finality of the judgment until its full satisfaction, the interim period
being deemed to be an equivalent to a forbearance of credit. 66

WHEREFORE, the Court AFFIRMS the decision promulgated on April 23, 2004 with
the MODIFICATION that the petitioner shall pay to the respondent: (1) the principal
sum of P1,500,000.00 under Promissory Note No. 232711, plus interest at the rate
of 14.239% per annum commencing on August 3, 1998 until fully paid; (2) the
principal sum of P1,200,000.00 under Promissory Note No. 232663, plus interest at
the rate of 17.532% per annum commencing on August 3, 1998 until fully paid; (3)
penalty interest on the unpaid principal amounts at the rate of 18% per annum
commencing on August 3, 1998 until fully paid; (4) legal interest of 6% per annum
on the interests commencing from the finality of this judgment until fully paid; (5)
attorney's fees equivalent to 10% of the total amount due to the respondent; and
(6) costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[G.R. No. 158464. August 2, 2016.]

JOCELYN S. LIMKAICHONG, petitioner, vs. LAND BANK OF THE PHILIPPINES,


DEPARTMENT OF AGRARIAN REFORM, REPRESENTED BY THE SECRETARY OF
AGRARIAN REFORM, THROUGH THE PROVINCIAL AGRARIAN REFORM OFFICER,
respondents.

DECISION

BERSAMIN, J p:

Being now assailed in this appeal are the decision promulgated by the Court of
Appeals (CA) on November 22, 2002 (dismissing the petitioner's petition for
certiorari for not being the proper remedy, thereby affirming the dismissal of Civil
Case No. 12558 by the trial court on the ground of the valuation by the Department
of Agrarian Reform (DAR) having already become final due to her failure as the
landowner to bring her action for judicial determination of just compensation within
15 days from notice of such valuation), 1 and the resolution promulgated on June 2,
2003 (denying her motion for reconsideration). 2 caITAC

Antecedents

The petitioner was the registered owner of agricultural lands with a total area of
19.6843 hectares situated in Villegas, Guihulngan, Negros Oriental and covered by
Original Certificate of Title No. (OCT) FV-34400, OCT No. 34401, OCT No. 34402, and
OCT No. 34403, all of the Register of Deeds of Negros Oriental. For purposes of
placing those lands within the coverage of Republic Act No. 6657 (R.A. No. 6657), 3
the Department of Agrarian Reform Adjudication Board (DARAB), Office of the
Provincial Adjudicator, in Dumaguete City sent to her in 1998 several Notices of
Land Valuation and Acquisition by which her lands were valued for acquisition by
the DAR as follows:

1. OCT FV-34400 P177,074.93; 4

2. OCT FV-34401 P171,061.11; 5

3. OCT FV-34402 P167,626.62; 6 and


4. OCT FV-34403 P140,611.65. 7

After the petitioner rejected such valuation of her lands, the DARAB conducted
summary administrative proceedings for the determination of just compensation. 8
On May 28, 1999, the DARAB issued its order affirming the valuation of the lands
upon finding the valuation consistent with existing administrative guidelines on land
valuation. 9 TAIaHE

On August 19, 1999, the petitioner filed in the Regional Trial Court (RTC) in
Dumaguete City a complaint for the fixing of just compensation for her lands, 10
impleading as defendant the Land Bank of the Philippines (LBP) and the DAR,
represented by the DAR Secretary, through the Dumaguete Provincial Agrarian
Reform Officer (PARO). Her complaint, docketed as Civil Case No. 12558, prayed
that the DARAB valuation be set aside and declared null and void, and that in its
stead the price of her lands be fixed based on the fair market value thereof.

After filing their answer, the respondents filed a manifestation and motion to
dismiss, 11 stating that the petitioner's failure to timely appeal the May 28, 1999
DARAB order had rendered the order final and executory pursuant to Section 51 12
of R.A. No. 6657, They attached to the motion to dismiss a June 23, 2000
certification of finality issued by the Clerk of the DARAB, 13 stating that the May 28,
1999 order had become final and executory because there had been no appeal filed
within the reglementary period provided by law.

In her opposition to the respondents' motion to dismiss, 14 the petitioner admitted


that Civil Case No. 12558 was filed beyond the reglementary period, but insisted
that the RTC sitting as special agrarian court (SAC) was not barred from acquiring
jurisdiction over the complaint for determination of just compensation, because her
cause of action was anchored on the respondents' violation of her right to due
process and their taking of her property without just compensation due to the
DARAB valuation being too low and having been arbitrarily arrived at. She claimed
that the RTC as the SAC should accord her the same treatment it had accorded to
other landowners who had been given the chance to be heard on their claim for re-
valuation despite the belated filing of their complaints for just compensation.

On June 7, 2001, the RTC as the SAC granted the respondents' motion to dismiss. 15
Citing Section 51 and Section 54 16 of R.A. No. 6657 and Section 11 of Rule XIII of
the 1994 DARAB Rules of Procedure, 17 it held that the petitioner's complaint should
have been filed within 15 days from notice of the assailed order. It dismissed her
argument that the case was anchored on violations of her constitutional rights to
due process and just compensation, declaring that the controlling ruling was
Philippine Veterans Bank v. Court of Appeals, 18 not Republic v. Court of Appeals, 19
Thus, applying the ruling in Philippine Veterans Bank, the RTC concluded that
dismissal was proper because she had filed Civil Case No. 12558 beyond the
statutory 15-day period.
The petitioner moved for reconsideration, 20 but to no avail.

Thus, on October 22, 2001, the petitioner brought her petition for certiorari in the
CA assailing the dismissal of Civil Case No. 12558. ICHDca

On November 22, 2002, the CA rendered its decision affirming the dismissal of Civil
Case No. 12558, opining that because the June 7, 2001 order of the RTC dismissing
Civil Case No. 12558 was a final order, the petitioner's remedy was not the special
civil action for certiorari but an appeal in the CA; that she chose the wrong remedy
because certiorari could not take the place of an appeal; and that the RTC thus
committed no grave abuse of discretion that warranted the issuance of the writ of
certiorari.

Issue

The petitioner raises the following issue for resolution:

WHETHER OR NOT ON THE QUESTION OF CONSTITUTIONAL RIGHT TO EQUAL


PROTECTION OF LAW, THE COURT OF APPEALS DECISION DATED NOVEMBER 22,
2002 RULING THAT THE PETITION FOR CERTIORARI WAS NOT THE PROPER REMEDY
IS CONTRARY TO THE LAW AND JURISPRUDENCE AS APPLIED TO THE EVIDENCE ON
RECORD. 21

The petitioner argues that she is entitled to equal protection and treatment
accorded by the very same trial court to other landowners whose landholdings were
placed under agrarian reform coverage, listing the cases involving other landowners
who had been given the chance to be heard on their claim for re-valuation by the
trial court. 22 She justifies her resort to certiorari by claiming that the RTC, in
dismissing Civil Case No. 12558, acted whimsically and arbitrarily, and gravely
abused its discretion; and that certiorari was necessary to prevent irreparable
damage and injury to her resulting from the acquisition by the State of her lands
based on wrongful valuation and without paying her the proper and just
compensation.

In their respective comments, 23 the respondents counter that the petitioner's


reliance on the equal protection clause of the fundamental law is misplaced and
bereft of legal and factual basis; that, on the contrary, they faithfully performed
their task in relation to her landholdings, and in accordance with the agrarian laws
and guidelines issued in furtherance thereof; that the final and executory DARAB
valuation should no longer be disturbed by her frivolous claim of lack of due
process; that her failure to properly observe the rules of procedure relative to
reglementary periods should not be concealed by a trivial claim of violation of her
constitutional rights; that pursuant to Section 60 24 of RA 6657, the decision
became final because an appeal by petition for review was not taken from the
decision of the RTC as the SAC within 15 days from notice of the decision; and that
there was no proof of service on the CA of a copy of the petition as required by
Section 3, Rule 45 of the Rules of Court and Circular No. 19-91, thereby warranting
the outright dismissal of the petition. cDHAES

Ruling of the Court

The petition for review is meritorious.

Certiorari was a proper remedy

despite the availability of appeal

The CA ruled that the proper remedy of the petitioner was not to bring the petition
for certiorari but to appeal the dismissal of Civil Case No. 12558 in accordance with
the Rules of Court; and that appeal as her proper remedy was already time-barred.

Ostensibly, the assailed dismissal by the RTC was an order that had finally disposed
of Civil Case No. 12558; hence, the petitioner's proper recourse therefrom was an
appeal taken in due course because the order of dismissal was a final disposition of
the case. 25 In that situation, certiorari would not have been appropriate.

However, the petitioner would not be prevented from assailing the dismissal by
petition for certiorari provided her resort complied with the requirements of the
Rules of Court for the bringing of the petition for certiorari. In that regard, the
following requisites must concur for certiorari to prosper, namely: (1) the writ is
directed against a tribunal, a board or any officer exercising judicial or quasi-judicial
functions; (2) such tribunal, board or officer has acted without or in excess of
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and (3) there is no appeal or any plain, speedy and adequate remedy in
the ordinary course of law. 26 Without jurisdiction means that the court acted with
absolute lack of authority. There is excess of jurisdiction when the court transcends
its power or acts without any statutory authority. Grave abuse of discretion implies
such capricious and whimsical exercise of judgment as to be equivalent to lack or
excess of jurisdiction; in other words, power is exercised in an arbitrary or despotic
manner by reason of passion, prejudice, or personal hostility; and such exercise is
so patent or so gross as to amount to an evasion of a positive duty or to a virtual
refusal either to perform the duty enjoined or to act at all in contemplation of law.
27

Indeed, the Court has held that the availability of an appeal as a remedy is a bar to
the bringing of the petition for certiorari only where such appeal is in itself a
sufficient and adequate remedy, in that it will promptly relieve the petitioner from
the injurious effects of the judgment or final order complained of. 28 The Court does
not hesitate or halt on its tracks in granting the writ of certiorari to prevent
irreparable damage and injury to a party in cases where the trial judge capriciously
and whimsically exercised his judgment, or where there may be a failure of justice;
29 or where the assailed order is a patent nullity; or where the grant of the writ of
certiorari will arrest future litigations; or for certain considerations, such as public
welfare and public policy. 30 TCAScE

Here, the petitioner laments that she had not been accorded equal protection and
treatment by the trial court which had awarded to other landowners a higher
valuation of their property despite the belated filing of their petitions. For sure, the
petition for certiorari thereby plainly alleged that the RTC had committed grave
abuse of discretion by violating the petitioner's constitutional right to due process or
equal protection. Such a petition should not be forthwith dismissed but should be
fully heard if only to ascertain and determine if the very serious allegations were
true.

II

Dismissal of petitioner's action was unfair and improper

Section 9, Article III of the 1987 Constitution provides that "[p]rivate property shall
not be taken for public use without just compensation." The determination of just
compensation has been the subject of various discordant rulings of the Court.
Although some of the later rulings have supposedly settled the controversy of
whether the courts or the DAR should have the final say on just compensation, the
conflict has continued, and has caused some confusion to the Bench and the Bar, as
well as to the other stakeholders in the expropriation of agricultural landholdings.

Under existing law and regulation, respondent LBP is tasked with the responsibility
of initially determining the value of lands placed under land reform and the just
compensation to be paid the landowners for their taking. 31 By way of notice sent
to the landowner pursuant to Section 16 (a) 32 of R.A. No. 6657, the DAR makes an
offer to acquire the land sought to be placed under agrarian reform. If the
concerned landowner rejects the offer, a summary administrative proceeding is
held, and thereafter the provincial adjudicator (PARAD), the regional adjudicator
(RARAD) or the central adjudicator (DARAB), as the case may be, fixes the price to
be paid for the land, based on the various factors and criteria as determined by law
or regulation. Should the landowner disagree with the valuation, he/she may bring
the matter to the RTC acting as the SAC. 33 This is the procedure for the
determination of just compensation under R.A. No. 6657. 34

There appears to be no question on the respondents' observance of the proper


procedure for acquisition of the petitioner's lands. The remaining issue concerns
whether the trial court's dismissal of her petition because of her failure to file it
before the decision/order of the DARAB became final and executory pursuant to
Section 51 of R.A. No. 6657 was fair and proper.

We rule in the negative.


There have been divergent rulings on whether the courts or another agency of the
government could address the determination of just compensation in eminent
domain, but the starting point is the landmark 1987 ruling in Export Processing
Zone Authority (EPZA) v. Dulay, 35 which resolved the challenge against several
decrees promulgated by President Marcos. The decrees provided certain measures
to the effect that the just compensation for property under expropriation should be
either the assessment of the property by the Government or the sworn valuation of
the property by the owner, whichever was lower. In declaring the decrees
unconstitutional, the Court cogently held: ASEcHI

The method of ascertaining just compensation under the aforecited decrees


constitutes impermissible encroachment on judicial prerogatives. It tends to render
this Court inutile in a matter which under this Constitution is reserved to it for final
determination.

Thus, although in an expropriation proceeding the court technically would still have
the power to determine the just compensation for the property, following the
applicable decrees, its task would be relegated to simply stating the lower value of
the property as declared either by the owner or the assessor. As a necessary
consequence, it would be useless for the court to appoint commissioners under Rule
67 of the Rules of Court. Moreover, the need to satisfy the due process clause in the
taking of private property is seemingly fulfilled since it cannot be said that a judicial
proceeding was not had before the actual taking. However, the strict application of
the decrees during the proceedings would be nothing short of a mere formality or
charade as the court has only to choose between the valuation of the owner and
that of the assessor, and its choice is always limited to the lower of the two. The
court cannot exercise its discretion or independence in determining what is just and
fair. Even a grade school pupil could substitute for the judge insofar as the
determination of constitutional just compensation is concerned.

xxx xxx xxx

In the present petition, we are once again confronted with the same question of
whether the courts under P.D. No. 1533, which contains the same provision on just
compensation as its predecessor decrees, still have the power and authority to
determine just compensation, independent of what is stated by the decree and to
this effect, to appoint commissioners for such purpose.

This time we answer in the affirmative.

xxx xxx xxx

It is violative of due process to deny the owner the opportunity to prove that the
valuation in the tax documents is unfair or wrong. And it is repulsive to the basic
concepts of justice and fairness to allow the haphazard work of a minor bureaucrat
or clerk to absolutely prevail over the judgment of a court promulgated only after
expert commissioners have actually viewed the property, after evidence and
arguments pro and con have been presented, and after all factors and
considerations essential to a fair and just determination have been judiciously
evaluated. 36

The Court has reiterated EPZA v. Dulay in its later decisions, stressing that such
determination was the function of the courts of justice that no other branch or
official of the Government could usurp. cTDaEH

Upon the effectivity of R.A. No. 6657 in 1988, the DAR, as the central implementing
agency of the law, promulgated the DARAB Rules of Procedures in 1989, 1994,
2003, and 2009 pursuant to the provisions of Section 49 37 and Section 50 38 of
R.A. No. 6657 vesting it with the power to issue rules and regulations, whether
substantive or procedural, to carry out the objects and purposes of the CARL.
Moreover, Section 57 of the CARL defines the jurisdiction of the RTC sitting as the
SAC, viz.:

Section 57. Special Jurisdiction. The Special Agrarian Courts shall have original
and exclusive jurisdiction over all petitions for the determination of just
compensation to landowners, and the prosecution of all criminal offenses under this
Act. The Rules of Court shall apply to all proceedings before the Special Agrarian
Courts unless modified by this Act.

The Special Agrarian Courts shall decide all appropriate cases under their special
jurisdiction within thirty (30) days from submission of the case for decision.

Republic v. Court of Appeals, 39 which was principally relied upon by the petitioner
herein, reiterated that the determination of just compensation for the taking of
lands under the CARL was a power vested in the courts and not in administrative
agencies, clarifying that the jurisdiction of the SAC was not appellate but original
and exclusive, to wit:

Apart from the fact that only a statute can confer jurisdiction on courts and
administrative agencies rules of procedure cannot it is noteworthy that the
New Rules of Procedure of the DARAB, which was adopted on May 30, 1994, now
provide that in the event a landowner is not satisfied with a decision of an agrarian
adjudicator, the landowner can bring the matter directly to the Regional Trial Court
sitting as Special Agrarian Court. Thus Rule XIII, 11 of the new rules provides:

11. Land Valuation and Preliminary Determination and Payment of Just


Compensation. The decision of the Adjudicator on land valuation and preliminary
determination and payment of just compensation shall not be appealable to the
Board but shall be brought directly to the Regional Trial Courts designated as
Special Agrarian Courts within fifteen (15) days from receipt of the notice thereof.
Any party shall be entitled to only one motion for reconsideration.
This is an acknowledgment by the DARAB that the decision of just compensation
cases for the taking of lands under R.A. No. 6657 is a power vested in the courts.
ITAaHc

xxx xxx xxx

. . . . In accordance with it, the private respondent's case was properly brought by it
in the RTC, and it was error for the latter court to have dismissed the case. In the
terminology of 57, the RTC, sitting as a Special Agrarian Court, has "original and
exclusive jurisdiction over all petitions for the determination of just compensation to
landowners." It would subvert this "original and exclusive" jurisdiction of the RTC for
the DAR to vest original jurisdiction in compensation cases in administrative officials
and make the RTC an appellate court for the review of administrative decisions.

Consequently, although the new rules speak of directly appealing the decision of
adjudicators to the RTCs sitting as Special Agrarian Courts, it is clear from 57 that
the original and exclusive jurisdiction to determine such cases is in the RTCs. Any
effort to transfer such jurisdiction to the adjudicators and to convert the original
jurisdiction of the RTCs into appellate jurisdiction would be contrary to 57 and
therefore would be void. What adjudicators are empowered to do is only to
determine in a preliminary manner the reasonable compensation to be paid to
landowners, leaving to the courts the ultimate power to decide this question. 40

In the January 18, 2000 ruling in Philippine Veterans Bank, 41 the Court, through
Justice Vicente V. Mendoza who had penned Republic v. Court of Appeals, upheld the
DARAB rule to the effect that the adjudicator's preliminary determination of just
compensation must be brought to the SAC within 15 days from receipt of the notice
thereof; otherwise, the parties would be concluded by the result. The Court then
declared:

As we held in Republic v. Court of Appeals, this rule is an acknowledgment by the


DARAB that the power to decide just compensation cases for the taking of lands
under R.A. No. 6657 is vested in the courts. It is error to think that, because of Rule
XIII, 11, the original and exclusive jurisdiction given to the courts to decide
petitions for determination of just compensation has thereby been transformed into
an appellate jurisdiction. It only means that, in accordance with settled principles of
administrative law, primary jurisdiction is vested in the DAR as an administrative
agency to determine in a preliminary manner the reasonable compensation to be
paid for the lands taken under the Comprehensive Agrarian Reform Program, but
such determination is subject to challenge in the courts.

The jurisdiction of the Regional Trial Courts is not any less "original and exclusive"
because the question is first passed upon by the DAR, as the judicial proceedings
are not a continuation of the administrative determination. For that matter, the law
may provide that the decision of the DAR is final and unappealable. Nevertheless,
resort to the courts cannot be foreclosed on the theory that courts are the
guarantors of the legality of administrative action. cSaATC

Accordingly, as the petition in the Regional Trial Court was filed beyond the 15-day
period provided in Rule XIII, 11 of the Rules of Procedure of the DARAB, the trial
court correctly dismissed the case and the Court of Appeals correctly affirmed the
order of dismissal. 42

However, in the 2007 ruling in Land Bank v. Suntay, 43 the Court opined that the
RTC erred in dismissing the Land Bank's petition for determination of just
compensation on the ground that it was filed beyond the 15-day period provided in
Section 11, Rule XIII of the DARAB New Rules of Procedure. This Court then
emphatically reminded that the SAC's jurisdiction over petitions for the
determination of just compensation was original and exclusive; that any effort to
transfer such jurisdiction to the adjudicators of the DARAB and to convert the
original jurisdiction of the RTC into appellate jurisdiction was void for being contrary
to R.A. No. 6657; and that what DARAB adjudicators were empowered to do was
only to determine in a preliminary manner the reasonable compensation to be paid
to the landowners, leaving to the courts the ultimate power to decide this question.
44

To purge any uncertainties brought about by the conflicting jurisprudence on the


matter, this Court held in its July 31, 2008 resolution in Land Bank v. Martinez: 45

On the supposedly conflicting pronouncements in the cited decisions, the Court


reiterates its ruling in this case that the agrarian reform adjudicator's decision on
land valuation attains finality after the lapse of the 15-day period stated in the
DARAB Rules. The petition for the fixing of just compensation should therefore,
following the law and settled jurisprudence, be filed with the SAC within the said
period. This conclusion, as already explained in the assailed decision, is based on
the doctrines laid down in Philippine Veterans Bank v. Court of Appeals and
Department of Agrarian Reform Adjudication Board v. Lubrica.

xxx xxx xxx

The Court notes that the Suntay ruling is based on Republic of the Philippines v.
Court of Appeals, decided in 1996 also through the pen of Justice Vicente V.
Mendoza. In that case, the Court emphasized that the jurisdiction of the SAC is
original and exclusive, not appellate. Republic, however, was decided at a time
when Rule XIII, Section 11 was not yet present in the DARAB Rules. Further, Republic
did not discuss whether the petition filed therein for the fixing of just compensation
was filed out of time or not. The Court merely decided the issue of whether cases
involving just compensation should first be appealed to the DARAB before the
landowner can resort to the SAC under Section 57 of R.A. No. 6657.
To resolve the conflict in the rulings of the Court, we now declare herein, for the
guidance of the bench and the bar, that the better rule is that stated in Philippine
Veterans Bank, reiterated in Lubrica and in the August 14, 2007 Decision in this
case. Thus, while a petition for the fixing of just compensation with the SAC is not
an appeal from the agrarian reform adjudicator's decision but an original action, the
same has to be filed within the 15-day period stated in the DARAB Rules; otherwise,
the adjudicator's decision will attain finality. This rule is not only in accord with law
and settled jurisprudence but also with the principles of justice and equity. Verily, a
belated petition before the SAC, e.g., one filed a month, or a year, or even a decade
after the land valuation of the DAR adjudicator, must not leave the dispossessed
landowner in a state of uncertainty as to the true value of his property. 46
(Emphasis supplied) CHTAIc

In all of the foregoing rulings of the Court as well as in subsequent ones, it could not
have been overemphasized that the determination of just compensation in eminent
domain is a judicial function. However, the more recent jurisprudence uphold the
preeminence of the pronouncement in Philippine Veterans Bank to the effect that
the parties only have 15 days from their receipt of the decision/order of the DAR
within which to invoke the original and exclusive jurisdiction of the SAC; otherwise,
the decision/order attains finality and immutability.

It remains uncontested that the petitioner filed her complaint in the RTC for the
determination of just compensation after more than two and a half months had
already elapsed from the time the DARAB issued the assailed valuation. Following
the pronouncement in Philippine Veterans Banks, her failure to file the complaint
within the prescribed 15-day period from notice would have surely rendered the
DARAB's valuation order final and executory. As such, it would seem that there was
sufficient ground for the dismissal of the petitioner's complaint for having been filed
out of time.

However, we cannot fairly and properly hold that the petitioner's complaint for the
determination of just compensation should be barred from being tried and decided
on that basis. The prevailing rule at the time she filed her complaint on August 19,
1999 was that enunciated in Republic v. Court of Appeals on October 30, 1996. 47
The pronouncement in Philippine Veterans Bank was promulgated on January 18,
2000 when the trial was already in progress in the RTC. At any rate, it would only be
eight years afterwards that the Court en banc unanimously resolved the
jurisprudential conundrum through its declaration in Land Bank v. Martinez that the
better rule was that enunciated in Philippine Veterans Bank. The Court must,
therefore, prospectively apply Philippine Veterans Bank. The effect is that the
petitioner's cause of action for the proper valuation of her expropriated property
should be allowed to proceed. Hence, her complaint to recover just compensation
was properly brought in the RTC as the SAC, whose dismissal of it upon the motion
of Land Bank should be undone.
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the
decision of the Court of Appeals dated November 22, 2002; and DIRECT the
Regional Trial Court, Branch 30, in Dumaguete City to resume the proceedings in
Civil Case No. 12558 for the determination of just compensation of petitioner
Jocelyn S. Limkaichong's expropriated property. cHDAIS

No pronouncement on costs of suit.

[G.R. No. 192477. July 27, 2016.]

MOMARCO IMPORT COMPANY, INC., petitioner, vs. FELICIDAD VILLAMENA,


respondent.

DECISION

BERSAMIN, J p:

A default judgment is frowned upon because of the policy of the law to hear every
litigated case on the merits. But the default judgment will not be vacated unless the
defendant satisfactorily explains the failure to file the answer, and shows that it has
a meritorious defense.

The Case

Under challenge by the petitioner is the affirmance on January 14, 2010 by the
Court of Appeals (CA) 1 of the trial court's default judgment rendered against it on
August 23, 1999 in Civil Case No. C-18066 by the Regional Trial Court (RTC), Branch
126, in Caloocan City. 2 The defendant hereby prays that the default judgment be
undone, and that the case be remanded to the RTC for further proceedings,
including the reception of its evidence. 3

Antecedents

Civil Case No. C-18066 is an action the respondent initiated against the petitioner
for the nullification of a deed of absolute sale involving registered real property and
its improvements situation in Caloocan City as well as of the transfer certificate of
title issued in favor of the latter by virtue of said deed of absolute sale on the
ground of falsification. EHaASD

The following factual and procedural antecedents are summarized by the CA in its
assailed decision, to wit:

On September 23, 1997, plaintiff filed against defendant a complaint for


"Nullification of Deed of Sale and of the Title Issued" pursuant thereto alleging that
she is the owner of a parcel of land with improvements located in Caloocan City and
covered by Transfer Certificate of Title No. 204755. A letter from defendant
corporation dated June 12, 1997, informed plaintiff that TCT No. 204755 over
aforesaid property had been cancelled and TCT No. C-319464 was issued in lieu
thereof in favor of defendant corporation on the strength of a purported Special
Power of Attorney executed by Dominador Villamena, her late husband, appointing
her, plaintiff Felicidad Villamena, as his attorney-in-fact and a deed of absolute sale
purportedly executed by her in favor of defendant corporation on May 21, 1997, the
same date as the Special Power of Attorney. The Special Power of Attorney dated
May 21, 1997 is a forgery. Her husband Dominador died on June 22, 1991. The deed
of sale in favor of defendant corporation was falsified. What plaintiff executed in
favor of Mamarco was a deed of real estate mortgage to secure a loan of
P100,000.00 and not a deed of transfer/conveyance.

xxx xxx xxx

On August 19, 1998, plaintiff filed a motion to declare defendant corporation in


default for failure of aforesaid defendant to file its answer as of said date despite
the filing of an Entry of Appearance by its counsel dated May 4, 1998.

On September 10, 1998 defendant corporation filed its Answer with Counterclaim
which denied the allegations in the complaint; alleged that plaintiff and her
daughter Lolita accompanied by a real estate agent approached the President of
Momarco for a loan of P100,000.00; offered their house and lot as collateral; and
presented a Special Power of Attorney from her husband. She was granted said
loan. Aforesaid loan was not repaid. Interests accumulated and were added to the
principal. Plaintiff offered to execute a deed of sale over the property on account of
her inability to pay. Plaintiff presented to defendant corporation a deed of sale and
her husband's Special of Power Attorney already signed and notarized. 4

Under the order dated October 15, 1998, the petitioner was declared in default, and
its answer was ordered stricken from the records. Thereafter, the RTC allowed the
respondent to present her evidence ex parte. IDTSEH

On August 23, 1999, the RTC rendered the default judgment nullifying the assailed
deed of absolute sale and the transfer certificate of title issued pursuant thereto;
and ordering the Register of Deeds of Caloocan City to cancel the petitioner's
Transfer Certificate of Title No. C-319464, and to reinstate the respondent's Transfer
Certificate of Title No. 204755. 5 It concluded that the act of the petitioner's counsel
of formally entering an appearance in the case had mooted the issue of defective
service of summons; and that the respondent had duly established by
preponderance of evidence that the purported special power of attorney was a
forgery. 6

The petitioner appealed the default judgment to the CA, arguing that the RTC had
gravely erred in nullifying the questioned deed of absolute sale and in declaring it in
default.

On January 14, 2010, the CA promulgated the assailed decision affirming the default
judgment upon finding that the RTC did not commit any error in declaring the
petitioner in default and in rendering judgment in favor of the respondent who had
successfully established her claim of forgery by preponderance of evidence. 7

On May 31, 2010, the CA denied the petitioner's motion for reconsideration. 8

Hence, this appeal by the petitioner.

Issue

The petitioner raises the lone issue of whether or not the CA gravely erred in
upholding the default judgment of the RTC; in ordering its answer stricken off the
records; in allowing the respondent to adduce her evidence ex parte; and in
rendering the default judgment based on such evidence. 9

Ruling of the Court

The appeal lacks merit.

The petitioner claims denial of its right to due process, insisting that the service of
summons and copy of the complaint was defective, as, in fact, there was no sheriff's
return filed; that the service of the alias summons on January 20, 1998 was also
defective; and that, accordingly, its reglementary period to file the answer did not
start to run. DaIAcC

The claim of the petitioner is unfounded. The filing of the formal entry of
appearance on May 5, 1998 indicated that it already became aware of the
complaint filed against it on September 23, 1997. Such act of counsel, because it
was not for the purpose of objecting to the jurisdiction of the trial court, constituted
the petitioner's voluntary appearance in the action, which was the equivalent of the
service of summons. 10 Jurisdiction over the person of the petitioner as the
defendant became thereby vested in the RTC, and cured any defect in the service of
summons. 11

Under Section 3, 12 Rule 9 of the Rules of Court, the three requirements to be


complied with by the claiming party before the defending party can be declared in
default are: (1) that the claiming party must file a motion praying that the court
declare the defending party in default; (2) the defending party must be notified of
the motion to declare it in default; (3) the claiming party must prove that the
defending party failed to answer the complaint within the period provided by the
rule. 13 It is plain, therefore, that the default of the defending party cannot be
declared motu proprio. 14

Although the respondent filed her motion to declare the petitioner in default with
notice to the petitioner only on August 19, 1998, all the requisites for properly
declaring the latter in default then existed. On October 15, 1998, therefore, the RTC
appropriately directed the answer filed to be stricken from the records and declared
the petitioner in default. It also received ex parte the respondent's evidence,
pursuant to the relevant rule. 15

The petitioner's logical remedy was to have moved for the lifting of the declaration
of its default but despite notice it did not do the same before the RTC rendered the
default judgment on August 23, 1999. Its motion for that purpose should have been
under the oath of one who had knowledge of the facts, and should show that it had
a meritorious defense, 16 and that its failure to file the answer had been due to
fraud, accident, mistake or excusable negligence. Its urgent purpose to move in the
RTC is to avert the rendition of the default judgment. Instead, it was content to insist
in its comment/opposition vis--vis the motion to declare it in default that: (1) it had
already filed its answer; (2) the order of default was generally frowned upon by the
courts; (3) technicalities should not be resorted to; and (4) it had a meritorious
defense. It is notable that it tendered no substantiation of what was its meritorious
defense, and did not specify the circumstances of fraud, accident, mistake, or
excusable negligence that prevented the filing of the answer before the order of
default issued the crucial elements in asking the court to consider vacating its
own order. SICDAa

The policy of the law has been to have every litigated case tried on the merits. As a
consequence, the courts have generally looked upon a default judgment with
disfavor because it is in violation of the right of a defending party to be heard. As
the Court has said in Coombs v. Santos: 17

A default judgment does not pretend to be based upon the merits of the
controversy. Its existence is justified on the ground that it is the one final expedient
to induce defendant to join issue upon the allegations tendered by the plaintiff, and
to do so without unnecessary delay. A judgment by default may amount to a
positive and considerable injustice to the defendant; and the possibility of such
serious consequences necessitates a careful examination of the grounds upon which
the defendant asks that it be set aside.

In implementation of the policy against defaults, the courts have admitted answers
filed beyond the reglementary periods but before the declaration of default. 18

Considering that the petitioner was not yet declared in default when it filed the
answer on September 10, 1998, should not its answer have been admitted?

The petitioner raised this query in its motion for reconsideration in the CA, pointing
out that the RTC could no longer declare it in default and order its answer stricken
from the records after it had filed its answer before such declaration of default.
However, the CA, in denying the motion for reconsideration, negated the query,
stating as follows:

Unfortunately, we find the foregoing arguments insufficient to reverse our earlier


ruling. These points do little to detract from the fact that Defendant-Appellant filed
its Answer only after a period of more than four months from when it entered its
voluntary appearance in the case a quo, and only after almost a month from when
Plaintiff-Appellee moved to have it declared in default. TAacHE

Verily, Defendant-Appellant's temerity for delay is also betrayed (sic) by the fact
that it had waited for a judgment to be rendered by the court a quo before it
challenged the order declaring it in default. If it truly believed that it had a
"meritorious defense[,] which if properly ventilated could have yielded a different
conclusion [by the trial court]," then it could very well have moved to set aside the
Order of Default immediately after notice thereof or anytime before judgment.
Under the circumstances, that would have been the most expeditious remedy.
Inauspiciously, Defendant-Appellant instead elected to wager on a favorable
judgment. Defeated, Defendant-Appellant would now have us set aside the Order of
Default on Appeal and remand the case for further proceedings. These we cannot
do.

While we are aware that we are vested with some discretion to condone Defendant-
Appellant's procedural errors, we do not find that doing so will serve the best
interests of justice. To remand this case to the court a quo on the invocation that we
must be liberal in setting aside orders of default, would be to reward Defendant-
Appellant with more delay. It bears stating that the Rules of Procedure are liberally
construed not to suit the convenience of a party, but "in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and
proceeding." To this end, it has been rightly written:

Procedural rules are not to be disregarded as mere technicalities that may be


ignored at will to suit the convenience of a party. . . . .

It cannot be overemphasized that procedural rules have their own wholesome


rationale in the orderly administration of justice. Justice has to be administered
according to the rules in order to obviate arbitrariness, caprice and whimsicality. 19
DHIcET

We concur with the CA's justification. The RTC and the CA acted in accordance with
the Rules of Court and the pertinent jurisprudence. The petitioner was insincere in
assailing the default judgment, and its insincerity became manifest from its failure
to move for the lifting of the order of default prior to the rendition of the default
judgment. The CA rightly observed that the petitioner had apparently forsaken its
"expeditious remedy" of moving soonest for the lifting of the order of default in
favor of "wager[ing]" on obtaining a favorable judgment. The petitioner would not
do so unless it intended to unduly cause delay to the detriment and prejudice of the
respondent.

The sincerity of the petitioner's actions cannot be presumed. Hence, it behooves it


to allege the suitable explanation for the failure or the delay to file the answer
through a motion to lift the order of default before the default judgment is rendered.
This duty to explain is called for by the philosophy underlying the doctrine of default
in civil procedure, which Justice Narvasa eruditely discoursed on in Gochangco v. CFI
Negros Occidental, 20 to wit:

The underlying philosophy of the doctrine of default is that the defendant's failure
to answer the complaint despite receiving copy thereof together with summons, is
attributable to one of two causes: either (a) to his realization that he has no
defenses to the plaintiff's cause and hence resolves not to oppose the complaint, or,
(b) having good defenses to the suit, to fraud, accident, mistake or excusable
negligence which prevented him from seasonably filing an answer setting forth
those defenses. It does make sense for a defendant without defenses, and who
accepts the correctness of the specific relief prayed for in the complaint, to forego
the filing of the answer or any sort of intervention in the action at all. For even if he
did intervene, the result would be the same: since he would be unable to establish
any good defense, having none in fact, judgment would inevitably go against him.
And this would be an acceptable result, if not being in his power to alter or prevent
it, provided that the judgment did not go beyond or differ from the specific relief
stated in the complaint. It would moreover spare him from the embarrassment of
openly appearing to defend the indefensible. On the other hand, if he did have good
defenses, it would be unnatural for him not to set them up properly and timely, and
if he did not in fact set them up, it must be presumed that some insuperable cause
prevented him from doing so: fraud, accident, mistake, excusable negligence. In this
event, the law will grant him relief; and the law is in truth quite liberal in the reliefs
made available to him: a motion to set aside the order of default prior to judgment,
a motion for new trial to set aside the default judgment; an appeal from the
judgment by default even if no motion to set aside the order of default or motion for
new trial had been previously presented; a special civil action for certiorari
impugning the court's jurisdiction. 21 HDICSa

It is true that the RTC had the discretion to permit the filing of the answer even
beyond the reglementary period, or to refuse to set aside the default order where it
finds no justification for the delay in the filing of the answer. 22 Conformably with
the judicious exercise of such discretion, the RTC could then have admitted the
belated answer of the petitioner and lifted the order of default instead of striking
the answer from the records. However, the RTC opted not to condone the inordinate
delay taken by the petitioner, and went on to render the default judgment on
August 23, 1999. Such actions were fully within its discretion. 23 We uphold the
default. While the courts should avoid orders of default, and should be, as a rule,
liberal in setting aside orders of default, 24 they could not ignore the abuse of
procedural rules by litigants like the petitioner, who only had themselves to blame.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the
decision of the Court of Appeals promulgated on January 14, 2010; and ORDERS the
petitioner to pay the costs of suit.
SO ORDERED. HcDSaT

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

Footnotes

[G.R. No. 172682. July 27, 2016.]

SULPICIO LINES, INC., petitioner, vs. NAPOLEON SESANTE, NOW SUBSTITUTED BY


MARIBEL ATILANO, KRISTEN MARIE, CHRISTIAN IONE, KENNETH KERRN AND
KARISNA KATE, ALL SURNAMED SESANTE, respondents.

DECISION

BERSAMIN, J p:

Moral damages are meant to enable the injured party to obtain the means,
diversions or amusements in order to alleviate the moral suffering. Exemplary
damages are designed to permit the courts to reshape behavior that is socially
deleterious in its consequence by creating negative incentives or deterrents against
such behavior.

The Case

This appeal seeks to undo and reverse the adverse decision promulgated on June
27, 2005, 1 whereby the Court of Appeals (CA) affirmed with modification the
judgment of the Regional Trial Court (RTC), Branch 91, in Quezon City holding the
petitioner liable to pay temperate and moral damages due to breach of contract of
carriage. 2 HTcADC

Antecedents

On September 18, 1998, at around 12:55 p.m., the M/V Princess of the Orient, a
passenger vessel owned and operated by the petitioner, sank near Fortune Island in
Batangas. Of the 388 recorded passengers, 150 were lost. 3 Napoleon Sesante, then
a member of the Philippine National Police (PNP) and a lawyer, was one of the
passengers who survived the sinking. He sued the petitioner for breach of contract
and damages. 4

Sesante alleged in his complaint that the M/V Princess of the Orient left the Port of
Manila while Metro Manila was experiencing stormy weather; that at around 11:00
p.m., he had noticed the vessel listing starboard, so he had gone to the uppermost
deck where he witnessed the strong winds and big waves pounding the vessel; that
at the same time, he had seen how the passengers had been panicking, crying for
help and frantically scrambling for life jackets in the absence of the vessel's officers
and crew; that sensing danger, he had called a certain Vency Ceballos through his
cellphone to request him to inform the proper authorities of the situation; that
thereafter, big waves had rocked the vessel, tossing him to the floor where he was
pinned by a long steel bar; that he had freed himself only after another wave had
hit the vessel; 5 that he had managed to stay afloat after the vessel had sunk, and
had been carried by the waves to the coastline of Cavite and Batangas until he had
been rescued; that he had suffered tremendous hunger, thirst, pain, fear, shock,
serious anxiety and mental anguish; that he had sustained injuries, 6 and had lost
money, jewelry, important documents, police uniforms and the .45 caliber pistol
issued to him by the PNP; and that because it had committed bad faith in allowing
the vessel to sail despite the storm signal, the petitioner should pay him actual and
moral damages of P500,000.00 and P1,000,000.00, respectively. 7

In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of
the Orient due to its having been cleared to sail from the Port of Manila by the
proper authorities; that the sinking had been due to force majeure; that it had not
been negligent; and that its officers and crew had also not been negligent because
they had made preparations to abandon the vessel because they had launched life
rafts and had provided the passengers assistance in that regard. 8

Decision of the RTC

On October 12, 2001, the RTC rendered its judgment in favor of the respondent, 9
holding as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff Napoleon Sesante


and against defendant Sulpicio Lines, Inc., ordering said defendant to pay plaintiff:

1. Temperate damages in the amount of P400,000.00;

2. Moral damages in the amount of One Million Pesos (P1,000,000.00);

3. Costs of suit.

SO ORDERED. 10 CAIHTE

The RTC observed that the petitioner, being negligent, was liable to Sesante
pursuant to Articles 1739 and 1759 of the Civil Code; that the petitioner had not
established its due diligence in the selection and supervision of the vessel crew;
that the ship officers had failed to inspect the stowage of cargoes despite being
aware of the storm signal; that the officers and crew of the vessel had not
immediately sent a distress signal to the Philippine Coast Guard; that the ship
captain had not called for the "abandon ship" protocol; and that based on the report
of the Board of Marine Inquiry (BMI), the erroneous maneuvering of the vessel by
the captain during the extreme weather condition had been the immediate and
proximate cause of the sinking.

The petitioner sought reconsideration, but the RTC only partly granted its motion by
reducing the temperate damages from P500,000.00 to P300,000.00. 11
Dissatisfied, the petitioner appealed. 12 It was pending the appeal in the CA when
Sesante passed away. He was substituted by his heirs. 13

Judgment of the CA

On June 27, 2005, the CA promulgated its assailed decision. It lowered the
temperate damages to P120,000.00, which approximated the cost of Sesante's lost
personal belongings; and held that despite the seaworthiness of the vessel, the
petitioner remained civilly liable because its officers and crew had been negligent in
performing their duties. 14

Still aggrieved, Sulpicio Lines moved for reconsideration, but the CA denied the
motion. 15

Hence, this appeal. aScITE

Issues

The petitioner attributes the following errors to the CA, to wit:

THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES,


AS THE INSTANT CASE IS FOR ALLEGED PERSONAL INJURIES PREDICTED ON BREACH
OF CONTRACT OF CARRIAGE, AND THERE BEING NO PROOF OF BAD FAITH ON THE
PART OF SULPICIO

II

THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT OF MORAL DAMAGES


AWARDED, THE SAME BEING UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE,
AND TRANSLATES TO UNJUST ENRICHMENT AGAINST SULPICIO

III

THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF TEMPERATE


DAMAGES AS THE SAME CANNOT SUBSTITUTE FOR A FAILED CLAIM FOR ACTUAL
DAMAGES, THERE BEING NO COMPETENT PROOF TO WARRANT SAID AWARD

IV

THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE REQUISITE NOTICE


UNDER THE LAW WAS NOT GIVEN TO SULPICIO IN ORDER TO HOLD IT LIABLE FOR
THE ALLEGED LOSS OF SESANTE'S PERSONAL BELONGINGS

V
THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF RESPONDENT
SESANTE IN THE INSTANT CASE, THE SAME BEING A PERSONAL ACTION WHICH
DOES NOT SURVIVE DETACa

VI

THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF THE NEW CIVIL
CODE AGAINST SULPICIO SANS A CLEAR-CUT FINDING OF SULPICIO'S BAD FAITH IN
THE INCIDENT 16

In other words, to be resolved are the following, namely: (1) Is the complaint for
breach of contract and damages a personal action that does not survive the death
of the plaintiff?; (2) Is the petitioner liable for damages under Article 1759 of the
Civil Code?; and (3) Is there sufficient basis for awarding moral and temperate
damages?

Ruling of the Court

The appeal lacks merit.

An action for breach of contract of carriage

survives the death of the plaintiff

The petitioner urges that Sesante's complaint for damages was purely personal and
cannot be transferred to his heirs upon his death. Hence, the complaint should be
dismissed because the death of the plaintiff abates a personal action.

The petitioner's urging is unwarranted.

Section 16, Rule 3 of the Rules of Court lays down the proper procedure in the event
of the death of a litigant, viz.:

Section 16. Death of party; duty of counsel. Whenever a party to a pending


action dies, and the claim is not thereby extinguished, it shall be the duty of his
counsel to inform the court within thirty (30) days after such death of the fact
thereof, and to give the name and address of his legal representative or
representatives. Failure of counsel to comply with his duty shall be a ground for
disciplinary action.

The heirs of the deceased may be allowed to be substituted for the deceased,
without requiring the appointment of an executor or administrator and the court
may appoint a guardian ad litem for the minor heirs.

xxx xxx xxx


Substitution by the heirs is not a matter of jurisdiction, but a requirement of due
process. 17 It protects the right of due process belonging to any party, that in the
event of death the deceased litigant continues to be protected and properly
represented in the suit through the duly appointed legal representative of his
estate. 18 HEITAD

The application of the rule on substitution depends on whether or not the action
survives the death of the litigant. Section 1, Rule 87 of the Rules of Court
enumerates the following actions that survive the death of a party, namely: (1)
recovery of real or personal property, or an interest from the estate; (2)
enforcement of liens on the estate; and (3) recovery of damages for an injury to
person or property. On the one hand, Section 5, Rule 86 of the Rules of Court lists
the actions abated by death as including: (1) claims for funeral expenses and those
for the last sickness of the decedent; (2) judgments for money; and (3) all claims for
money against the deceased, arising from contract, express or implied.

A contract of carriage generates a relation attended with public duty, neglect or


malfeasance of the carrier's employees and gives ground for an action for damages.
19 Sesante's claim against the petitioner involved his personal injury caused by the
breach of the contract of carriage. Pursuant to the aforecited rules, the complaint
survived his death, and could be continued by his heirs following the rule on
substitution.

II

The petitioner is liable for

breach of contract of carriage

The petitioner submits that an action for damages based on breach of contract of
carriage under Article 1759 of the Civil Code should be read in conjunction with
Article 2201 of the same code; that although Article 1759 only provides for a
presumption of negligence, it does not envision automatic liability; and that it was
not guilty of bad faith considering that the sinking of M/V Princess of the Orient had
been due to a fortuitous event, an exempting circumstance under Article 1174 of
the Civil Code.

The submission has no substance.

Article 1759 of the Civil Code does not establish a presumption of negligence
because it explicitly makes the common carrier liable in the event of death or injury
to passengers due to the negligence or fault of the common carrier's employees. It
reads: aDSIHc

Article 1759. Common carriers are liable for the death or injuries to passengers
through the negligence or willful acts of the former's employees, although such
employees may have acted beyond the scope of their authority or in violation of the
orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of their
employees.

The liability of common carriers under Article 1759 is demanded by the duty of
extraordinary diligence required of common carriers in safely carrying their
passengers. 20

On the other hand, Article 1756 of the Civil Code lays down the presumption of
negligence against the common carrier in the event of death or injury of its
passenger, viz.:

Article 1756. In case of death of or injuries to passengers, common carriers are


presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in Articles 1733 and 1755.

Clearly, the trial court is not required to make an express finding of the common
carrier's fault or negligence. 21 Even the mere proof of injury relieves the
passengers from establishing the fault or negligence of the carrier or its employees.
22 The presumption of negligence applies so long as there is evidence showing that:
(a) a contract exists between the passenger and the common carrier; and (b) the
injury or death took place during the existence of such contract. 23 In such event,
the burden shifts to the common carrier to prove its observance of extraordinary
diligence, and that an unforeseen event or force majeure had caused the injury. 24
ATICcS

Sesante sustained injuries due to the buffeting by the waves and consequent
sinking of M/V Princess of the Orient where he was a passenger. To exculpate itself
from liability, the common carrier vouched for the seaworthiness of M/V Princess of
the Orient, and referred to the BMI report to the effect that the severe weather
condition a force majeure had brought about the sinking of the vessel.

The petitioner was directly liable to Sesante and his heirs.

A common carrier may be relieved of any liability arising from a fortuitous event
pursuant to Article 1174 25 of the Civil Code. But while it may free a common
carrier from liability, the provision still requires exclusion of human agency from the
cause of injury or loss. 26 Else stated, for a common carrier to be absolved from
liability in case of force majeure, it is not enough that the accident was caused by a
fortuitous event. The common carrier must still prove that it did not contribute to
the occurrence of the incident due to its own or its employees' negligence. 27 We
explained in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc.,
28 as follows:
In order to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to comply with
his obligation, must be independent of human will; (2) it must be impossible to
foresee the event which constitute the caso fortuito, or if it can be foreseen it must
be impossible to avoid; (3) the occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in any manner; and (4) the obligor must be free
from any participation in the aggravation of the injury resulting to the creditor.

[T]he principle embodied in the act of God doctrine strictly requires that the act
must be occasioned solely by the violence of nature. Human intervention is to be
excluded from creating or entering into the cause of the mischief. When the effect is
found to be in part the result of the participation of man, whether due to his active
intervention or neglect or failure to act, the whole occurrence is then humanized
and removed from the rules applicable to the acts of God. 29 (bold underscoring
supplied for emphasis) ETHIDa

The petitioner has attributed the sinking of the vessel to the storm notwithstanding
its position on the seaworthiness of M/V Princess of the Orient. Yet, the findings of
the BMI directly contradicted the petitioner's attribution, as follows:

7. The Immediate and the Proximate Cause of the Sinking

The Captain's erroneous maneuvers of the M/V Princess of the Orient minutes
before she sunk [sic] had caused the accident. It should be noted that during the
first two hours when the ship left North Harbor, she was navigating smoothly
towards Limbones Point. During the same period, the ship was only subjected to the
normal weather stress prevailing at the time. She was then inside Manila Bar. The
waves were observed to be relatively small to endanger the safety of the ship. It
was only when the M/V Princess of the Orient had cleared Limbones Pt. while
navigating towards the direction of the Fortune Island when this agonizing
misfortune struck the ship.

Initially, a list of three degrees was observed. The listing of the ship to her portside
had continuously increased. It was at this point that the captain had misjudged the
situation. While the ship continuously listed to her portside and was battered by big
waves, strong southwesterly winds, prudent judgement [sic] would dictate that the
Captain should have considerably reduced the ship's speed. He could have
immediately ordered the Chief Engineer to slacken down the speed. Meanwhile, the
winds and waves continuously hit the ship on her starboard side. The waves were at
least seven to eight meters in height and the wind velocity was a[t] 25 knots. The
M/V Princess of the Orient being a close-type ship (seven decks, wide and high
superstructure) was vulnerable and exposed to the howling winds and ravaging
seas. Because of the excessive movement, the solid and liquid cargo below the
decks must have shifted its weight to port, which could have contributed to the
tilted position of the ship.
Minutes later, the Captain finally ordered to reduce the speed of the ship to 14
knots. At the same time, he ordered to put ballast water to the starboard-heeling
tank to arrest the continuous listing of the ship. This was an exercise in futility
because the ship was already listing between 15 to 20 degrees to her portside. The
ship had almost reached the maximum angle of her loll. At this stage, she was
about to lose her stability. TIADCc

Despite this critical situation, the Captain executed several starboard maneuvers.
Steering the course of the Princess to starboard had greatly added to her tilting. In
the open seas, with a fast speed of 14 knots, advance maneuvers such as this
would tend to bring the body of the ship in the opposite side. In navigational terms,
this movement is described as the centripetal force. This force is produced by the
water acting on the side of the ship away from the center of the turn. The force is
considered to act at the center of lateral resistance which, in this case, is the
centroid of the underwater area of the ship's side away from the center of the turn.
In the case of the Princess, when the Captain maneuvered her to starboard, her
body shifted its weight to port. Being already inclined to an angle of 15 degrees,
coupled with the instantaneous movement of the ship, the cargoes below deck
could have completely shifted its position and weight towards portside. By this time,
the ship being ravaged simultaneously by ravaging waves and howling winds on her
starboard side, finally lost her grip. 30

Even assuming the seaworthiness of the M/V Princess of the Orient, the petitioner
could not escape liability considering that, as borne out by the aforequoted findings
of the BMI, the immediate and proximate cause of the sinking of the vessel had
been the gross negligence of its captain in maneuvering the vessel.

The Court also notes that Metro Manila was experiencing Storm Signal No. 1 during
the time of the sinking. 31 The BMI observed that a vessel like the M/V Princess of
the Orient, which had a volume of 13.734 gross tons, should have been capable of
withstanding a Storm Signal No. 1 considering that the responding fishing boats of
less than 500 gross tons had been able to weather through the same waves and
winds to go to the succor of the sinking vessel and had actually rescued several of
the latter's distressed passengers. 32

III

The award of moral damages and

temperate damages is proper

The petitioner argues that moral damages could be meted against a common
carrier only in the following instances, to wit: (1) in the situations enumerated by
Article 2201 of the Civil Code; (2) in cases of the death of a passenger; or (3) where
there was bad faith on the part of the common carrier. It contends that none of
these instances obtained herein; hence, the award should be deleted. cSEDTC
We agree with the petitioner that moral damages may be recovered in an action
upon breach of contract of carriage only when: (a) death of a passenger results, or
(b) it is proved that the carrier was guilty of fraud and bad faith, even if death does
not result. 33 However, moral damages may be awarded if the contractual breach is
found to be wanton and deliberately injurious, or if the one responsible acted
fraudulently or with malice or bad faith. 34

The CA enumerated the negligent acts committed by the officers and crew of M/V
Princess of the Orient, viz.:

. . . . [W]hile this Court yields to the findings of the said investigation report, yet it
should be observed that what was complied with by Sulpicio Lines were only the
basic and minimal safety standards which would qualify the vessel as seaworthy. In
the same report however it also revealed that the immediate and proximate cause
of the sinking of the M/V Princess of the Orient was brought by the following:
erroneous maneuvering command of Captain Esrum Mahilum and due to the
weather condition prevailing at the time of the tragedy. There is no doubt that under
the circumstances the crew of the vessel were negligent in manning it. In fact this
was clearly established by the investigation of the Board of Marine Inquiry where it
was found that:

The Chief Mate, when interviewed under oath, had attested that he was not able to
make stability calculation of the ship vis--vis her cargo. He did not even know the
metacentric height (GM) of the ship whether it be positive or negative.

As cargo officer of the ship, he failed to prepare a detailed report of the ship's cargo
stowage plan.

He likewise failed to conduct the soundings (measurement) of the ballast tanks


before the ship departed from port. He readily presumed that the ship was full of
ballast since the ship was fully ballasted when she left Cebu for Manila on 16
September 1998 and had never discharge[d] its contents since that time.

Being the officer-in-charge for emergency situation (sic) like this, he failed to
execute and supervise the actual abandonship (sic) procedure. There was no
announcement at the public address system of abandonship (sic), no orderly
distribution of life jackets and no orderly launching of life rafts. The witnesses have
confirmed this finding on their sworn statements.

There was miscalculation in judgment on the part of the Captain when he


erroneously navigated the ship at her last crucial moment. . . . AIDSTE

To aggravate his case, the Captain, having full command and responsibility of the
M/V Princess of the Orient, had failed to ensure the proper execution of the actual
abandoning of the ship.
The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second
Engineer, Third Engineer and Fourth Engineer), being in charge of their respective
abandonship (sic) post, failed to supervise the crew and passengers in the proper
execution of abandonship (sic) procedure.

The Radio Officer (spark) failed to send the SOS message in the internationally
accepted communication network (VHF Channel 16). Instead, he used the Single
Side Band (SSB) radio in informing the company about the emergency situation. . . .
35

The aforestated negligent acts of the officers and crew of M/V Princess of the Orient
could not be ignored in view of the extraordinary duty of the common carrier to
ensure the safety of the passengers. The totality of the negligence by the officers
and crew of M/V Princess of the Orient, coupled with the seeming indifference of the
petitioner to render assistance to Sesante, 36 warranted the award of moral
damages.

While there is no hard-and-fast rule in determining what is a fair and reasonable


amount of moral damages, the discretion to make the determination is lodged in the
trial court with the limitation that the amount should not be palpably and
scandalously excessive. The trial court then bears in mind that moral damages are
not intended to impose a penalty on the wrongdoer, or to enrich the plaintiff at the
expense of the defendant. 37 The amount of the moral damages must always
reasonably approximate the extent of injury and be proportional to the wrong
committed. 38

The Court recognizes the mental anguish, agony and pain suffered by Sesante who
fought to survive in the midst of the raging waves of the sea while facing the
immediate prospect of losing his life. His claim for moral and economic vindication
is a bitter remnant of that most infamous tragedy that left hundreds of families
broken in its wake. The anguish and moral sufferings he sustained after surviving
the tragedy would always include the memory of facing the prospect of his death
from drowning, or dehydration, or being preyed upon by sharks. Based on the
established circumstances, his survival could only have been a miracle wrought by
God's grace, by which he was guided in his desperate swim for the safety of the
shore. But even with the glory of survival, he still had to grapple with not just the
memory of having come face to face with almost certain death, but also with having
to answer to the instinctive guilt for the rest of his days of being chosen to live
among the many who perished in the tragedy. 39 AaCTcI

While the anguish, anxiety, pain and stress experienced by Sesante during and after
the sinking cannot be quantified, the moral damages to be awarded should at least
approximate the reparation of all the consequences of the petitioner's negligence.
With moral damages being meant to enable the injured party to obtain the means,
diversions or amusements in order to alleviate his moral and physical sufferings, 40
the Court is called upon to ensure that proper recompense be allowed to him,
through his heirs. For this purpose, the amount of P1,000,000.00, as granted by the
RTC and affirmed by the CA, is maintained.

The petitioner contends that its liability for the loss of Sesante's personal belongings
should conform with Article 1754, in relation to Articles 1998, 2000 to 2003 of the
Civil Code, which provide:

Article 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's
baggage which is not in his personal custody or in that of his employees. As to other
baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility
of hotel-keepers shall be applicable.

xxx xxx xxx

Article 1998. The deposit of effects made by travellers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, or to their employees, of
the effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.

xxx xxx xxx

Article 2000. The responsibility referred to in the two preceding articles shall include
the loss of, or injury to the personal property of the guests caused by the servants
or employees of the keepers of hotels or inns as well as by strangers; but not that
which may proceed from any force majeure. The fact that travellers are constrained
to rely on the vigilance of the keeper of the hotel or inn shall be considered in
determining the degree of care required of him.

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed
force majeure, unless it is done with the use of arms or through an irresistible force.

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the
acts of the guest, his family, servants or visitors, or if the loss arises from the
character of the things brought into the hotel.

Article 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation to the contrary between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or
diminished shall be void.

The petitioner denies liability because Sesante's belongings had remained in his
custody all throughout the voyage until the sinking, and he had not notified the
petitioner or its employees about such belongings. Hence, absent such notice,
liability did not attach to the petitioner.

Is notification required before the common carrier becomes liable for lost belongings
that remained in the custody of the passenger?

We answer in the negative. acEHCD

The rule that the common carrier is always responsible for the passenger's baggage
during the voyage needs to be emphasized. Article 1754 of the Civil Code does not
exempt the common carrier from liability in case of loss, but only highlights the
degree of care required of it depending on who has the custody of the belongings.
Hence, the law requires the common carrier to observe the same diligence as the
hotel keepers in case the baggage remains with the passenger; otherwise,
extraordinary diligence must be exercised. 41 Furthermore, the liability of the
common carrier attaches even if the loss or damage to the belongings resulted from
the acts of the common carrier's employees, the only exception being where such
loss or damages is due to force majeure. 42

In YHT Realty Corporation v. Court of Appeals, 43 we declared the actual delivery of


the goods to the innkeepers or their employees as unnecessary before liability could
attach to the hotelkeepers in the event of loss of personal belongings of their guests
considering that the personal effects were inside the hotel or inn because the
hotelkeeper shall remain accountable. 44 Accordingly, actual notification was not
necessary to render the petitioner as the common carrier liable for the lost personal
belongings of Sesante. By allowing him to board the vessel with his belongings
without any protest, the petitioner became sufficiently notified of such belongings.
So long as the belongings were brought inside the premises of the vessel, the
petitioner was thereby effectively notified and consequently duty-bound to observe
the required diligence in ensuring the safety of the belongings during the voyage.
Applying Article 2000 of the Civil Code, the petitioner assumed the liability for loss
of the belongings caused by the negligence of its officers or crew. In view of our
finding that the negligence of the officers and crew of the petitioner was the
immediate and proximate cause of the sinking of the M/V Princess of the Orient, its
liability for Sesante's lost personal belongings was beyond question.

The petitioner claims that temperate damages were erroneously awarded because
Sesante had not proved pecuniary loss; and that the CA merely relied on his self-
serving testimony.

The award of temperate damages was proper.

Temperate damages may be recovered when some pecuniary loss has been suffered
but the amount cannot, from the nature of the case, be proven with certainty. 45
Article 2224 46 of the Civil Code expressly authorizes the courts to award temperate
damages despite the lack of certain proof of actual damages. 47
Indubitably, Sesante suffered some pecuniary loss from the sinking of the vessel,
but the value of the loss could not be established with certainty. The CA, which can
try facts and appreciate evidence, pegged the value of the lost belongings as
itemized in the police report at P120,000.00. The valuation approximated the costs
of the lost belongings. In that context, the valuation of P120,000.00 is correct, but
to be regarded as temperate damages. EcTCAD

In fine, the petitioner, as a common carrier, was required to observe extraordinary


diligence in ensuring the safety of its passengers and their personal belongings. It
being found herein short of the required diligence rendered it liable for the resulting
injuries and damages sustained by Sesante as one of its passengers.

Should the petitioner be further held liable for exemplary damages?

In contracts and quasi-contracts, the Court has the discretion to award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. 48 Indeed, exemplary damages cannot be recovered as a
matter of right, and it is left to the court to decide whether or not to award them. 49
In consideration of these legal premises for the exercise of the judicial discretion to
grant or deny exemplary damages in contracts and quasi-contracts against a
defendant who acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, the Court hereby awards exemplary damages to Sesante.

First of all, exemplary damages did not have to be specifically pleaded or proved,
because the courts had the discretion to award them for as long as the evidence so
warranted. In Marchan v. Mendoza, 50 the Court has relevantly discoursed:

. . . . It is argued that this Court is without jurisdiction to adjudicate this exemplary


damages since there was no allegation nor prayer, nor proof, nor counterclaim of
error for the same by the appellees. It is to be observed however, that in the
complaint, plaintiffs "prayed for such other and further relief as this Court may
deem just and equitable." Now, since the body of the complaint sought to recover
damages against the defendant-carrier wherein plaintiffs prayed for indemnification
for the damages they suffered as a result of the negligence of said Silverio Marchan
who is appellant's employee; and since exemplary damages is intimately connected
with general damages, plaintiffs may not be expected to single out by express term
the kind of damages they are trying to recover against the defendant's carrier.
Suffice it to state that when plaintiffs prayed in their complaint for such other relief
and remedies that may be availed of under the premises, in effect, therefore, the
court is called upon to exercise and use its discretion whether the imposition of
punitive or exemplary damages even though not expressly prayed or pleaded in the
plaintiffs' complaint."

. . . It further appears that the amount of exemplary damages need not be proved,
because its determination depends upon the amount of compensatory damages
that may be awarded to the claimant. If the amount of exemplary damages need
not be proved, it need not also be alleged, and the reason is obvious because it is
merely incidental or dependent upon what the court may award as compensatory
damages. Unless and until this premise is determined and established, what may be
claimed as exemplary damages would amount to a mere surmise or speculation. It
follows as a necessary consequence that the amount of exemplary damages need
not be pleaded in the complaint because the same cannot be predetermined. One
can merely ask that it be determined by the court if in the use of its discretion the
same is warranted by the evidence, and this is just what appellee has done. (Bold
underscoring supplied for emphasis) SDHTEC

And, secondly, exemplary damages are designed by our civil law to "permit the
courts to reshape behavior that is socially deleterious in its consequence by
creating negative incentives or deterrents against such behavior." 51 The nature
and purpose for this kind of damages have been well-stated in People v. Dalisay, 52
to wit:

Also known as 'punitive' or 'vindictive' damages, exemplary or corrective damages


are intended to serve as a deterrent to serious wrong doings, and as a vindication of
undue sufferings and wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings and for the sense of
indignity and humiliation suffered by a person as a result of an injury that has been
maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the
defendant associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud
that intensifies the injury. The terms punitive or vindictive damages are often
used to refer to those species of damages that may be awarded against a person to
punish him for his outrageous conduct. In either case, these damages are intended
in good measure to deter the wrongdoer and others like him from similar conduct in
the future. (Bold underscoring supplied for emphasis)

The BMI found that the "erroneous maneuvers" during the ill-fated voyage by the
captain of the petitioner's vessel had caused the sinking. After the vessel had
cleared Limbones Point while navigating towards the direction of Fortune Island, the
captain already noticed the listing of the vessel by three degrees to the portside of
the vessel, but, according to the BMI, he did not exercise prudence as required by
the situation in which his vessel was suffering the battering on the starboard side by
big waves of seven to eight meters high and strong southwesterly winds of 25
knots. The BMI pointed out that he should have considerably reduced the speed of
the vessel based on his experience about the vessel a close-type ship of seven
decks, and of a wide and high superstructure being vulnerable if exposed to
strong winds and high waves. He ought to have also known that maintaining a high
speed under such circumstances would have shifted the solid and liquid cargo of the
vessel to port, worsening the tilted position of the vessel. It was only after a few
minutes thereafter that he finally ordered the speed to go down to 14 knots, and to
put ballast water to the starboard-heeling tank to arrest the continuous listing at
portside. By then, his moves became an exercise in futility because, according to
the BMI, the vessel was already listing to her portside between 15 to 20 degrees,
which was almost the maximum angle of the vessel's loll. It then became inevitable
for the vessel to lose her stability. HSAcaE

The BMI concluded that the captain had executed several starboard maneuvers
despite the critical situation of the vessel, and that the maneuvers had greatly
added to the tilting of the vessel. It observed:

. . . In the open seas, with a fast speed of 14 knots, advance maneuvers such as this
would tend to bring the body of the ship in the opposite side. In navigational terms,
this movement is described as the centripetal force. This force is produced by the
water acting on the side of the ship away from the center of the turn. The force is
considered to act at the center of lateral resistance which, in this case, is the
centroid of the underwater area of the ship's side away from the center of the turn.
In the case of the Princess, when the Captain maneuvered her to starboard, her
body shifted its weight to port. Being already inclined to an angle of 15 degrees,
coupled with the instantaneous movement of the ship, the cargoes below deck
could have completely shifted its position and weight towards portside. By this time,
the ship being ravaged simultaneously by ravaging waves and howling winds on her
starboard side, finally lost her grip. 53

Clearly, the petitioner and its agents on the scene acted wantonly and recklessly.
Wanton and reckless are virtually synonymous in meaning as respects liability for
conduct towards others. 54 Wanton means characterized by extreme recklessness
and utter disregard for the rights of others; or marked by or manifesting arrogant
recklessness of justice or of rights or feelings of others. 55 Conduct is reckless when
it is an extreme departure from ordinary care, in a situation in which a high degree
of danger is apparent. It must be more than any mere mistake resulting from
inexperience, excitement, or confusion, and more than mere thoughtlessness or
inadvertence, or simple inattention. 56

The actuations of the petitioner and its agents during the incident attending the
unfortunate sinking of the M/V Princess of the Orient were far below the standard of
care and circumspection that the law on common carriers demanded. Accordingly,
we hereby fix the sum of P1,000,000.00 in order to serve fully the objective of
exemplarity among those engaged in the business of transporting passengers and
cargo by sea. The amount would not be excessive, but proper. As the Court put it in
Perea v. Zarate: 57 AScHCD

Anent the P1,000,000.00 allowed as exemplary damages, we should not reduce the
amount if only to render effective the desired example for the public good. As a
common carrier, the Pereas needed to be vigorously reminded to observe their
duty to exercise extraordinary diligence to prevent a similarly senseless accident
from happening again. Only by an award of exemplary damages in that amount
would suffice to instill in them and others similarly situated like them the ever-
present need for greater and constant vigilance in the conduct of a business imbued
with public interest. 58 (Bold underscoring supplied for emphasis)

WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with
the MODIFICATIONS that: (a) the amount of moral damages is fixed at
P1,000,000.00; (b) the amount of P1,000,000.00 is granted as exemplary damages;
and (c) the sum of P120,000.00 is allowed as temperate damages, all to be paid to
the heirs of the late Napoleon Sesante. In addition, all the amounts hereby awarded
shall earn interest of 6% per annum from the finality of this decision until fully paid.
Costs of suit to be paid by the petitioner.

SO ORDERED. HESIcT

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[A.C. No. 7072. July 27, 2016.]

VIRGILIO D. MAGAWAY and CESARIO M. MAGAWAY, complainants, vs. ATTY. MARIANO


A. AVECILLA, respondent.

DECISION

BERSAMIN, J p:

The complainants hereby seek the disbarment of the respondent for his violation of
the Lawyer's Oath, the duties of attorneys under Section 20, Rule 138 of the Rules
of Court, the rules on notarial practice, and the Code of Professional Responsibility.

They aver in their affidavit-complaint dated January 2006 the following: 1

That the OCT P-2419 with a total land area of 10.5 hectares has been mortgaged
(Sale with the right to repurchase) by the late Gavino Magaoay to the late Elena
Gongon in the amount of Three Thousand Nine hundred (P3,900.00) pesos on July
10, 1959 and the late Gavino Magaoay was not able to redeemed (sic) the land
because he died on December 3, 1963 prior to the date of redemption;

That we have the right of ownership by virtue of right of her[e]ditary succession


from the original patent holder, [the] late Gavino Magaway who is the registered
owner of OCT P[-]2419 which was fraudulently reconstituted and fraudulently sold
by virtue of the falsified deed of sale fictitiously executed by [the] late Elena
Gongon, falsified request for issuance of separate titles fictitiously executed by the
late Gavino Magaoay and falsified affidavit of non-tenancy fictitiously executed by
the late Elena Gongon; HTcADC
That OCT P-2419 whom Gavino Magaoay is the registered owner and the mortgagor
was never consolidated in the name of Elena Gongon, the mortgagee;

That it was Attorney Mariano A. Avecilla who duly prepared, notarized and
manipulated the Falsified Deed of Sale executed by Elena Gongon dated December
7, 1993 with her fictitious Residence Certificate Nr.927294 which was issued on
February 7, 1995 at Roxas, Isabela and Affidavit of non-tenancy which was
fictitiously executed by the late Elena Gongon in favor of Angelito Ramiscal Sr., et al.
where Transfer Certificate Titles: T-238312, T-238313, T-238314 and T-238315 were
derived therein and all tainted with irregularities;

That in consideration of the amount of Thirty Thousand (Php.30,000.00) pesos


whom Attorney Mariano A. Avecilla and his wife Loreta had accepted from Angelito
Ramiscal Sr. as a package deal in the preparation of the Falsified Deed of Sale dated
December 7, 1993 and other above mentioned documents that are instrumental in
the anomalous transfer of land Title in favor of the Ramiscals' (transcript of
stenographic notes, RTC Branch 23, Roxas, Isabela dated June 11, 2003);

That Elena Gongon could not have thumb marked the Deed of Sale and affidavit of
non-tenancy dated December 7, 1993 which was notarized by Atty. Mariano A.
Avecilla because Elena Gongon had already died on May 11, 1966 and already dead
for twenty seven (27) years at the date of the instruments;

That Gavino Magaoay could not have signed the request for issuance of separate
titles dated April 3, 1995 and Public Land Survey Plan PSD 02-053024 dated March
1, 1995 in favor of the Ramiscals because he was unschooled and he died on
December 3, 1963 so that he was already dead for thirty (30) years at the date of
the instruments which was also used in the falsification and unlawful transfer of the
aforementioned Transfer Certificate Titles which was manipulated by Attorney
Avecilla and his wife Loreta in favor of the Ramiscals;

That Attorney Mariano A. Avecilla of Roxas, Isabela has committed serious damages
to us, because we are deprived of our rights for hereditary succession over the
property in question due his unprofessional, illegal, anomalous conduct and
incompetence in the practice of law particularly by circum[v]enting the laws in
dealing with registered land through the preparation, notarization and signing deed
of sale where the parties were already dead for long time ago (sic);

That due to the unlawful manipulations of Attorney Mariano A. Avecilla, land titles
tainted with irregularities were issued in favor of Angelito Ramiscal Sr., et al., thus
he should be prohibited to practice Law because he is incompetent and a liability in
the justice system of the Republic of the Philippines that are contributory to the
loosing (sic) trust and confidence by the people among some (sic) undesirable
lawyers and in the administration of Justice in this country. 2 CAIHTE
It appears that the notarization of the documents (specifically, the deed of sale by
attorney-in-fact by Eleanor Gongon Flores represented by her attorney-in-fact Efren
Vera Cruz, Sr. on August 5, 1992 in favor of Angelito Ramiscal, Sr.; the deed of sale
executed by Elena Gongon on December 7, 1993 in favor of Angelito Ramiscal, Sr.;
and the affidavit of non-tenancy executed by Elena Gongon on December 7, 1993)
had led to the filing of two criminal cases and a civil action. The first criminal case,
for estafa through falsification of a public document, was filed by the complainants
against Angelito Ramiscal, Sr. and the respondent in the Office of the Provincial
Prosecutor of Isabela, but the case was ultimately dismissed on July 15, 1998. The
second criminal case, also for falsification of a public document, was initiated by
Eleanor Gongon Flores against the Ramiscals, the respondent, and the latter's wife,
Loreta Avecilla. The case was also dismissed on October 5, 2000. The civil action
seeking the declaration of nullity of fraudulently reconstituted original certificate of
title and all the transfer certificates of title derived therefrom, and declaration of
nullity of instruments registered affecting them was brought on July 28, 1997 by the
complainants as the heirs of the late Gavino Magaoay against the Ramiscals
(namely, Angelito, Sr. and his children Arlene, Ervin and Angelito, Jr.) and the
respondent in the Regional Trial Court (RTC) in Roxas, Isabela (Civil Case No. 23-551-
97), which ultimately dismissed the complaint through a decision rendered on June
14, 2004. 3 On appeal, however, the Court of Appeals, through its decision
promulgated on August 29, 2008, 4 reversed the dismissal of the case by the RTC.

After the Court referred this administrative complaint to the Integrated Bar of the
Philippines (IBP) for investigation and recommendation, the IBP Board of Governors
called the parties for mandatory conferences on July 30, 2007 and September 10,
2007.

In due time, IBP Investigating Commissioner Manuel M. Maramba rendered his


report and recommendation dated October 24, 2008, 5 whereby he found in favor of
the complainants after giving more weight and credence to their assertions than to
the denial and explanation of the respondent; and he recommended the
respondent's suspension from the practice of law for one year, and the indefinite
revocation of the respondent's notarial commission.

In its Resolution No. XVIII-2009-21 dated February 19, 2009, 6 the IBP Board of
Governors adopted and approved the report and recommendation with modification
of the recommended penalty to suspension from the practice of law for one year
and disqualification from being commissioned as notary public for two years.
aScITE

The respondent sought reconsideration of the resolution, 7 but the IBP Board of
Governors rejected his motion. 8

In the comment he submitted to the Court, 9 the respondent contended that his
notarization of the three documents had not prejudiced anyone considering that the
late Gavino Magaway, the predecessor in interest of the complainants, did not
repurchase the property by April 30, 1960, as stipulated between the late Gavino
Magaway, as vendor a retro, and Eleanor Gongon Flores, as the vendee a retro; that
the complainants, assuming them to be the true legal heirs of the late Gavino
Magaway, who had died without issue, had nothing more to inherit; that the sale of
the property had been first made on August 5, 1992 by Efren Vera Cruz, Sr. as the
attorney-in-fact of Eleanor Gongon Flores; that on the same date, Vera Cruz, Sr. had
sold the portion of the property with an area of 8.479 hectares to Angelito Ramiscal,
Sr. and his family for P400,000.00; that on December 7, 1993, a woman in her mid-
30's, claiming herself to be an employee of the Office of the Registry of Deeds of
Isabela, had accompanied an elderly woman to the respondent's law office to
request him to notarize the ready-made deed of sale the elderly woman had
brought with her; that he had notarized the document out of pity and kindness for
the elderly woman, who had affixed her thumbprint on the document; and that the
elderly woman turned out to be an impostor.

Ruling of the Court

The findings and recommendations of the IBP Board of Governors, being supported
by the records, are adopted.

The function of a notary public is, among others, to guard against any illegal or
immoral arrangements in the execution of public documents. 10 In this case, the
respondent's affixing of his notarial seal on the documents and his signature on the
notarial acknowledgments transformed the deeds of sale from private into public
documents, 11 and rendered them admissible in court without further proof of their
authenticity because the certificate of acknowledgment constituted them the prima
facie evidence of their execution. 12 In doing so, he proclaimed to the world that all
the parties executing the same had personally appeared before him; that they were
all personally known to him; that they were the same persons who had executed the
instruments; that he had inquired into the voluntariness of execution of the
instrument; and that they had acknowledged personally before him that they had
voluntarily and freely executed the same. 13

As a lawyer commissioned to be a notary public, the respondent was mandated to


discharge his sacred duties with faithful observance and utmost respect for the legal
solemnity of an oath in an acknowledgment or jurat. 14 Indeed, such responsibility
was incumbent upon him by virtue of his solemn Lawyer's Oath to do no falsehood
or consent to the doing of any, and by virtue of his undertaking, pursuant to the
Code of Professional Responsibility, not to engage in unlawful, dishonest, immoral or
deceitful conduct and to uphold at all times the integrity and dignity of the legal
profession. 15 His failure to ascertain the identity of the person executing the same
constituted gross negligence in the performance of his duties as a notary public. 16
As such, it is now unavoidable for him to accept the commensurate consequences
of his indiscretion. 17 DETACa
The respondent's rather convenient assertion that an impostor had appeared before
him and affixed her thumbprint on the ready-made deed of sale and affidavit of non-
tenancy does not sway the Court. He should have demanded that such person first
prove her identity before acting on the documents she had brought for his
notarization. The objective of the requirement, which was to enable him as the
notary public to verify the genuineness of the signature of the acknowledging party
and to ascertain that the deed of sale and affidavit of non-tenancy were the party's
free act and deed, 18 was not to be served as casually as he did. By not ensuring
that the person then appearing before him as the executor of the documents was
really Elena Gongon, not the impostor, he clearly did not exercise the precautions
and observe the protocols that would have easily insulated the performance of his
notarial duties from forgery and falsification.

By his neglect, the respondent undermined the confidence of the public on the
worth of notarized documents. He thus breached Canon I of the Code of Professional
Responsibility, by which he as an attorney commissioned to serve as a notary public
was required to uphold the Constitution, obey the laws of the land, and promote
respect for the law and legal processes. 19

The respondent's argument that no person had been prejudiced by the execution of
the documents was undeserving of consideration. There was no denying that the
notarization of the deed of sale and affidavit of non-tenancy adversely affected the
rights of the complainants and Eleanor Gongon Flores on their existing interest in
the property involved in such instruments.

Time and again, the Court has reminded notaries public of the importance attached
to the act of notarization. We must stress yet again that notarization is not an
empty, or perfunctory, or meaningless act, for it is invested with substantial public
interest. Courts and other public offices, and the public at large could rely upon the
recitals of the acknowledgment executed by the notary public. 20 For this reason,
notaries public must observe with utmost care the basic requirements in the
performance of their duties. Otherwise, the confidence of the public in the integrity
of this form of conveyance would be undermined. 21

In Lanuzo v. Bongon 22 and Linco v. Lacebal, 23 we have ruled that the notarial
commission of a notary public who fails to faithfully discharge his duties as such
should be revoked, and he should be further disqualified from being commissioned
as such for a period of two years. The notary public in such situation may further be
suspended from the practice of law for one year. In this case, the same penalties
should be imposed on the respondent. Indeed, his acts manifested breach of the
vow he took under his Lawyer's Oath to do no falsehood, and to delay no man for
money or with malice. HEITAD

WHEREFORE, the Court REVOKES the notarial commission of respondent ATTY.


MARIANO A. AVECILLA effective immediately; DISQUALIFIES him from reappointment
as Notary Public for a period of two years effective immediately; SUSPENDS him
from the practice of law for a period of one year effective immediately with the
WARNING that the repetition of the same or similar acts shall be dealt with more
severely; and DIRECTS him to report the date of receipt of this decision in order to
determine when his suspension shall take effect.

Let copies of this decision be furnished to the Office of the Bar Confidant, the
Integrated Bar of the Philippines, and all courts throughout the country. Let a copy
of this decision be attached to the personal records of ATTY. MARIANO A. AVECILLA.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[OCA IPI No. 12-204-CA-J. July 26, 2016.]

Re: VERIFIED COMPLAINT FOR DISBARMENT OF AMA LAND, INC. (REPRESENTED BY


JOSEPH B. USITA) AGAINST COURT OF APPEALS ASSOCIATE JUSTICES HON. DANTON
Q. BUESER, HON. SESINANDO E. VILLON AND HON. RICARDO G. ROSARIO

RESOLUTION

BERSAMIN, J p:

In the resolution promulgated on July 15, 2014, 1 the Court: (a) declared Joseph B.
Usita guilty of two counts of indirect contempt of court under Section 3 (d), Rule 71
of the Rules of Court, but deferred the determination and imposition of the penalties
against him; (b) ordered Usita to disclose the names of all the members of the
Board of Directors of AMA Land, Inc. (AMALI) who had authorized him to bring the
two administrative charges against respondent Associate Justices of the Court of
Appeals (CA); and (c) required Usita and a certain Garry de Vera to shed light on the
true interest or participation of the so-called JC-AT-JC Law Offices whose office
address de Vera had stated as his in the affidavit of service he had executed for
purposes of this case. TCAScE

Consequently, Usita submitted his compliance dated August 11, 2014, 2 wherein he
again apologized for his actions, but appealed for the understanding and
forgiveness of the Court. He denied having disobeyed the decision of March 11,
2014, and pointed out that the other complaint against respondent Associate
Justices of the CA dated October 2, 2012 (OCA-IPI No. 12-202-CA-J entitled Re:
Verified Complaint for Disbarment of AMA Land, Inc. Represented by Joseph B. Usita
v. Hon. Danton Q. Bueser, Hon. Sesinado E. Villon and Hon. Ricardo R. Rosario,
Associate Justices of the Court of Appeals) had been filed earlier than the present
complaint; that he had filed the present complaint against respondent Associate
Justices of the CA "in good faith and merely to petition this Honorable Court for
redress of what he believed to be a judicial wrong;" 3 and that he was anyway
withdrawing the complaint in OCA-IPI No. 12-202-CA-J as a manifestation of his
"good faith and sincere remorse for his inaction (sic)." 4

Regarding the participation of the so-called JC-AT-JC Law Office, Usita explained that
de Vera was an employee of AMALI rendering messengerial services to the JC-AT-JC
Law Office, one of the retained counsels of AMALI; and that the JC-AT-JC Law Office
did not have any involvement in the filing of the administrative complaints.

De Vera submitted a salaysay ng pagpapaliwanag, 5 which contained explanations


similar to those made by Usita.

Finally, Usita disclosed by name the members of the AMALI Board of Directors who
had authorized him to file the present complaint, as follows: (a) Atty. Vicente Acsay;
(b) Felizardo R. Colambo; (c), Arnel F. Hibo; (d) Darwin V. Dominguez; and (e) Alberto
L. Buenviaje.

On September 30, 2014, the Court directed the abovenamed officers of AMALI to
show cause in writing why they should not be held liable for indirect contempt for
degrading the judicial office of respondent Associate Justices of the CA, and for
interfering with the due performance of their work for the Judiciary. 6

The aforenamed members of the AMALI Board, with the exception of Atty. Acsay
who had meanwhile passed away on March 29, 2014, 7 uniformly manifested that
only Atty. Acsay, Hibo and Dominguez had taken part in the meeting of the Board of
Directors at which the resolution to file the present complaint had been adopted;
that it was Atty. Acsay who had moved for the approval of the resolution; and that
they had caused the filing of the administrative complaint in their belief that they
were thereby raising a valid legal issue, without any intention of offending or
disrespecting respondent Associate Justices of the CA. 8 It was further manifested
that Colambo and Buenviaje had been absent from the meeting when the resolution
to file the complaint had been tackled. 9 ASEcHI

Ruling of the Court

We first deal with the penalties to be meted on Usita.

Usita's assertion that he did not disobey and defy the decision promulgated on
March 11, 2014 is hollow in light of the solid and firm findings of the Court about
AMALI having been prone to bring charges against judicial officers who had ruled
against it in its cases. On the contrary, such assertion constitutes his continuing
refusal to own his contumacious part in the filing of frivolous administrative charges
against respondent Associate Justices of the CA. His tendered withdrawal of the
complaint in OCA-IPI No. 12-202-CA-J is even irrelevant now considering that we
dismissed his charges therein last January 15, 2013 due to their patent lack of
merit. Verily, his filing of two unfounded identical administrative complaints against
respondent Associate Justices of the CA displayed his utter lack of respect for their
judicial office. His plea for understanding and forgiveness should be ignored for
being actually insincere and frivolous.

Nonetheless, we have frequently reminded that the power to punish for contempt
must be used sparingly, with caution, restraint, judiciousness, deliberation, and in
due regard to the provisions of the law and the constitutional rights of the
individual. 10 This approach impels us now to hold Usita responsible for only one
count of indirect contempt by considering his forthright compliance with our
directive for him to identify the members of AMALI's Board of Directors who had
caused him to bring the unfounded charges as a mitigating circumstance.

Anent the liability of the abovenamed members of AMALI's Board of Directors, the
general rule is that a corporation and its officers and agents may be held liable for
contempt of court for disobeying judgments, decrees, or orders of a court issued in
a case within its jurisdiction, 11 or for committing any improper conduct tending,
directly or indirectly, to impede, obstruct, or degrade the administration of justice.
12 So it must be herein.

The abovenamed members of the AMALI Board of Directors specifically claimed that
they had brought the complaints against respondent Associate Justices of the CA in
their belief in good faith that they were thereby raising a valid legal issue. Their
claim is preposterous, however, because the complaints were identical, and
palpably designed to intimidate or influence respondent Associate Justices of the CA
in respect of AMALI's case in their Division. The abovenamed members of the AMALI
Board of Directors could not allowed to hide behind the shield of good faith because
their charges were from the beginning bereft of factual and legal merit. In this
regard, we observed in our decision of March 11, 2014, as follows: cTDaEH

The filing of the meritless administrative complaints by AMALI was not only
repulsive, but also an outright disrespect of the authority of the CA and of this
Court. Unfounded administrative charges against judges truly degrade the judicial
office, and interfere with the due performance of their work for the Judiciary.
Although the Court did not then deem fit to hold in the first administrative case
AMALI or its representative personally responsible for the unfounded charges
brought against respondent Justices, it is now time, proper and imperative to do so
in order to uphold the dignity and reputation of respondent Justices, of the CA itself,
and of the rest of the Judiciary. AMALI and its representatives have thereby
demonstrated their penchant for harassment of the judges who did not do its
bidding, and they have not stopped doing so even if the latter were sitting judges.
To tolerate the actuations of AMALI and its representatives would be to reward them
with undeserved impunity for an obviously wrong attitude towards the Court and its
judicial officers. 13

Moreover, there is no doubt that the abovenamed members of the AMALI Board of
Directors, led by the late Atty. Acsay, were well aware, or, at least, ought to have
known that no judicial officer could be legitimately held administratively
accountable for the performance of his duties as a judicial officer for the reason that
such performance was a matter of discharging a public duty and responsibility.

The abovenamed members of AMALI's Board of Directors are hereby found and
pronounced guilty of indirect contempt of court for thereby causing the bringing of
the unfounded and unwarranted administrative charges against respondent
Associate Justices of the CA in order to intimidate or harass them, thereby directly
or indirectly impeding, obstructing or degrading the administration of justice.

Any sanction, to be proper, should be commensurate to the contumacious conduct


of Usita and the abovenamed members of AMALI's Board of Directors. The sanction
should be meaningful and condign; otherwise, it would be mocked and derided,
rendering it inutile for the purpose. It must also be within the bounds of Rule 71 of
the Rules of Court, whose Section 7 relevantly provides:

SEC. 7. Punishment for indirect contempt. If the respondent is adjudged


guilty of indirect contempt committed against a Regional Trial Court or a court of
equivalent or higher rank, he may be punished by a fine not exceeding thirty
thousand pesos or imprisonment not exceeding six (6) months, or both. . . .
ITAaHc

Although the conduct we hereby seek to punish tended to obstruct and degrade the
administration of justice by respondent Associate Justices of the CA, fine, instead of
imprisonment, will suffice, provided the amount thereof is not petty or trivial. The
need to deter litigants and those acting upon their bidding from ever trying to
intimidate or influence sitting judges in the performance of their sworn duties
should be recognized. This instance is a good occasion to do so.

We have judicial precedents to serve as guides in determining the proper amount of


fine. In Ang Bagong Bayani-OFW Labor Party v. Commission on Elections, 14 the
Court meted on the COMELEC Chairman and four COMELEC Commissioners a fine of
P20,000.00 each for various actions, including issuing three resolutions that were
outside of the jurisdiction of the COMELEC, for degrading the dignity of the Court,
for brazen disobedience to the lawful directives of the Court, and for delaying the
ultimate resolution of the many incidents of the party-list case to the prejudice of
the litigants and of the country. It is notable that the Court prescribed a fine of
P5,000.00 each on the two remaining Commissioners whose actions were deemed
less serious in degree. In Heirs of Trinidad de Leon Vda. de Roxas v. Court of
Appeals, 15 we imposed a fine of P10,000.00 on the corporate officer who had
caused the preparation and filing of the unwarranted complaint for reconveyance,
damages and quieting of title in the trial court, an act that tended to impede the
orderly administration of justice. In Lee v. Regional Trial Court of Quezon City,
Branch 85, 16 the corporate officers who had acted for the corporation to frustrate
the execution of the immutable judgment rendered against the corporation by a
resort to various moves merited the maximum fine of P30,000.00 for each of them.
Based on these precedents, the amount of the fine is fixed at P20,000.00 each for
Usita, Dominguez and Hibo by virtue of their direct participation in the filing of the
frivolous and contumacious complaints.

Considering that Colambo and Buenviaje did not take part in the meeting of the
Board of Directors of AMALI, they are absolved of liability for indirect contempt of
court. Likewise, Garry de Vera is absolved of any liability because he was a mere
messenger of AMALI.

WHEREFORE, the Court: cSaATC

(1) ABSOLVES and PURGES Felizardo R. Colambo, Alberto L. Buenviaje and Garry
de Vera of any act of contempt of court:

(2) DECLARES and PRONOUNCES Joseph B. Usita, Darwin V. Dominguez and Arnel
F. Hibo GUILTY of INDIRECT CONTEMPT for degrading the judicial office of
respondent Associate Justices of the Court of Appeals, and for obstructing and
impeding the due performance of their work for the Judiciary, and, ACCORDINGLY,
metes on each of Usita, Dominguez and Hibo a fine of P20,000.00, the same to be
paid within 10 days from notice of this resolution.

AMA Land, Inc., Joseph B. Usita, Darwin V. Dominguez and Arnel F. Hibo are WARNED
that a repetition of the same or similar acts shall be dealt with more severely in the
future.

SO ORDERED.

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Brion, Peralta, Del Castillo,
Perez, Mendoza, Reyes, Perlas-Bernabe, Leonen, Jardeleza and Caguioa, JJ., concur.

[G.R. No. 220598. July 19, 2016.]

GLORIA MACAPAGAL-ARROYO, petitioner, vs. PEOPLE OF THE PHILIPPINES AND THE


SANDIGANBAYAN (First Division), respondents.

[G.R. No. 220953. July 19, 2016.]

BENIGNO B. AGUAS, petitioner, vs. SANDIGANBAYAN (First Division), respondent.

DECISION

BERSAMIN, J p:

We resolve the consolidated petitions for certiorari separately brought to assail and
annul the resolutions issued on April 6, 2015 1 and September 10, 2015, 2 whereby
the Sandiganbayan respectively denied their demurrer to evidence, and their
motions for reconsideration, asserting such denials to be tainted with grave abuse
of discretion amounting to lack or excess of jurisdiction.

Antecedents

On July 10, 2012, the Ombudsman charged in the Sandiganbayan former President
Gloria Macapagal-Arroyo (GMA); Philippine Charity Sweepstakes Office (PCSO)
Budget and Accounts Officer Benigno Aguas; PCSO General Manager and Vice
Chairman Rosario C. Uriarte; PCSO Chairman of the Board of Directors Sergio O.
Valencia; Members of the PCSO Board of Directors, namely: Manuel L. Morato, Jose
R. Taruc V, Raymundo T. Roquero, and Ma. Fatima A.S. Valdes; Commission on Audit
(COA) Chairman Reynaldo A. Villar; and COA Head of Intelligence/Confidential Fund
Fraud Audit Unit Nilda B. Plaras with plunder. The case was docketed as Criminal
Case No. SB-12-CRM-0174 and assigned to the First Division of the Sandiganbayan.
HTcADC

The information 3 reads:

The undersigned Assistant Ombudsman and Graft Investigation and Prosecution


Officer III, Office of the Ombudsman, hereby accuse GLORIA MACAPAGAL-ARROYO,
ROSARIO C. URIARTE, SERGIO O. VALENCIA, MANUEL L. MORATO, JOSE R. TARUC V,
RAYMUNDO T. ROQUERO, MA. FATIMA A.S. VALDES, BENIGNO B. AGUAS, REYNALDO
A. VILLAR and NILDA B. PLARAS, of the crime of PLUNDER, as defined by, and
penalized under Section 2 of Republic Act (R.A.) No. 7080, as amended by R.A. No.
7659, committed, as follows:

That during the period from January 2008 to June 2010 or sometime prior or
subsequent thereto, in Quezon City, Philippines, and within the jurisdiction of this
Honorable Court, accused GLORIA MACAPAGAL-ARROYO, then the President of the
Philippines, ROSARIO C. URIARTE, then General Manager and Vice Chairman,
SERGIO O. VALENCIA, then Chairman of the Board of Directors, MANUEL L. MORATO,
JOSE R. TARUC V, RAYMUNDO T. ROQUERO, MA. FATIMA A.S. VALDES, then members
of the Board of Directors, BENIGNO B. AGUAS, then Budget and Accounts Manager,
all of the Philippine Charity Sweepstakes Office (PCSO), REYNALDO A. VILLAR, then
Chairman, and NILDA B. PLARAS, then Head of Intelligence/Confidential Fund Fraud
Audit Unit, both of the Commission on Audit, all public officers committing the
offense in relation to their respective offices and taking undue advantage of their
respective official positions, authority, relationships, connections or influence,
conniving, conspiring and confederating with one another, did then and there
willfully, unlawfully and criminally amass, accumulate and/or acquire. Directly or
indirectly, ill-gotten wealth in the aggregate amount or total value of THREE
HUNDRED SIXTY FIVE MILLION NINE HUNDRED NINETY SEVEN THOUSAND NINE
HUNDRED FIFTEEN PESOS (PHP365,997,915.00), more or less, through any or a
combination or a series of overt or criminal acts, or similar schemes or means,
described as follows:
(a) diverting in several instances, funds from the operating budget of PCSO to its
Confidential/Intelligence Fund that could be accessed and withdrawn at any time
with minimal restrictions, and converting, misusing, and/or illegally conveying or
transferring the proceeds drawn from said fund in the aforementioned sum, also in
several instances, to themselves, in the guise of fictitious expenditures, for their
personal gain and benefit;

(b) raiding the public treasury by withdrawing and receiving, in several


instances, the above-mentioned amount from the Confidential/Intelligence Fund
from PCSO's accounts, and or unlawfully transferring or conveying the same into
their possession and control through irregularly issued disbursement vouchers and
fictitious expenditures; and CAIHTE

(c) taking advantage of their respective official positions, authority, relationships,


connections or influence, in several instances, to unjustly enrich themselves in the
aforementioned sum, at the expense of, and the damage and prejudice of the
Filipino people and the Republic of the Philippines.

CONTRARY TO LAW.

By the end of October 2012, the Sandiganbayan already acquired jurisdiction over
GMA, Valencia, Morato and Aguas. Plaras, on the other hand, was able to secure a
temporary restraining order (TRO) from this Court in Plaras v. Sandiganbayan
docketed as G.R. Nos. 203693-94. Insofar as Roquero is concerned, the
Sandiganbayan acquired jurisdiction as to him by the early part of 2013. Uriarte and
Valdes remained at large.

Thereafter, several of the accused separately filed their respective petitions for bail.
On June 6, 2013, the Sandiganbayan granted the petitions for bail of Valencia,
Morato and Roquero upon finding that the evidence of guilt against them was not
strong. 4 In the case of petitioners GMA and Aguas, the Sandiganbayan, through the
resolution dated November 5, 2013, denied their petitions for bail on the ground
that the evidence of guilt against them was strong. 5 The motions for
reconsideration filed by GMA and Aguas were denied by the Sandiganbayan on
February 19, 2014. 6 Accordingly, GMA assailed the denial of her petition for bail in
this Court, but her challenge has remained pending and unresolved to date.

Personal jurisdiction over Taruc and Villar was acquired by the Sandiganbayan in
2014. Thereafter, said accused sought to be granted bail, and their motions were
granted on different dates, specifically on March 31, 2014 7 and May 9, 2014, 8
respectively.

The case proceeded to trial, at which the State presented Atty. Aleta Tolentino as its
main witness against all the accused. The Sandiganbayan rendered the following
summary of her testimony and evidence in its resolution dated November 5, 2013
denying the petitions for bail of GMA and Aguas, to wit:

She is a certified public accountant and a lawyer. She is a member of the Philippine
Institute of Certified Public Accountants and the Integrated Bar of the Philippines.
She has been a CPA for 30 years and a lawyer for 20 years. She has practiced
accountancy and law. She became accounting manager of several companies. She
has also taught subjects in University of Santo Tomas, Manuel L. Quezon University,
Adamson University and the Ateneo de Manila Graduate School. She currently
teaches Economics, Taxation and Land Reform.

Presently, she is a Member of the Board of Directors of the PCSO. The Board
appointed her as Chairman of an Audit Committee. The audit review proceeded
when she reviewed the COA Annual Reports of the PCSO for 2006, 2007, 2008 and
2009 (Exhibits "D", "E", "F" and "G", respectively), and the annual financial
statements contained therein for the years 2005 to 2009. The reports were given to
them by the COA. These are transmitted to the PCSO annually after the subject year
of audit.

One of her major findings was that the former management of the PCSO was
commingling the charity fund, the prize fund and the operating fund. By
commingling she means that the funds were maintained in only one main account.
This violates Section 6 of Republic Act 1169 (PCSO Charter) and generally accepted
accounting principles. aScITE

The Audit Committee also found out that there was excessive disbursement of the
Confidential and Intelligence Fund (CIF). There were also excessive disbursements
for advertising expenses. The internal audit department was also merged with the
budget and accounting department, which is a violation of internal audit rules.

There was excessive disbursement of the CIF because the PCSO was given only P10
million in 2002, i.e., P5 million for the Office of the Chairman and P5 million for the
Office of the General Manager. Such allocation was based on the letters of then
Chairman Lopez (Exh. "I") and then General Manager Golpeo (Exh. "J"), asking for P5
million intelligence fund each. Both were dated February 21, 2000, and sent to then
President Estrada, who approved them. This allocation should have been the basis
for the original allocation of the CIF in the PCSO, but there were several subsequent
requests made by the General Manager during the time of, and which were
approved by, former President Arroyo.

The allocation in excess of P10 million was in violation of the PCSO Charter. PCSO
did not have a budget for this. They were working on a deficit from 2004 to 2009.
The charter allows only 15% of the revenue as operating fund, which was already
exceeded. The financial statements indicate that they were operating on a deficit in
the years 2006 to 2009.
It is within the power of the General Manager to ask for additional funds from the
President, but there should be a budget for it. The CIF should come from the
operating fund, such that, when there is no more operating fund, the other funds
cannot be used.

The funds were maintained in a commingled main account and PCSO did not have a
registry of budget utilization. The excess was not taken from the operating fund, but
from the prize fund and the charity fund.

In 2005, the deficit was P916 million; in 2006, P1,000,078,683.23. One of the causes
of the deficit for 2006 was the CIF expense of P215 million, which was in excess of
the approved allocation of P10 million. The net cash provided by operating expenses
in 2006 is negative, which means that there were more expenses than what was
received.

In the 2007 COA report, it was found that there was still no deposit to the prize and
charity funds. The COA made a recommendation regarding the deposits in one main
account. There were also excessive disbursements of CIF amounting to
P77,478,705.

She received a copy of the PCSO corporate operating budget (COB) for the year
2008 in 2010 because she was already a member of its Board of Directors. The
2008 approved COB has a comparative analysis of the actual budget for 2007 (Exh.
"K"). It is stated there that the budget for CIF in 2007 is only P25,480,550. But the
financial statements reflect P77 million. The budget was prepared and signed by
then PCSO General Manager Rosario Uriarte. It had accompanying Board Resolution
No. 305, Series of 2008, which was approved by then Chairperson Valencia, and
board members Valdes, Morato, Domingo, and attested to by Board Secretary Atty.
Ronald T. Reyes. DETACa

In the 2008 COA report, it was noted that there was still no deposit to the prize and
charity funds, adverted in the 2007 COA report. There was already a
recommendation by the COA to separate the deposits or funds in 2007. But the COA
noted that this was not followed. The financial statements show the Confidential
and the Extra-Ordinary Miscellaneous Expenses account is P38,293,137, which is
more than the P10 million that was approved.

In the Comparative Income Statement (Exh. "K"), the 2008 Confidential/Intelligence


Expense budget was approved for P28 million. The Confidential and Extra-Ordinary
Miscellaneous Expenses is the account being used for confidential and intelligence
expenses. The amount in the financial statements is over the budgeted amount of
P28 million. Further, the real disbursement is more than that, based on a summary
of expenditures she had asked the treasurer to prepare.

In the Comparative Income Statement for 2009 Budget against the 2008 Actual
Budget (Exh. "L"), the budget for CIF and expenses was P60 million.
In the 2009 COA report, it was noted that there was still no deposit to the prize and
charity funds, despite the instruction or recommendation of COA. The funds were
still deposited in one account. The COA observation in 2007 states that there is
juggling or commingling of funds.

After she had concluded the audit review, she reported her findings to the Board of
Directors in one of their executive meetings. The Board instructed her to go in-depth
in the investigation of the disbursements of CIF.

The Audit Committee also asked Aguas why there were disbursements in excess of
P10 million. He explained that there were board resolutions confirming additional
CIF which were approved by former President Arroyo. Aguas mentioned this in one
of their meetings with the directors and corporate secretary. The board secretary,
Atty. Ed Araullo, gave them the records of those resolutions.

In the records that Araullo submitted to her, it appears that Uriarte would ask for
additional CIF, by letter and President Arroyo approves it by affixing her signature
on that same letter-request. There were seven letters or memoranda to then
President Arroyo, with the subject "Request for Intelligence Fund."

She then asked their Treasurer, Mercy Hinayon, to give her a summary of all the
disbursements from CIF from 2007 to 2010. The total of all the amounts in the
summaries for three years is P365,997,915.

After receiving the summaries of the disbursed checks, she asked Hinayon to give
her the checks or copies thereof. She also asked Dorothy Robles, Budget and
Accounting Manager, to give her the corresponding vouchers. Only two original
checks were given to her, as the rest were with the bank. She asked her to request
certified true copies of the checks.

They were then called to the Senate Blue Ribbon Committee, which was then
investigating the operation of PCSO, including the CIF. She was invited as a resource
speaker in an invitation from Chairman Teofisto Guingona III (Exh. "DD"). Before the
hearing, the Committee Chairman went to the PCSO and got some documents
regarding the subject matter being investigated. Araullo was tasked to prepare all
the documents needed by the Committee. These documents included the CIF
summary of disbursements, letters of Uriarte and the approval of the former
president.

She attended whenever there were committee hearings. Among those who also
attended were the incoming members if the PCSO Board Directors and the directors.
Accused Valencia and Aguas were also present in some hearings as resources
speakers. They were invited in connection with the past disbursements of PCSO
related to advertising expenses, CIF, vehicles for the bishops, and the commingling
of funds. HEITAD
The proceedings in the Committee were recorded and she secured a copy of the
transcript of stenographic notes from the Office of the Blue Ribbon Committee. In
the proceeding on June 7, 2011 (Exh. "EE"), Uriarte testified. The witness was about
two to three meters away from Uriarte when the latter testified, and using a
microphone.

According to the witness, Uriarte testified that all the confidential intelligence
projects she had proposed were approved by President Arroyo; all the requests she
gave to the President were approved and signed by the latter personally in her
(Uriarte's) presence; and all the documents pertaining to the CIF were submitted to
President Arroyo. On the other hand, Valencia and Taruc said they did not know
about the projects. Statements before the Committee are under oath.

After the Committee hearings, she then referred to the laws and regulations
involved to check whether the disbursements were in accordance with law. One of
the duties and responsibilities of the audit committee was to verify compliance with
the laws.

She considered the following laws: R.A. 1169, as amended (PCSO Charter); P.D.
1445 (COA Code); LOI 1282; COA Circular 92-385, as amended by Circular 2003-
002, which provides the procedure for approval of disbursements and liquidation of
confidential intelligence funds. She made a handwritten flowchart (Exh. "II") of the
allocations/disbursements/liquidation and audit of the CIF, based on LOI 1282 and
the COA Circulars. A digital presentation of this flowchart was made available.

The first step is the provision or allotment of a budget because no CIF fund can be
disbursed without the allocation. This is provided in the second whereas clause of
Circular 92-385. For GOCCs, applying Circular 2003-002, there must be allocation or
budget for the CIF and it should be specifically in the corporate operating budget or
would be taken from savings authorized by special provisions.

This was not followed in the PCSO CIF disbursement in 2008. The disbursement for
that year was P86,555,060. The CIF budget for that year was only P28 million, and
there were no savings because they were on deficit. This was also not followed for
the year 2009. The CIF disbursement for that year was P139,420,875. But the CIF
budget was only P60 million, and there was also no savings, as they were in deficit.
For the year 2010, the total disbursement, as of June 2010, was P141,021,980. The
budget was only P60 million.

The requirements in the disbursement of the CIF are the budget and the approval of
the President. If the budget is correct, the President will approve the disbursement
or release of the CIF. In this case, the President approved the release of the fund
without a budget and savings. Also, the President approved the same in violation of
LOI 1282, because there were no detailed specific project proposals and
specifications accompanying the request for additional CIF. The requests for the
year 2008, 2009 and 2010 were uniform and just enumerated the purposes, not
projects. They did not contain what was required in the LOI.

The purpose of this requirement is stated in the LOI itself. The request for
allocations must contain full details and specific purposes for which the fund will be
used. A detailed presentation is made to avoid duplication of expenditures, as what
had happened in the past, because of a lack of centralized planning and
organization or intelligence fund.

There was no reason for each additional intelligence fund that was approved by
then President Arroyo.

The third step is the designation of the disbursing officer. In this case, the Board of
Directors designated Uriarte as Special Disbursing Officer (SDO) for the portion of
the CIF that she withdrew. For the portion withdrawn by Valencia, there was no
special disbursing officer designated on record. aDSIHc

The designation of Uriarte was in violation of internal control which is the


responsibility of the department head, as required by Section 3 of Circular 2003-
002. When she went through copies of the checks and disbursement vouchers
submitted to her, she found out that Uriarte was both the SDO and the authorized
officer to sign the vouchers and checks. She was also the payee of the checks. All
the checks withdrawn by Uriarte were paid to her and she was also the signatory of
the checks.

Aside from Uriarte, Valencia also disbursed funds in the CIF. For the funds withdrawn
by Valencia, he was also the authorized officer to sign the vouchers and checks. He
was also the payee of the checks.

The confidential funds were withdrawn through cash advance. She identified the
vouchers and checks pertaining to the disbursements made by Uriarte and Valencia
in 2008, 2009 and 2010.

The checks of Uriarte and Valencia had the treasurer as co-signatory. The treasurer
who signed depends on when the checks were issued.

She knows the signatures of Uriarte, Valencia and Aguas because they have their
signatures on the records.

Uriarte and Valencia signed the vouchers to certify to the necessity and legality of
the vouchers; they also signed to approve the same, signify they are "okay" for
payment and claim the amount certified and approved as payee. Gloria P. Araullo
signed as releasing officer, giving the checks to the claimants.

Accused Aguas signed the vouchers to certify that there are adequate funds and
budgetary allotment, that the expenditures were properly certified and supported
by documents, and that the previous cash advances were liquidated and accounted
for. This certification means that the cash advance voucher can be released. This is
because the COA rule on cash advance is that before any subsequent cash advance
is released, the previous cash advance must be liquidated first. This certification
allowed the requesting party and payee to get the cash advance from the voucher.
Without this certification, Uriarte and Valencia could not have been able to get the
cash advance. Otherwise, it was a violation of P.D. 1445 (Government Auditing
Code).

The third box in the flowchart is the designation of the SDO. Board Resolutions No.
217, Series of 2009 (Exh. "M"), No. 2356, Series of 2009 (Exh. "N"), and No. 029,
Series of 2010 (Exh. "O"), resolved to designate Uriarte as SDO for the CIF. These
resolutions were signed and approved by Valencia, Taruc, Valdes, Uriarte, Roquero
and Morato. The witness is familiar with these persons' signature because their
signatures appear on PCSO official records.

Valencia designated himself as SDO upon the recommendation of COA Auditor


Plaras. There was no board resolution for this designation. There was just a
certification dated February 2, 2009 (Exh. "Z4"). This certification was signed by
Valencia himself and designates himself as the SDO since he is personally taking
care of the funds which are to be handled with utmost confidentiality. The witness is
familiar with Valencia's signature because it appears on PCSO official documents.
Under COA rules, the Board of Directors has authority to designate the SDO. The
chairman could not do this by himself.

Plaras wrote a letter dated December 15, 2008 to Valencia. It appears in the letter
that to substantiate the liquidation report, Plaras told Valencia to designate himself
as SDO because there was no disbursing officer. It was the suggestion of Plaras.
Plaras is the head of the CIF Unit under then COA Chairman Villar. Liquidation
vouchers and supporting papers were submitted to them, with corresponding
fidelity bond.

COA Circulars 92-385 and 2003-002 indicate that to disburse CIF, one must be a
special disbursing officer or SDO. All disbursing officers of the government must
have fidelity bonds. The bond is to protect the government from and answer for
misappropriation that the disbursing officer may do. The bond amount required is
the same as the amount that may be disbursed by the officer. It is based on total
accountability and not determined by the head of the agency as a matter of
discretion. The head determines the accountability which will be the basis of the
bond amount.

The Charter states that the head of the agency is the Board of Directors, headed by
the Chairman. But now, under the Governance of Government Corporation law, it is
the general manager. ATICcS

Plaras should have disallowed or suspended the cash advances because there was
no fidelity bond and the disbursing officer was not authorized. There was no bond
put up for Valencia. The records show that the bond for Uriarte was only for the
amount of P1.5 million. This is shown in a letter dated August 23, 2010, to COA
Chairman Villar through Plaras from Aguas (Exh. "B5"), with an attachment from the
Bureau of Treasury, dated March 2, 2009. It appears there that the bond for Uriarte
for the CIF covering the period February 2009 to February 2010 was only P1.5
million.

Aguas submitted this fidelity bond certification, which was received on August 24,
2010, late, because under the COA Circulars, it should have been submitted when
the disbursing officer was designated. It should have been submitted to COA
because a disbursing officer cannot get cash advances if they do not have a fidelity
bond.

Once an SDO is designated, the specimen signature must be submitted to COA,


together with the fidelity bond and the signatories for the cash advances.

The approval of the President pertains to the release of the budget, not its
allocation. She thinks the action of the Board was done because there was no
budget. The Board's confirmation was needed because it was in excess of the
budget that was approved. They were trying to give a color of legality to them
approval of the CIF in excess of the approved corporate operating budget. The
Board approval was required for the amount to be released, which amount was
approved in excess of the allotted budget for the year. The President cannot
approve an additional amount, unless there is an appropriation or a provision saying
a particular savings will be used for the CIF. The approvals here were all in excess of
the approved budget.

Cash advances can be given on a per project basis for CIF. For one to get a cash
advance, one must state what the project is as to that cash advance. No
subsequent cash advance should be given, until previous cash advances have been
liquidated and accounted for. If it is a continuing project, monthly liquidation reports
must be given. The difference in liquidation process between CIF and regular cash
advances is that for CIF, the liquidation goes to the Chair and not to the resident
auditor of the agency or the GOCC. All of the liquidation papers should go to the
COA Chair, given on a monthly basis.

In this case, the vouchers themselves are couched generally and just say cash
advance from CIF of the Chairman or from the GM's office in accordance with her
duties. There is no particular project indicated for the cash advance. Also, the
requirement that prior advances be liquidated first for subsequent advances to be
given was not followed. The witness prepared a summary of the cash advances
withdrawn by the two disbursing officers covering the years 2008, 2009 and 2010
(Exh. "D5"). The basis for this summary is the record submitted to them by Aguas,
which were supposedly submitted to COA. It shows that there were subsequent cash
advances, even if a prior advance has not yet been liquidated. Valencia submitted
liquidation reports to Villar, which consists of a letter, certification and schedule of
cash advances, and liquidation reports. One is dated July 24, 2008 (Exh. "G5") and
another is dated February 13, 2009 (Exh. "H5").

When she secured Exhibit "G5", together with the attached documents, she did not
find any supporting documents despite the statement in Exhibit "G5" that the
supporting details of the expenses that were incurred from the fund can be made
available, if required. Aguas, the person who processed the cash advances said he
did not have the details or supporting details of documents of the expenditures.

Normally, when liquidating CIF, the certification of the head of the agency is
necessary. If there were vouchers or receipts involved, then all these should be
attached to the liquidation report. There should also be an accomplishment report
which should be done on a monthly basis. All of these should be enclosed in a
sealed envelope and sent to the Chairman of the COA, although the agency
concerned must retain a photocopy of the documents. The report should have a
cover/transmittal letter itemizing the documents, as well as liquidation vouchers
and other supporting papers. If the liquidation voucher and the supporting papers
are in order, then the COA Chairman or his representative shall issue a credit
memorandum. Supporting papers consist of receipts and sales invoices. The head of
the agency would have to certify that those were all actually incurred and are legal.
In this case, there were no supporting documents submitted with respect to
Valencia's cash advances in 2008. Only the certifications by the SDO were
submitted. These certifications stated that he has the documents in his custody and
they can be made available, if and when necessary.

When she reviewed the CIF, she asked Aguas to produce the supporting documents
which were indicated in Valencia's certification and Aguas's own certification in the
cash advance vouchers, where he also certified that the documents supporting the
cash advance were in their possession and that there was proper liquidation. Aguas
replied that he did not have them.

She identified the letter of Uriarte to Villar dated July 24, 2008 as well as a
transmittal letter by Uriarte for August 1, 2008, a certification and schedule of cash
advances and an undetailed liquidation report. Among the attachments is Board
Resolution 305, a copy of the COB for 2008, a document for the second half of 2008,
a document dated April 2, 2009, and a document for liquidation of P2,295,000. She
also identified another letter for P50 million, dated February 13, 2009, attached to
the transmittal letter. There is a certification attached to those two letters
amounting to P2,295,000. Also attached is the schedule of cash advances by Aguas
and a liquidation report where Aguas certified that the supporting documents are
complete and proper although the supporting documents and papers are not
attached to the liquidation report, only the general statement. These documents
were submitted to them by Aguas. ETHIDa
She was shown the four liquidation reports (Exhibits "M5", "N5", "O5" and "P5")
attached to the transmittal letter and was asked whether they were properly and
legally accomplished. She replied that they were couched in general terms and the
voucher for which the cash advance was liquidated is not indicated and only the
voucher number is specified. She adds that the form of the liquidation is correct, but
the details are not there and neither are the supporting papers.

The liquidation report was dated July 24, 2008, but it was submitted only on August
1, 2008 to COA, and it supposedly covered the cash advances of Uriarte from
January to May 2008. This is stated in her summary of liquidation that was earlier
marked. There were no supporting papers stated on or attached to the liquidation
report.

She identified a set of documents to liquidate the cash advances from the CIF for
the second semester of 2008 by Uriarte. The transmittal letter of Uriarte was
received by the COA on April 2, 2009. Upon inquiry with Aguas, he said that he did
not have any of the supporting papers that he supposedly had according to the
certification. According to him, they are with Uriarte. Uriarte, on the other hand,
said, during the Senate hearing, that she gave them to President Arroyo.

When Plaras wrote Valencia on December 15, 2008, Aguas wrote back on behalf of
Valencia, who had designated himself as SDO. However, their designations, or in
what capacity they signed the voucher are not stated. Among the attachments is
also a memorandum dated April 2, 2008 (Exhibit "P5"), containing the signature of
Arroyo, indicating her approval to the utilization of funds. Another memorandum,
dated August 13, 2008, indicating the approval of Arroyo was also attached to the
transmittal letter of Aguas on April 4, 2009. These two memoranda bear the reasons
for the cash advances, couched in general terms. The reasons were donated
medicines that were sold and authorized expenditures on endowment fund. The
reasons stated in the memoranda are practically the same. Uriarte did not submit
any accomplishment reports regarding the intelligence fund. Aguas submitted an
accomplishment report, but the accomplishments were not indicated in definite
fashion or with specificity.

The witness narrated, based on her Summary of Liquidation Reports in 2009, that
the total cash advance made by Uriarte was P132,760,096. Arroyo approved P90
million for release. P10 million in January 2009 and April 27, 2009, and then P50
million in May 6, 2009. In July 2, 2009, P10 million or a total of P70 million. In
October 2009, P20 million or a total of P90 million. The amount that was cash
advanced by Valencia was P5,660,779. Therefore, the total cash advances by these
two officials were P138,420,875, but all of these were never liquidated in 2009.
Uriarte and Valencia only submitted a liquidation voucher and a report to COA on
April 12, 2010. For the January 22, 2009 disbursements, the date of the liquidation
voucher was June 30, 2009, but it was submitted to COA on April 12, 2010. Witness
identified the transmittal letter for P28 million by Uriarte, dated October 19, 2009,
which was received by the COA only on April 12, 2010, with an accompanying
certification from Uriarte as to some of the documents from which the witness's
Summary of Liquidation was based.

The cash advances made by Uriarte and Valencia violated par. 1, Sec. 4 and Sec. 84
of P.D. 1445 and par. 2, III, COA Circular No. 92-385.

Since these cash advances were in excess of the appropriation, in effect, they were
disbursed without any appropriation. These cash advances were also made without
any specific project, in violation of par. 2 of COA Circular No. 92-385. In this case,
the cash advances were not for a specific project. The vouchers only indicate the
source of the fund. The vouchers did not specify specific projects.

The total cash advances for the years 2008, 2009 and 2010 to accused Uriarte and
Valencia is more than P366,000,000. Valencia cash advanced P13.3 million. The rest
was made by Uriarte. TIADCc

The memoranda to President Arroyo stated only the problems encountered by the
PCSO. These problems, as stated in each memorandum, included donated
medicines sometimes ending up in store for sale, unofficial use of ambulances, rise
of expenditures of endowment fund, lotto sweepstakes scams, fixers for programs of
the PCSO, and other fraudulent schemes. No projects were mentioned.

As regards the sixth step the credit notice, the same was not validly issued by the
COA. The credit notice is a settlement or an action made by the COA Auditors and is
given once the Chairman, in the case of CIF Fund, finds that the liquidation report
and all the supporting papers are in order. In this case, the supporting papers and
the liquidation report were not in order, hence, the credit notice should not have
been issued. Further, the credit notice has to follow a specific form. The COA
Chairman or his representative can: 1) settle the cash advance when everything is
in order; 2) suspend the settlement if there are deficiencies and then ask for
submission of the deficiencies; or 3) out rightly disallow it in case said cash
advances are illegal, irregular or unconscionable, extravagant or excessive. Instead
of following this form, the COA issued a document dated January 10, 2011, which
stated that there is an irregular use of the price fund and the charity fund for CIF
Fund. The document bears an annotation which says, "wait for transmittal, draft"
among others. The document was not signed by Plaras, who was the Head of the
Confidential and Intelligence Fund Unit under COA Chairman Villar. Instead, she
instructed her staff to "please ask Aguas to submit the supplemental budget." This
document was not delivered to PCSO General Manager J.M. Roxas. They instead
received another letter dated January 13, 2011 which was almost identical to the
first document, except it was signed by Plaras, and the finding of the irregular use of
the prize fund and the charity fund was omitted. Instead, the work "various" was
substituted and then the amount of P137,500,000. Therefore, instead of the earlier
finding of irregularity, suddenly, the COA issued a credit notice as regards the total
of P140,000,000. The credit notice also did not specify that the transaction had
been audited, indicating that no audit was made.

A letter dated May 11, 2009 from the COA and signed by Plaras, states that the
credit notice is hereby issued. Thus, it is equivalent to the credit notice, although it
did not come in the required form. It merely stated that the credit notice is issued
for P29,700,000, without specifying for which vouchers and for which project the
credit notice was being given. It merely says "First Semester of 2008". In other
words, it is a "global" credit notice that she issued and it did not state that she
made an audit.

Another letter, dated July 14, 2010 and signed by Plaras, supposedly covers all the
cash advances in 2009, but only up to the amount of P116,386,800. It also did not
state that an audit was made.

There were no supporting papers attached to the voucher, and the certification
issued is not in conformity with the required certification by COA Circular 2003-002.
The certification dated July 24, 2008 by Valencia was not in conformity with the
certification required by COA. The required form should specify the project for which
the certification was being issued, and file code of the specific project. The
certification dated July 24, 2008, however, just specified that it was to certify that
the P2 million from the 2008 CIF Fund was incurred by the undersigned, in the
exercise of his functions as PCSO Chairman for the various projects, projects and
activities related to the operation of the office, and there was no specific project or
program or file code of the intelligence fund, as required by COA. Furthermore, the
certification also did not contain the last paragraph as required by COA. Instead, the
following was stated in the certification: "He further certifies that the details and
supporting documents and papers on these highly confidential missions and
assignments are in our custody and kept in our confidential file which can be made
available if circumstances so demand." No details or supporting documents were
reviewed by the witness, and though she personally asked Aguas, the latter said
that he did not have the supporting papers, and they were not in the official files of
the PCSO. Two people should have custody of the papers, namely, The Chairman of
COA and the PCSO or its Special Disbursing Officer. The witness asked Aguas
because Valencia was not there, and also because Aguas was the one who made
the certification and was in-charge of accounting. The vouchers, supposedly
certified by Aguas, as Budget and Accounting Department Manager, each time cash
advances were issued, stated that the supporting documents are complete, so the
witness went to him to procure the documents.

A certification dated February 13, 2009, stating that P2,857,000 was incurred by
Valencia in the exercise of his function as PCSO Chairman, related to the operations
of his office without the specific intelligence project. In the same document, there is
a certification similar to one in the earlier voucher. No details of this certification
were submitted by Aguas.
Another certification dated July 24, 2008 was presented, and it also did not specify
the intelligence and confidential project, and it did not contain any certification that
the amount was disbursed legally or that no benefits was given to any person.
Similarly, the fourth paragraph of the same document states that Uriarte certified
that details and supporting papers of the cash advance that she made of
P27,700,000 are "kept in their confidential" (sic). The same were not in the PCSO
official records. cSEDTC

The certification dated October 19, 2009 for the amount of P2,498,300, was
submitted to the witness by Aguas. It also did not conform to the COA requirements,
as it also did not specify the use of the cash advance, did not contain any
certification that the cash advance was incurred for legal purposes, or that no
benefits to other people were paid out of it. Again, no supporting documents were
found and none were given by Aguas. Similarly, a certification dated February 8,
2010 for the amount of P2,394,654 was presented, and it also does not conform
with the COA circular, as it only stated that the amount was spent or incurred by
Valencia for projects covering the period of July 1 to December 31, 2009 to exercise
his function as PCSO Chairman, thus no particular intelligence fund or project was
stated. As in the other certifications, though it was stated that the details were in
the confidential file, it appeared that these were not in the possession of PCSO.
Another certification dated October 19, 2009 submitted by Uriarte was examined by
the witness in the course of her audit, and found that it also did not conform to the
requirements, as it only stated that the P25 million and P10 million intelligence and
confidential fund dated January 29, 2009 and April 27, 2009 were used in the
exercise of her function as PCSO Vice Chairman and General Manager.

All the documents were furnished by Aguas during the course of the audit of the
financial transactions of PCSO. Other documents given by Aguas include a letter by
Valencia to COA Chairman Villar, which was attached to the letter dated July 24,
2008. For the Certification issued by Valencia for P2,857,000, there was also a
certification attached dated February 13, 2009. As to Exhibit "J5", together with the
certification, there was a letter but no other documents were submitted. Similarly,
as to Exhibit "M6", it was attached to a letter dated October 19, 2009 and was
submitted to the witness by Aguas. Exhibit "N6" was attached to the letter of
Valencia dated February 8, 2010, the October 19, 2009 certification was attached to
the October 19, 2009 letter to Chairman Villar.

The certification dated June 29, 2010, signed by Valencia in the amount of
P2,075,000, also does not conform with the COA requirement as it only specifies
that the fund was disbursed by Valencia under his office for various programs in the
exercise of his function as Chairman. Though there was a certification that the
supporting papers were kept in the office, these papers were not found in the
records of the PCSO and Aguas did not have any of the records. The certification
was attached to the letter of Valencia to Villar dated June 29, 2010.
In the certification dated June 29, 2010 signed by Uriarte in the amount of
P137,500,000, the witness also said that the certification did not conform to the
COA Circular because it only stated that the amount was disbursed from a special
intelligence fund, authorized and approved by the President under the disposition of
the Office of the Vice Chairman. Despite the statement certifying that there were
documents for the audit, no documents were provided and the same were not in the
official files of PCSO. The certification was attached to a letter by Uriarte dated July
1, 2010 addressed to Villar.

In the certification dated October 19, 2009 signed by Uriarte in the amount of
P2,500,000, the witness made the same finding that it also did not conform to the
COA Circular, as it did not specify the project for which the cash advance was
obtained and there were also no records in the PCSO. It was attached to the letter
dated October 19, 2009.

Finally, in the certification dated February 9, 2010 signed by Uriarte in the amount
of P73,993,846, the witness likewise found that it did not conform with the
requirements of the COA, as all it said was the amount was used for the exercise of
the functions of the PCSO Chairman and General Manager. The documents related
to this were also not in the PCSO records and Aguas did not submit the same. It was
attached to a letter dated February 8, 2010 from Uriarte to Villar.

There are two kinds of audit on disbursements of government funds: pre-audit and
post-audit. Both are defined in COA Circular 2009-002. Pre-audit is the examination
of documents supporting the transaction, before these are paid for and recorded.
The auditor determines whether: (1) the proposed expenditure was in compliance
with the appropriate law, specific statutory authority or regulations; (2) sufficient
funds are available to enable payment of the claim; (3) the proposed expenditure is
not illegal, irregular, extravagant, unconscionable or unnecessary, and (4) the
transaction is approved by the proper authority and duly supported by authentic
underlying evidence. On the other hand, the post-audit requirement is the process
where the COA or the auditor will have to do exactly what was done in the pre-audit,
and in addition, the auditor must supplement what she did by tracing the
transaction under audit to the books of accounts, and that the transaction is all
recorded in the books of accounts. The auditor, in post-audit, also makes the final
determination of whether the transaction was not illegal, irregular, extravagant,
excessive, unconscionable or unnecessary.

In this case, no audit was conducted. In a letter dated May 11, 2009 signed by
Plaras, it was stated that a credit advice was given. However, the letter did not
conform to the requirements or form of a credit notice. Such form was in COA
Circular 2003-002, and should specify the liquidation report number, the amount,
check numbers, and the action taken by the auditor. The auditor should also include
a certification that these have been audited. In this instance, no certification that
the transaction was audited was given by Plaras. Other similar letters did not
conform with the COA Circular. All transactions of the government must be subject
to audit in accordance with the provisions of the Constitution. Nevertheless, the
requirements for audit are the same.

The effect of the issuance of the credit notice by the COA was that the agency will
take it up in the books and credit the cash advance. This is the seventh step in the
flowchart. Once there is a cash advance, the liability of the officers who obtained
the cash advance would be recorded in the books. The credit notice, when received,
would indicate that the account was settled. The agency will credit the receivable or
the cash advance, and remove from the books as a liability of the person liable for
the cash advance. The effect of this was that the financial liabilities of Uriarte and
Valencia were removed from the books, but they could still be subject to criminal
liability based on Sec. 10 of COA Circular 91-368 (Government Accounting and
Auditing Manuals, Vol. 1, implementing P.D. 1445), which states: "The settlement of
an account whether or not on appeal has been made within the statutory period is
no bar to criminal prosecution against persons liable." From the 2008 COA Annual
Audited Financial Statements of PCSO, it was seen that the procedure was not
followed because the liability of the officers was already credited even before the
credit notice was received. In the financial statements, it was stated that the
amount due from officers and employees, which should include the cash advances
obtained by Uriarte and Valencia, were not included because the amount stated
therein was P35 million, while the total vouchers of Uriarte and Valencia was P86
million. AIDSTE

The witness also related that she traced the records of the CIF fund (since such was
no longer stated as a receivable), and reviewed whether it was recorded as an
expense in 2008. She found out that the recorded CIF fund expense, as recorded in
the corporate operating budget as actually disbursed, was only P21,102,000. As
such, she confronted her accountants and asked them "Saan tinago itong amount
na to?" The personnel in the accounting office said that the balance of the P86
million or the additional P21 million was not recorded in the operating fund budget
because they used the prize fund and charity fund as instructed by Aguas. Journal
Entry Voucher No. 8121443 dated December 31, 2008, signed by Elmer Camba,
Aguas (Head of the Accounting Department), and Hutch Balleras (one of the staff in
the Accounting Department), showed that this procedure was done.

The contents of the Journal Entry Voucher are as follows:

(a) Accounts and Explanation: Due to other funds. This means that the amount of
P63,750,000 was credited as confidential expense from the operating fund. The
amount was then removed from the operating fund, and it was passed on to other
funds.

(b) PF Miscellaneous, Account No. 424-1-L P41,250,000 and CF Miscellaneous for


424-2-G for P22,500,000. PF Miscellaneous means Prize Fund Miscellaneous and CF
stands for Charity Fund Miscellaneous. This means that funds used to release the
cash advances to Uriarte and Valencia were from the prize fund and charity.

Attached to the Journal Entry Voucher was a document which reads "Allocation of
Confidential and Intelligence Fund Expenses", and was the basis of Camba in doing
the Journal Entry Voucher. In the same document, there was a written annotation
dated 12-31-2008 which reads that the adjustment of CIF, CF and IF, beneficiary of
the fund is CF and PF and signed by Aguas.

The year 2009 was a similar case, as the witness traced the recording of the credit
notice at the end of 2009, and despite the absence of the credit notice, the
Accounting Department removed from the books of PCSO the liability of Uriarte and
Valencia, corresponding to the cash advances obtained in 2009. She based this
finding on the COA Annual Audit Report on the PCSO for the year ended December
31, 2009. It was stated in the Audit Report that the total liability due from officers
and employees was only P87,747,280 and it was less than the total cash advances
of Uriarte and Valencia, which was P138 million. As a result, the witness checked the
corresponding entry for the expenses in the corporate operating budget and found
out that the same was understated. The CIF expenses were only P24,968,300, as
against the actual amount per vouchers, which was P138,420,875. Upon checking
with the Accounting Department, the department showed her another Journal Entry
Voucher No. 9121157, dated December 29, 2009, where the personnel removed
immediately the expense and recorded it as expense for the prize fund and charity
fund by the end of December 31. SDAaTC

The contents of the Journal Entry Voucher, especially the notation "due from",
means the accountability of those who had cash advance was instead credited. It
was removed, and the amount was P106 million. The entry was confidential
expense for P15,958,020 and then the due to other funds was P90,428,780. The
explanation for "424" was found in the middle part, stating: "424-1-L" of
miscellaneous prize fund was used in the amount of P58,502,740 and the charity
fund was used in the amount of P31,916,040. The total amount of the receivables
from Uriarte and Valencia that was removed was P106,386,800 and P90,428,780
respectively which came from the prize fund and charity fund.

The witness reported the discrepancy because there were violations of R.A. 1169,
Sec. 6, which provides for the different funds of PCSO namely: prize fund (55% of
the net receipts), charity fund (30% of the net receipts), and operating fund (15%).
The proceeds of the lotto and sweepstakes ticket sales provide the money for these
different funds, removing first the printing cost and the net proceeds (98%) is
divided among the three funds mentioned. The prize fund is the fund set aside to be
used to pay the prizes for the winnings in the lotto or sweepstakes draws, whether
they are jackpot or consolation prizes. Incentives to the lotto operators or horse
owners are also drawn from this fund, as all of the expenses connected to the
winnings of the draw. On the other hand, the charity fund is reserved for charity
programs approved by the board of PCSO, and constitutes hospital and medical
assistance to individuals, or to help facilities and other charities of national
character. Operating expenses are charged to the expenses to operate, personnel
services, and MOOE. One kind of fund cannot be used for another kind, as they
become a trust fund which should only be used for the purpose for which it was
authorized, not even with the approval of the board.

The amounts obtained from the charity fund and prize fund for 2008 was
P63,750,000, and in 2009 P90,428,780. The Board of Directors was given a copy of
the COA Audit Reports for years 2008 and 2009. The Board of Directors for both
years was composed of: Chairman Valencia, and Board Members Morato, Roquero,
Taruc and Valdez. Uriarte was the Vice Chairman of the Board of Directors. The
witness did not know whether the Board checked the COA reports, but there was no
action on their part, and neither did they question the correctness of the
statements. They also had the Audit Committee (which was composed of members
of the board) at that time, and one of the duties of the Audit Committee was to
verify the balances.

The witness identified the documents referring to the confirmation by the Board of
Directors of PCSO of the CIF. Board Resolution No. 217, approved on February 18,
2009, confirms the CIF approved by the President. It did not state which CIF they
were approving. They also assigned Uriarte as the Special Disbursing Officer of the
CIF, but it did say for what year. The signatories to the same Board Resolution were
Valencia, Taruc, Valdes, Uriarte, Roquero and Morato. The same were the witness's
findings for Board Resolution No. 2356 S. 2009, approved on December 9, 2009. As
for Board Resolution No. 29, S. 2010, approved on January 6, 2010, the Board
confirmed the fund approved by the President for 2010, though the approval of the
President was only received on August 13, 2010 as shown in the Memorandum
dated January 4. In effect, the Board was aware of the requests, and because they
ratified the cash advances, they agreed to the act of obtaining the same.

Apart from the President violating LOI 1282, the witness also observed that the
President directly dealt with the PCSO, although the President, by Executive Order
No. 383 dated November 14, 2004, and Executive Order No. 455 dated August 22,
2005, transferred the direct control and supervision of the PCSO to the Department
of Social Welfare and Development (DSWD), and later to the Department of Health
(DOH). A project should first be approved by the Supervising and Controlling
Secretary of the Secretary of Health; that the President had transferred her direct
control and supervision, and lost the same. The witness said her basis was
administrative procedure. In this regard, President Aquino now has transferred the
control and supervision of the PCSO back to the Office of the President through
Executive Order No. 14, S. 2010, dated November 19, 2010.
Uriarte should not have gone directly to the President to ask for the latter's approval
for allocation. Nonetheless, the release of the CIF must still be approved by the
President. 9 AaCTcI

The State also presented evidence consisting in the testimonies of officers coming
from different law enforcement agencies 10 to corroborate Tolentino's testimony to
the effect that the PCSO had not requested from their respective offices any
intelligence operations contrary to the liquidation report submitted by Uriarte and
Aguas.

To complete the evidence for the Prosecution, Atty. Anamarie Villaluz Gonzales,
Office-in-Charge and Department Manager of the Human Resources of PCSO; Flerida
Africa Jimenez, Head of the Intelligence and Confidential Fund Audit Unit of the COA;
and Noel Clemente, Director of COA were presented as additional witnesses.

After the Prosecution rested its case, GMA, Aguas, Valencia, Morato, Taruc V,
Roquero and Villar separately filed their demurrers to evidence asserting that the
Prosecution did not establish a case for plunder against them.

On April 6, 2015, the Sandiganbayan granted the demurrers to evidence of Morato,


Roquero, Taruc and Villar, and dismissed the charge against them. It held that said
accused who were members of the PCSO Board of Directors were not shown to have
diverted any PCSO funds to themselves, or to have raided the public treasury by
conveying and transferring into their possession and control any money or funds
from PCSO account; that as to Villar, there had been no clear showing that his
designation of Plaras had been tainted with any criminal design; and that the fact
that Plaras had signed "by authority" of Villar as the COA Chairman could not
criminally bind him in the absence of any showing of conspiracy.

However, the Sandiganbayan denied the demurrers of GMA, Aguas and Valencia,
holding that there was sufficient evidence showing that they had conspired to
commit plunder; and that the Prosecution had sufficiently established a case of
malversation against Valencia, pertinently saying:

Demurrer to evidence is an objection by one of the parties in an action, to the effect


that the evidence which his adversary produced is insufficient in point of law,
whether true or not, to make out a case or sustain the issue. The party demurring
challenges the sufficiency of the whole evidence to sustain a verdict. The court then
ascertains whether there is a competent or sufficient evidence to sustain the
indictment or to support a verdict of guilt.

xxx xxx xxx

Sufficient evidence for purposes of frustrating a demurrer thereto is such evidence


in character, weight or amount as will legally justify the judicial or official action
demanded to accord to circumstances. To be considered sufficient therefore, the
evidence must prove (a) the commission of the crime, and (b) the precise degree of
participation therein by the accused (Gutib v. CA, 110 SCAD 743, 312 SCRA 365
[1999]).

xxx xxx xxx

A. Demurrer filed by Arroyo and Aguas:

It must be remembered that in Our November 5, 2013 Resolution, We found strong


evidence of guilt against Arroyo and Aguas, only as to the second predicate act
charged in the Information, which reads:

(b) raiding the public treasury by withdrawing and receiving, in several


instances, the above-mentioned amount from the Confidential/Intelligence Fund
from PCSO's accounts, and/or unlawfully transferring or conveying the same into
their possession and control through irregularly issued disbursement vouchers and
fictitious expenditures.

In the November 5, 2013 Resolution, We said: acEHCD

It should be noted that in both R.A. No. 7080 and the PCGG rules, the enumeration
of the possible predicate acts in the commission of plunder did not associate or
require the concept of personal gain/benefit or unjust enrichment with respect to
raids on the public treasury, as a means to commit plunder. It would, therefore,
appear that a "raid on the public treasury" is consummated where all the acts
necessary for its execution and accomplishment are present. Thus a "raid on the
public treasury" can be said to have been achieved thru the pillaging or looting of
public coffers either through misuse, misappropriation or conversion, without need
of establishing gain or profit to the raider. Otherwise stated, once a "raider" gets
material possession of a government asset through improper means and has free
disposal of the same, the raid or pillage is completed. . . .

xxx xxx xxx

Clearly, the improper acquisition and illegal use of CIF funds, which is obviously a
government asset, will amount to a raid on the public treasury, and therefore fall
into the category of ill-gotten wealth.

xxx xxx xxx

. . . It is not disputed that Uriarte asked for and was granted authority by Arroyo to
use additional CIF funds during the period 2008-2010. Uriarte was able [to]
accumulate during that period CIF funds in the total amount of P352,681,646. This
was through a series of withdrawals as cash advances of the CIF funds from the
PCSO coffers, as evidenced by the disbursement vouchers and checks issued and
encashed by her, through her authorized representative.
These flagrant violations of the rules on the use of CIF funds evidently characterize
the series of withdrawals by and releases to Uriarte as "raids" on the PCSO coffers,
which is part of the public treasury. These were, in every sense, "pillage," as Uriarte
looted government funds and appears to have not been able to account for it. The
monies came into her possession and, admittedly, she disbursed it for purposes
other than what these were intended for, thus, amounting to "misuse" of the same.
Therefore, the additional CIF funds are ill-gotten, as defined by R.A. 7080, the PCGG
rules, and Republic v. Sandiganbayan. The encashment of the checks, which named
her as the "payee," gave Uriarte material possession of the CIF funds which she
disposed of at will.

As to the determination whether the threshold amount of P50 million was met by
the prosecution's evidence, the Court believes this to have been established. Even if
the computation is limited only to the cash advances/releases made by accused
Uriarte alone AFTER Arroyo had approved her requests and the PCSO Board
approved CIF budget and the "regular" P5 million CIF budget accorded to the PCSO
Chairman and Vice Chairman are NOT taken into account, still the total cash
advances through accused Uriarte's series of withdrawals will total P189,681,646.
This amount surpasses the P50 million threshold. EcTCAD

The evidence shows that for the year 2010 alone, Uriarte asked for P150 million
additional CIF funds, and Arroyo granted such request and authorized its use. From
January 8, 2010 up to June 18, 2010, Uriarte made a series of eleven (11) cash
advances in the total amount of P138,223,490. According to Uriarte's testimony
before the Senate, the main purpose for these cash advances was for the "roll-out"
of the small town lottery program. However, the accomplishment report submitted
by Aguas shows that P137,500,000 was spent on non-related PCSO activities, such
as "bomb threat, kidnapping, terrorism and bilateral and security relations." All the
cash advances made by Uriarte in 2010 were made in violation of LOI 1282, and
COA Circulars 2003-002 and 92-385. These were thus improper use of the additional
CIF funds amounting to raids on the PCSO coffers and were ill-gotten because
Uriarte had encashed the checks and came into possession of the monies, which
she had complete freedom to dispose of, but was not able to properly account for.

These findings of the Court clearly point out the commission by Uriarte of the crime
of Plunder under the second predicate act charged in the Information. As to Arroyo's
participation, the Court stated in its November 5, 2013 Resolution that:

The evidence shows that Arroyo approved not only Uriarte's request for additional
CIF funds in 2008-2010, but also authorized the latter to use such funds. Arroyo's
"OK" notation and signature on Uriarte's letter-requests signified unqualified
approval of Uriarte's request to use the additional CIF funds because the last
paragraph of Uriarte's requests uniformly ended with this phrase: "With the use of
intelligence fund, PCSO can protect its image and integrity of its operations.

The letter-request of Uriarte in 2010 was more explicit because it categorically


asked for: "The approval on the use of the fifty percent of the PR Fund as PCSO
Intelligence Fund will greatly help PCSO in the disbursement of funds to immediately
address urgent issues."

Arroyo cannot, therefore, successfully argue that what she approved were only the
request for the grant or allocation of additional CIF funds, because Arroyo's "OK"
notation was unqualified and, therefore, covered also the request to use such funds,
through releases of the same in favor of Uriarte. 11

The Sandiganbayan later also denied the respective Motions for Reconsideration of
GMA and Aguas, observing that:

In this case, to require proof that monies went to a plunderer's bank account or was
used to acquire real or personal properties or used for any other purpose to
personally benefit the plunderer, is absurd. Suppose a plunderer had already
illegally amassed, acquired or accumulated P50 Million or more of government
funds and just decided to keep it in his vault and never used such funds for any
purpose to benefit him, would that not be plunder? Or, if immediately right after
such amassing, the monies went up in flames or recovered by the police, negating
any opportunity for the person to actually benefit, would that not still be plunder?
Surely, in such cases, a plunder charge could still prosper and the argument that
the fact of personal benefit should still be evidence-based must fail.

Also, accused Arroyo insists that there was no proof of the fact of amassing the ill-
gotten wealth, and that the "overt act" of approving the disbursement is not the
"overt act" contemplated by law. She further stresses that there was no proof of
conspiracy between accused Arroyo and her co-accused and that the Prosecution
was unable to prove their case against accused Arroyo. What accused Arroyo
forgets is that although she did not actually commit any "overt act" of illegally
amassing CIF funds, her act of approving not only the additional CIF funds but also
their releases, aided and abetted accused Uriarte's successful raids on the public
treasury. Accused Arroyo is therefore rightly charged as a co-conspirator of Uriarte
who accumulated the CIF funds. Moreover, the performance of an overt act is not
indispensable when a conspirator is the mastermind. 12 SDHTEC

Considering that the Sandiganbayan denied the demurrers to evidence of GMA and
Aguas, they have come to the Court on certiorari to assail and set aside said denial,
claiming that the denial was with grave abuse of discretion amounting to lack or
excess of jurisdiction.

Issues
GMA pleads that the denial of her demurrer to evidence was in patent and flagrant
violation of Republic Act No. 7080, the law on plunder, and was consequently
arbitrary and oppressive, not only in grave abuse of discretion but rendered without
jurisdiction because:

First Ground

On the basis of the above Resolutions, the Sandiganbayan has denied petitioner
Arroyo's Demurrer to Evidence and considering the reasons for doing so, would find
petitioner Arroyo guilty of the offense of plunder under Republic Act No. 7080 as
charged in the Information notwithstanding the following:

a. While the gravamen, indeed corpus delicti of the offense of plunder under
R.A. No. 7080, and as charged in the Information, is that the public officer . . .
"amasses, accumulates or acquires ill-gotten wealth through a combination or series
of overt or criminal acts as described in Section 1(d) hereof, in the aggregate
amount or total value of at least Fifty million pesos (P50,000,000.00)", the
Sandiganbayan Resolutions extirpate this vital element of the offense of plunder;

b. In point of fact, not a single exhibit of the 637 exhibits offered by the
prosecution nor a single testimony of the 21 witnesses of the prosecution was
offered by the prosecution to prove that petitioner amassed, accumulated or
acquired even a single peso of the alleged ill-gotten wealth amounting to
P365,997,915.00 or any part of that amount alleged in the Information;

c. Implicitly confirming the above, and aggravating its error, on the basis solely
of petitioner Arroyo's authorization of the release of the Confidential/Intelligence
Fund from PCSO's accounts, the Sandiganbayan ruled that she has committed the
offense of plunder under R.A. No. 7080 for the reason that her release of CIF funds
to the PCSO amount to a violation of Sec. 1(d) [1] of R.A. No. 7080 which reads, as
follows:

1) Through misappropriation, conversion, misuse, or malversation of public


funds or raids on the public treasury;

which, "did not associate or require the concept of personal gain/benefit or


unjust enrichment with respect to raids on the public treasury", thereby
disregarding the gravamen or the corpus delicti of the offense of plunder under R.A.
No. 7080.

Second Ground

Worsening the above error of the Sandiganbayan, the Resolutions, with absolutely
no justification in law or in the evidence, purportedly as the "mastermind" of a
conspiracy, and without performing any overt act, would impute to petitioner Arroyo
the "series of withdrawals as cash advances of the CIF funds from the PCSO coffers"
by Uriarte as "raids on the PCSO coffers, which is part of the public treasury" and "in
every sense, 'pillage' as Uriarte looted government funds and appears to have not
been able to account for it". Parenthetically, Uriarte has not been arrested, was not
arraigned and did not participate in the trial of the case.

Third Ground

That as an obvious consequence of the above, denial of petitioner Arroyo's


Demurrer to Evidence for the reasons stated in the Sandiganbayan Resolutions,
amounting no less to convicting her on the basis of a disjointed reading of the crime
of plunder as defined in R.A. No. 7080, aggravated by the extirpation in the process
of its "corpus delicti" the amassing, accumulation or acquisition of ill-gotten
wealth, hence, of a crime that does not exist in law and consequently a blatant
deprivation of liberty without due process of law.

Fourth Ground

The Information alleges that the ten (10) persons accused in Crim. Case No. SB-12-
CRM-0174, namely: Gloria Macapagal-Arroyo, Rosario C. Uriarte, Sergio O. Valencia,
Manuel L. Morato, Jose R. Taruc V, Raymundo T. Roquero, [M]a. Fatima A.S. Valdes,
Benigno B. Aguas, Reynaldo A. Villar and Nilda B. Plaras" . . . all public officers
committing the offense in relation to their respective offices and taking undue
advantage of their respective official positions, authority, relationships, connections
or influence, conniving, conspiring and confederating with one another, did then
and there willfully, unlawfully and criminally amass, accumulate and/or acquire,
directly or indirectly, ill-gotten wealth in the aggregate amount or total value of
THREE HUNDRED SIXTY FIVE MILLION NINE HUNDRED NINETY SEVEN THOUSAND
NINE HUNDRED FIFTEEN PESOS (PHP365,997,915.00), more or less, through any or
a combination or a series of overt or criminal acts, or similar schemes or means,
described as follows . . ." or each of them, P36,599,791.50 which would not qualify
the offense charged as "plunder" under R.A. No. 7080 against all ten (10) accused
together, for which reason the Information does not charge the offense of plunder
and, as a consequence, all proceedings thereafter held under the Information are
void. 13

On his part, Aguas contends that:

A. In light of the factual setting described above and the evidence offered and
admitted, does proof beyond reasonable doubt exist to warrant a holding that
Prosecution proved the guilt of the accused such that there is legal reason to deny
Petitioner's Demurrer?

B. Did the Prosecution's offered evidence squarely and properly support the
allegations in the Information?
PETITIONER STRONGLY SUBMITS THAT PROSECUTION FAILED TO ESTABLISH
BY PROOF BEYOND REASONABLE DOUBT THE EXISTENCE OF THE CORE ELEMENTS
OF THE CRIME OF PLUNDER. 14 HSAcaE

On the other hand, the Prosecution insists that the petitions for certiorari should be
dismissed upon the following grounds, namely:

A. CERTIORARI IS NOT THE PROPER REMEDY FROM AN ORDER OR RESOLUTION


DENYING DEMURRER TO EVIDENCE.

B. THERE IS NO GRAVE ABUSE OF DISCRETION BECAUSE THE SANDIGANBAYAN


MERELY INTERPRETED WHAT CONSTITUTES PLUNDER UNDER LAW AND
JURISPRUDENCE IN LIGHT OF FACTS OF THE CASE. IT DID NOT JUDICIALLY LEGISLATE
A "NEW" OFFENSE.

1. ACTUAL PERSONAL GAIN, BENEFIT OR ENRICHMENT IS NOT AN ELEMENT OF


PLUNDER UNDER R.A. NO. 7080.

2. EVIDENCE SHOWS THAT ARROYO, BY INDISPENSABLE COOPERATION,


CONSPIRED WITH HER CO-ACCUSED AND PARTICIPATED IN THE COMPLEX, ILLEGAL
SCHEME WHICH DEFRAUDED PCSO IN HUNDREDS OF MILLIONS OF PESOS, WHICH
CONSTITUTES PLUNDER.

3. ARROYO IS NOT SIMILARLY SITUATED WITH ACCUSED PCSO BOARD MEMBERS


AND CANNOT THUS DEMAND THAT THE SANDIGANBAYAN DISMISS THE PLUNDER
CASE AGAINST HER.

C. ARROYO'S BELATED, COLLATERAL ATTACK ON THE INFORMATION CHARGING


HER AND CO-ACCUSED FOR PLUNDER IS HIGHLY IMPROPER, ESPECIALLY AT THIS
LATE STAGE OF THE PROCEEDING.

1. THE FACTS CONSTITUTING THE OFFENSE ARE CLEARLY ALLEGED IN THE


INFORMATION.

2. ARROYO'S ACTIVE PARTICIPATION IN THE PROCEEDINGS ARISING FROM OR


RELATING TO SB-12-CRM-0174 PROVES THAT SHE HAS ALWAYS KNOWN AND
UNDERSTOOD THE NATURE AND SCOPE OF THE ACCUSATIONS AGAINST HER.

D. ARROYO IS NOT ENTITLED TO A TEMPORARY RESTRAINING ORDER BECAUSE


THE CRIMINAL PROSECUTION IN SB-12-CRM-0174 CANNOT BE ENJOINED. 15

Based on the submissions of the parties, the Court synthesizes the decisive issues
to be considered and resolved, as follows:

Procedural Issue:

1. Whether or not the special civil action for certiorari is proper to assail the
denial of the demurrers to evidence.
Substantive Issues:

1. Whether or not the State sufficiently established the existence of conspiracy


among GMA, Aguas, and Uriarte;

2. Whether or not the State sufficiently established all the elements of the crime
of plunder:

a. Was there evidence of amassing, accumulating or acquiring ill-gotten wealth


in the total amount of not less than P50,000,000.00?

b. Was the predicate act of raiding the public treasury alleged in the information
proved by the Prosecution?

Ruling of the Court

The consolidated petitions for certiorari are meritorious.

I.

The Court cannot be deprived of its jurisdiction

to correct grave abuse of discretion

The Prosecution insists that the petition for certiorari of GMA was improper to
challenge the denial of her demurrer to evidence; that she also thereby failed to
show that there was grave abuse of discretion on the part of the Sandiganbayan in
denying her demurrer to evidence; and that, on the contrary, the Sandiganbayan
only interpreted what constituted plunder under the law and jurisprudence in light
of the established facts, and did not legislate a new offense, by extensively
discussing how she had connived with her co-accused to commit plunder. 16
AScHCD

The Court holds that it should take cognizance of the petitions for certiorari because
the Sandiganbayan, as shall shortly be demonstrated, gravely abused its discretion
amounting to lack or excess of jurisdiction.

The special civil action for certiorari is generally not proper to assail such an
interlocutory order issued by the trial court because of the availability of another
remedy in the ordinary course of law. 17 Moreover, Section 23, Rule 119 of the
Rules of Court expressly provides that "the order denying the motion for leave of
court to file demurrer to evidence or the demurrer itself shall not be reviewable by
appeal or by certiorari before judgment." It is not an insuperable obstacle to this
action, however, that the denial of the demurrers to evidence of the petitioners was
an interlocutory order that did not terminate the proceedings, and the proper
recourse of the demurring accused was to go to trial, and that in case of their
conviction they may then appeal the conviction, and assign the denial as among the
errors to be reviewed. 18 Indeed, it is doctrinal that the situations in which the writ
of certiorari may issue should not be limited, 19 because to do so

. . . would be to destroy its comprehensiveness and usefulness. So wide is the


discretion of the court that authority is not wanting to show that certiorari is more
discretionary than either prohibition or mandamus. In the exercise of our
superintending control over other courts, we are to be guided by all the
circumstances of each particular case 'as the ends of justice may require.' So it is
that the writ will be granted where necessary to prevent a substantial wrong or to
do substantial justice. 20

The Constitution itself has imposed upon the Court and the other courts of justice
the duty to correct errors of jurisdiction as a result of capricious, arbitrary, whimsical
and despotic exercise of discretion by expressly incorporating in Section 1 of Article
VIII the following provision:

Section 1. The judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government.

The exercise of this power to correct grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the
Government cannot be thwarted by rules of procedure to the contrary or for the
sake of the convenience of one side. This is because the Court has the bounden
constitutional duty to strike down grave abuse of discretion whenever and wherever
it is committed. Thus, notwithstanding the interlocutory character and effect of the
denial of the demurrers to evidence, the petitioners as the accused could avail
themselves of the remedy of certiorari when the denial was tainted with grave
abuse of discretion. 21 As we shall soon show, the Sandiganbayan as the trial court
was guilty of grave abuse of discretion when it capriciously denied the demurrers to
evidence despite the absence of competent and sufficient evidence to sustain the
indictment for plunder, and despite the absence of the factual bases to expect a
guilty verdict. 22

II.

The Prosecution did not properly allege and prove

the existence of conspiracy among GMA, Aguas and Uriarte


Conspiracy exists when two or more persons come to an agreement concerning the
commission of a felony, and decide to commit it. 23 In this jurisdiction, conspiracy is
either a crime in itself or a mere means to commit a crime.

As a rule, conspiracy is not a crime unless the law considers it a crime, and
prescribes a penalty for it. 24 The exception is exemplified in Article 115 (conspiracy
and proposal to commit treason), Article 136 (conspiracy and proposal to commit
coup d'etat, rebellion or insurrection) and Article 141 (conspiracy to commit
sedition) of the Revised Penal Code. When conspiracy is a means to commit a crime,
it is indispensable that the agreement to commit the crime among all the
conspirators, or their community of criminal design must be alleged and
competently shown.

We also stress that the community of design to commit an offense must be a


conscious one. 25 Conspiracy transcends mere companionship, and mere presence
at the scene of the crime does not in itself amount to conspiracy. Even knowledge
of, or acquiescence in, or agreement to cooperate is not enough to constitute one a
party to a conspiracy, absent any active participation in the commission of the
crime with a view to the furtherance of the common design and purpose. 26 Hence,
conspiracy must be established, not by conjecture, but by positive and conclusive
evidence.

In terms of proving its existence, conspiracy takes two forms. The first is the express
form, which requires proof of an actual agreement among all the co-conspirators to
commit the crime. However, conspiracies are not always shown to have been
expressly agreed upon. Thus, we have the second form, the implied conspiracy. An
implied conspiracy exists when two or more persons are shown to have aimed by
their acts towards the accomplishment of the same unlawful object, each doing a
part so that their combined acts, though apparently independent, were in fact
connected and cooperative, indicating closeness of personal association and a
concurrence of sentiment. 27 Implied conspiracy is proved through the mode and
manner of the commission of the offense, or from the acts of the accused before,
during and after the commission of the crime indubitably pointing to a joint purpose,
a concert of action and a community of interest. 28 HESIcT

But to be considered a part of the conspiracy, each of the accused must be shown
to have performed at least an overt act in pursuance or in furtherance of the
conspiracy, for without being shown to do so none of them will be liable as a co-
conspirator, and each may only be held responsible for the results of his own acts.
In this connection, the character of the overt act has been explained in People v.
Lizada: 29

An overt or external act is defined as some physical activity or deed, indicating the
intention to commit a particular crime, more than a mere planning or preparation,
which if carried out to its complete termination following its natural course, without
being frustrated by external obstacles nor by the spontaneous desistance of the
perpetrator, will logically and necessarily ripen into a concrete offense. The raison
d'etre for the law requiring a direct overt act is that, in a majority of cases, the
conduct of the accused consisting merely of acts of preparation has never ceased to
be equivocal; and this is necessarily so, irrespective of his declared intent. It is that
quality of being equivocal that must be lacking before the act becomes one which
may be said to be a commencement of the commission of the crime, or an overt act
or before any fragment of the crime itself has been committed, and this is so for the
reason that so long as the equivocal quality remains, no one can say with certainty
what the intent of the accused is. It is necessary that the overt act should have
been the ultimate step towards the consummation of the design. It is sufficient if it
was the "first or some subsequent step in a direct movement towards the
commission of the offense after the preparations are made." The act done need not
constitute the last proximate one for completion. It is necessary, however, that the
attempt must have a causal relation to the intended crime. In the words of Viada,
the overt acts must have an immediate and necessary relation to the offense. (Bold
underscoring supplied for emphasis)

In her case, GMA points out that all that the State showed was her having affixed
her unqualified "OK" on the requests for the additional CIFs by Uriarte. She argues
that such act was not even an overt act of plunder because it had no immediate and
necessary relation to plunder by virtue of her approval not being per se illegal or
irregular. However, the Sandiganbayan, in denying the Motions for Reconsideration
of GMA and Aguas vis--vis the denial of the demurrers, observed that:

. . . accused Arroyo insists that there was no proof of the fact of amassing the ill-
gotten wealth, and that the "overt act" of approving the disbursement is not the
"overt act" contemplated by law. She further stresses that there was no proof of
conspiracy between accused Arroyo and her co-accused and that the Prosecution
was unable to prove their case against accused Arroyo. What accused Arroyo
forgets is that although she did not actually commit any "overt act" of illegally
amassing CIF funds, her act of approving not only the additional CIF funds but also
their releases, aided and abetted accused Uriarte's successful raids on the public
treasury. Accused Arroyo is therefore rightly charged as a co-conspirator of Uriarte
who accumulated the CIF funds. Moreover, the performance of an overt act is not
indispensable when a conspirator is the mastermind. 30

It is in this regard that the Sandiganbayan gravely abused its discretion amounting
to lack or excess of its jurisdiction. To start with, its conclusion that GMA had been
the mastermind of plunder was plainly conjectural and outrightly unfounded
considering that the information did not aver at all that she had been the
mastermind; hence, the Sandiganbayan thereby acted capriciously and arbitrarily. In
the second place, the treatment by the Sandiganbayan of her handwritten
unqualified "OK" as an overt act of plunder was absolutely unwarranted considering
that such act was a common legal and valid practice of signifying approval of a fund
release by the President. Indeed, pursuant to People v. Lizada, supra, an act or
conduct becomes an overt act of a crime only when it evinces a causal relation to
the intended crime because the act or conduct will not be an overt act of the crime
if it does not have an immediate and necessary relation to the offense. AcICHD

In Estrada v. Sandiganbayan, 31 the Court recognized two nuances of appreciating


conspiracy as a means to commit a crime, the wheel conspiracy and the chain
conspiracy.

The wheel conspiracy occurs when there is a single person or group (the hub)
dealing individually with two or more other persons or groups (the spokes). The
spoke typically interacts with the hub rather than with another spoke. In the event
that the spoke shares a common purpose to succeed, there is a single conspiracy.
However, in the instances when each spoke is unconcerned with the success of the
other spokes, there are multiple conspiracies. 32

An illustration of wheel conspiracy wherein there is only one conspiracy involved


was the conspiracy alleged in the information for plunder filed against former
President Estrada and his co-conspirators. Former President Estrada was the hub
while the spokes were all the other accused individuals. The rim that enclosed the
spokes was the common goal in the overall conspiracy, i.e., the amassing,
accumulation and acquisition of ill-gotten wealth.

On the other hand, the American case of Kotteakos v. United States 33 illustrates a
wheel conspiracy where multiple conspiracies were established instead of one
single conspiracy. There, Simon Brown, the hub, assisted 31 independent individuals
to obtain separate fraudulent loans from the US Government. Although all the
defendants were engaged in the same type of illegal activity, there was no common
purpose or overall plan among them, and they were not liable for involvement in a
single conspiracy. Each loan was an end in itself, separate from all others, although
all were alike in having similar illegal objects. Except for Brown, the common figure,
no conspirator was interested in whether any loan except his own went through.
Thus, the US Supreme Court concluded that there existed 32 separate conspiracies
involving Brown rather than one common conspiracy. 34

The chain conspiracy recognized in Estrada v. Sandiganbayan exists when there is


successive communication and cooperation in much the same way as with
legitimate business operations between manufacturer and wholesaler, then
wholesaler and retailer, and then retailer and consumer. 35 This involves individuals
linked together in a vertical chain to achieve a criminal objective. 36 Illustrative of
chain conspiracy was that involved in United States v. Bruno, 37 of the US Court of
Appeals for the Second Circuit. There, 88 defendants were indicted for a conspiracy
to import, sell, and possess narcotics. This case involved several smugglers who had
brought narcotics to retailers who, in turn, had sold the narcotics to operatives in
Texas and Louisiana for distribution to addicts. The US Court of Appeals for the
Second Circuit ruled that what transpired was a single chain conspiracy in which the
smugglers knew that the middlemen must sell to retailers for distribution to addicts,
and the retailers knew that the middle men must purchase drugs from smugglers.
As reasoned by the court, "the conspirators at one end of the chain knew that the
unlawful business would not and could not, stop with their buyers; and those at the
other end knew that it had not begun with their sellers." Each conspirator knew that
"the success of that part with which he was immediately concerned was dependent
upon success of the whole." This means, therefore, that "every member of the
conspiracy was liable for every illegal transaction carried out by other members of
the conspiracy in Texas and in Louisiana." 38

Once the State proved the conspiracy as a means to commit a crime, each co-
conspirator is as criminally liable as the others, for the act of one is the act of all. A
co-conspirator does not have to participate in every detail of the execution; neither
does he have to know the exact part performed by the co-conspirator in the
execution of the criminal act. 39 Otherwise, the criminal liability of each accused is
individual and independent. caITAC

The Prosecution insisted that a conspiracy existed among GMA, Uriarte, Valencia
and the Members of the PCSO Board of Directors, Aguas, Villar and Plaras. The
Sandiganbayan agreed with the Prosecution as to the conspirators involved,
declaring that GMA, Aguas, and Uriarte had conspired and committed plunder.

A review of the records of the case compels us to reject the Sandiganbayan's


declaration in light of the information filed against the petitioners, and the foregoing
exposition on the nature, forms and extent of conspiracy. On the contrary, the
Prosecution did not sufficiently allege the existence of a conspiracy among GMA,
Aguas and Uriarte.

A perusal of the information suggests that what the Prosecution sought to show was
an implied conspiracy to commit plunder among all of the accused on the basis of
their collective actions prior to, during and after the implied agreement. It is notable
that the Prosecution did not allege that the conspiracy among all of the accused
was by express agreement, or was a wheel conspiracy or a chain conspiracy.

This was another fatal flaw of the Prosecution.

In its present version, under which the petitioners were charged, Section 2 of
Republic Act No. 7080 (Plunder Law) states:

Section 2. Definition of the Crime of Plunder; Penalties. Any public officer who,
by himself or in connivance with members of his family, relatives by affinity or
consanguinity, business associates, subordinates or other persons, amasses,
accumulates or acquires ill-gotten wealth through a combination or series of overt
criminal acts as described in Section 1 (d) hereof in the aggregate amount or total
value of at least Fifty million pesos (P50,000,000.00) shall be guilty of the crime of
plunder and shall be punished by reclusion perpetua to death. Any person who
participated with the said public officer in the commission of an offense contributing
to the crime of plunder shall likewise be punished for such offense. In the imposition
of penalties, the degree of participation and the attendance of mitigating and
extenuating circumstances, as provided by the Revised Penal Code, shall be
considered by the court. The court shall declare any and all ill-gotten wealth and
their interests and other incomes and assets including the properties and shares of
stocks derived from the deposit or investment thereof forfeited in favor of the State.
[As Amended by Section 12, Republic Act No. 7659 (The Death Penalty Law)]

Section 1 (d) of Republic Act No. 7080 provides:

Section 1. Definition of terms. As used in this Act, the term:

xxx xxx xxx

d. "Ill-gotten wealth" means any asset, property, business enterprise or material


possession of any person within the purview of Section two (2) hereof, acquired by
him directly or indirectly through dummies, nominees, agents, subordinates and/or
business associates by any combination or series of the following means or similar
schemes:

1. Through misappropriation, conversion, misuse, or malversation of public


funds or raids on the public treasury;

2. By receiving, directly or indirectly, any commission, gift, share, percentage,


kickbacks or any/or entity in connection with any government contract or project or
by reason of the office or position of the public officer concerned;

3. By the illegal or fraudulent conveyance or disposition of assets belonging to


the National Government or any of its subdivisions, agencies or instrumentalities or
government-owned or controlled corporations and their subsidiaries; TAIaHE

4. By obtaining, receiving or accepting directly or indirectly any shares of stock,


equity or any other form of interest or participation including the promise of future
employment in any business enterprise or undertaking;

5. By establishing agricultural, industrial or commercial monopolies or other


combinations and/or implementation of decrees and orders intended to benefit
particular persons or special interests; or

6. By taking undue advantage of official position, authority, relationship,


connection or influence to unjustly enrich himself or themselves at the expense and
to the damage and prejudice of the Filipino people and the Republic of the
Philippines.
The law on plunder requires that a particular public officer must be identified as the
one who amassed, acquired or accumulated ill-gotten wealth because it plainly
states that plunder is committed by any public officer who, by himself or in
connivance with members of his family, relatives by affinity or consanguinity,
business associates, subordinates or other persons, amasses, accumulates or
acquires ill-gotten wealth in the aggregate amount or total value of at least
P50,000,000.00 through a combination or series of overt criminal acts as described
in Section 1 (d) hereof. Surely, the law requires in the criminal charge for plunder
against several individuals that there must be a main plunderer and her co-
conspirators, who may be members of her family, relatives by affinity or
consanguinity, business associates, subordinates or other persons. In other words,
the allegation of the wheel conspiracy or express conspiracy in the information was
appropriate because the main plunderer would then be identified in either manner.
Of course, implied conspiracy could also identify the main plunderer, but that fact
must be properly alleged and duly proven by the Prosecution.

This interpretation is supported by Estrada v. Sandiganbayan, 40 where the Court


explained the nature of the conspiracy charge and the necessity for the main
plunderer for whose benefit the amassment, accumulation and acquisition was
made, thus:

There is no denying the fact that the "plunder of an entire nation resulting in
material damage to the national economy" is made up of a complex and manifold
network of crimes. In the crime of plunder, therefore, different parties may be
united by a common purpose. In the case at bar, the different accused and their
different criminal acts have a commonality to help the former President amass,
accumulate or acquire ill-gotten wealth. Sub-paragraphs (a) to (d) in the Amended
Information alleged the different participation of each accused in the conspiracy.
The gravamen of the conspiracy charge, therefore, is not that each accused agreed
to receive protection money from illegal gambling, that each misappropriated a
portion of the tobacco excise tax, that each accused ordered the GSIS and SSS to
purchase shares of Belle Corporation and receive commissions from such sale, nor
that each unjustly enriched himself from commissions, gifts and kickbacks; rather, it
is that each of them, by their individual acts, agreed to participate, directly or
indirectly, in the amassing, accumulation and acquisition of ill-gotten wealth of
and/or for former President Estrada. [bold underscoring supplied for emphasis]

Here, considering that 10 persons have been accused of amassing, accumulating


and/or acquiring ill-gotten wealth aggregating P365,997,915.00, it would be
improbable that the crime charged was plunder if none of them was alleged to be
the main plunderer. As such, each of the 10 accused would account for the aliquot
amount of only P36,599,791.50, or exactly 1/10 of the alleged aggregate ill-gotten
wealth, which is far below the threshold value of ill-gotten wealth required for
plunder. ICHDca
We are not unmindful of the holding in Estrada v. Sandiganbayan 41 to the effect
that an information alleging conspiracy is sufficient if the information alleges
conspiracy either: (1) with the use of the word conspire, or its derivatives or
synonyms, such as confederate, connive, collude, etc.; or (2) by allegations of the
basic facts constituting the conspiracy in a manner that a person of common
understanding would know what is being conveyed, and with such precision as
would enable the accused to competently enter a plea to a subsequent indictment
based on the same facts. We are not talking about the sufficiency of the information
as to the allegation of conspiracy, however, but rather the identification of the main
plunderer sought to be prosecuted under R.A. No. 7080 as an element of the crime
of plunder. Such identification of the main plunderer was not only necessary
because the law required such identification, but also because it was essential in
safeguarding the rights of all of the accused to be properly informed of the charges
they were being made answerable for. The main purpose of requiring the various
elements of the crime charged to be set out in the information is to enable all the
accused to suitably prepare their defense because they are presumed to have no
independent knowledge of the facts that constituted the offense charged. 42

For sure, even the Sandiganbayan was at a loss in this respect. Despite the silence
of the information on who the main plunderer or the mastermind was, the
Sandiganbayan readily condemned GMA in its resolution dated September 10, 2015
as the mastermind despite the absence of the specific allegation in the information
to that effect. Even worse, there was no evidence that substantiated such sweeping
generalization.

In fine, the Prosecution's failure to properly allege the main plunderer should be
fatal to the cause of the State against the petitioners for violating the rights of each
accused to be informed of the charges against each of them.

Nevertheless, the Prosecution insists that GMA, Uriarte and Aguas committed acts
showing the existence of an implied conspiracy among themselves, thereby making
all of them the main plunderers. On this score, the Prosecution points out that the
sole overt act of GMA to become a part of the conspiracy was her approval via the
marginal note of "OK" of all the requests made by Uriarte for the use of additional
intelligence fund. The Prosecution stresses that by approving Uriarte's requests in
that manner, GMA violated the following:

a. Letter of Instruction 1282, which required requests for additional confidential


and intelligence funds (CIFs) to be accompanied with detailed, specific project
proposals and specifications; and

b. COA Circular No. 92-385, which allowed the President to approve the release
of additional CIFs only if there was an existing budget to cover the request.

The insistence of the Prosecution is unwarranted. GMA's approval of Uriarte's


requests for additional CIFs did not make her part of any design to raid the public
treasury as the means to amass, accumulate and acquire ill-gotten wealth. Absent
the specific allegation in the information to that effect, and competent proof
thereon, GMA's approval of Uriarte's requests, even if unqualified, could not make
her part of any criminal conspiracy to commit plunder or any other crime
considering that her approval was not by any means irregular or illegal.

The Prosecution takes GMA to task for approving Uriarte's request despite the
requests failing to provide "the full detail [of] the specific purposes for which said
funds shall be spent and shall explain the circumstances giving rise to the necessity
for the expenditure and the particular aims to be accomplished." It posits that the
requests were not specific enough, contrary to what is required by LOI 1282.

LOI 1282 reads:

LETTER OF INSTRUCTION NO. 1282

To: All Ministries and Offices Concerned

In recent years intelligence funds appropriated for the various ministries and certain
offices have been, as reports reaching me indicate, spent with less than full regard
for secrecy and prudence. On the one hand, there have been far too many leakages
of information on expenditures of said funds; and on the other hand, where secrecy
has been observed, the President himself was often left unaware of how these funds
had been utilized.

Effective immediately, all requests for the allocation or release of intelligence funds
shall indicate in full detail the specific purposes for which said funds shall be spent
and shall explain the circumstances giving rise to the necessity for the expenditure
and the particular aims to be accomplished.

The requests and the detailed explanations shall be submitted to the President
personally. cDHAES

It is imperative that such detailed presentations be made to the President in order


to avoid such duplication of expenditures as has taken place in the past because of
the lack of centralized planning and organized disposition of intelligence funds.

Full compliance herewith is desired.

Manila, January 12, 1983.

(Sgd.) FERDINAND E. MARCOS

President of the Philippines

However, an examination of Uriarte's several requests indicates their compliance


with LOI No. 1282. The requests, similarly worded, furnished: (a) the full details of
the specific purposes for which the funds would be spent; (b) the explanations of
the circumstances giving rise to the necessity of the expenditure; and (c) the
particular aims to be accomplished.

The specific purposes and circumstances for the necessity of the expenditures were
laid down as follows:

In dispensing its mandate, PCSO has been constantly encountering a number of


fraudulent schemes and nefarious activities on a continuing basis which affect the
integrity of our operations, to wit:

1. Donated medicines sometimes end up in drug stores for sale even if they
were labeled "Donated by PCSO Not for Sale";

2. Unwarranted or unofficial use of ambulances by beneficiary-donees;

3. Unauthorized expenditures of endowment fund for charity patients and


organizations;

4. Lotto and sweepstakes scams victimizing innocent people of winning the


jackpot and selling tampered tickets as winning tickets;

5. Fixers for the different programs of PCSO such as Ambulance Donation


Project, Endowment Fund Program and Individual Medical Assistance Program;

6. Other fraudulent schemes and activities which put the PCSO in bad light. 43

A reading of the requests also reveals that the additional CIFs requested were to be
used to protect PCSO's image and the integrity of its operations. The Court thus
cannot share the Prosecution's dismissiveness of the requests for not being
compliant with LOI No. 1282. According to its terms, LOI No. 1282 did not detail any
qualification as to how specific the requests should be made. Hence, we should not
make any other pronouncement than to rule that Uriarte's requests were compliant
with LOI No. 1282.

COA Circular No. 92-385 required that additional request for CIFs would be approved
only when there was available budget. In this regard, the Prosecution suggests that
there was no longer any budget when GMA approved Uriarte's requests because the
budget had earmarked intelligence funds that had already been maxed out and
used. The suggestion is not acceptable, however, considering that the funds of the
PCSO were co-mingled into one account as early as 2007. Consequently, although
only 15% of PCSO's revenues was appropriated to an operation fund from which the
CIF could be sourced, the remaining 85% of PCSO's revenues, already co-mingled
with the operating fund, could still sustain the additional requests. In short, there
was available budget from which to draw the additional requests for CIFs.
It is notable that the COA, although frowning upon PCSO's co-mingling of funds, did
not rule such co-mingling as illegal. As such, sourcing the requested additional CIFs
from one account was far from illegal. TCAScE

Lastly, the Prosecution's effort to show irregularities as badges of bad faith has led it
to claim that GMA had known that Uriarte would raid the public treasury, and would
misuse the amounts disbursed. This knowledge was imputed to GMA by virtue of
her power of control over PCSO.

The Prosecution seems to be relying on the doctrine of command responsibility to


impute the actions of subordinate officers to GMA as the superior officer. The
reliance is misplaced, for incriminating GMA under those terms was legally
unacceptable and incomprehensible. The application of the doctrine of command
responsibility is limited, and cannot be true for all litigations. The Court ruled in
Rodriguez v. Macapagal-Arroyo 44 that command responsibility pertains to the
responsibility of commanders for crimes committed by subordinate members of the
armed forces or other persons subject to their control in international wars or
domestic conflict. The doctrine has also found application in civil actions for human
rights abuses. But this case involves neither a probe of GMA's actions as the
Commander-in-Chief of the Armed Forces of the Philippines, nor of a human rights
issue. As such, it is legally improper to impute the actions of Uriarte to GMA in the
absence of any conspiracy between them.

On the part of Aguas, the Sandiganbayan pronounced him to be as much a member


of the implied conspiracy as GMA was, and detailed his participation in this manner:

In all of the disbursement vouchers covering the cash advances/releases to Uriarte


of the CIF funds, Aguas certified that:

CERTIFIED: Adequate available funds/budgetary allotment in the amount of


P___________; expenditure properly certified; supported by documents marked (X)
per checklist and back hereof; account codes proper; previous cash advance
liquidated/accounted for.

These certifications, after close scrutiny, were not true because: 1.) there were no
documents which lent support to the cash advances on a per project basis. The
particulars of payment simply read: "To draw cash advance form the CIF Fund of the
Office of the Vice-Chairman and General Manager". No particular purpose or project
was specified contrary to the requirement under COA Circular 2003-002 that cash
advances must be on a per project basis. Without specifics on the project covered
by each cash advance. Aguas could not certify that supporting documents existed
simply because he would not know what project was being funded by the cash
advances; and 2.) There were no previous liquidations made of prior cash advances
when Aguas made the certifications. COA circular 2003-002 required that cash
advances be liquidated within one (1) month from the date the purpose of the cash
advance was accomplished. If the completion of the projects mentioned were for
more than one month, a monthly progress liquidation report was necessary. In the
case of Uriarte's cash advances certified to by Aguas, the liquidation made was
wholesale, i.e., these were done on a semi-annual basis without a monthly
liquidation or at least a monthly liquidation progress report. How then could Aguas
correctly certify that previous liquidations were accounted for? Aguas's certification
also violated Sec. 89 of P.D. 1445 which states:

Limitations on cash advance. No cash advance shall be given unless for a legally
authorized specific purpose. A cash advance shall be reported on and liquidated as
soon as the purpose for which it was given has been served. No additional cash
advance shall be allowed to any official or employee unless the previous cash
advance given to him is first settled or a proper accounting thereof is made.

There is a great presumption of guilt against Aguas, as his action aided and abetted
Uriarte's being able to draw these irregular CIF funds in contravention of the rules
on CIF funds. Without Aguas's certification, the disbursement vouchers could not
have been processed for payment. Accordingly, the certification that there were
supporting documents and prior liquidation paved the way for Uriarte to acquire ill-
gotten wealth by raiding the public coffers of the PCSO. ASEcHI

By just taking cognizance of the series and number of cash advances and the
staggering amounts involved, Aguas should have been alerted that something was
greatly amiss and that Uriarte was up to something. If Aguas was not into the
scheme, it would have been easy for him to refuse to sign the certification, but he
did not. The conspiracy "gravamen" is therefore present in the case of Aguas.
Moreover, Aguas's attempt to cover-up Uriarte's misuse of these CIF funds in his
accomplishment report only contributed to unmasking the actual activities for which
these funds were utilized. Aguas's accomplishment report, which was conformed to
by Uriarte, made it self-evidence that the bulk of the CIF funds in 2009 and 2010
were allegedly spend for non-PCSO related activities, e.g., bomb threats,
kidnapping, terrorism, and others. 45

Thus, the Sandiganbayan concluded that Aguas became a part of the implied
conspiracy when he signed the disbursement vouchers despite the absence of
certain legal requirements, and issued certain certifications to the effect that the
budgetary allotment/funds for cash advance to be withdrawn were available; that
the expenditures were supported by documents; and that the previous cash
advances had been liquidated or accounted for.

We opine and declare, however, that Aguas' certifications and signatures on the
disbursement vouchers were insufficient bases to conclude that he was into any
conspiracy to commit plunder or any other crime. Without GMA's participation, he
could not release any money because there was then no budget available for the
additional CIFs. Whatever irregularities he might have committed did not amount to
plunder, or to any implied conspiracy to commit plunder.
Under the circumstances, the Sandiganbayan's finding on the existence of the
conspiracy to commit plunder was unsustainable. It then becomes unavoidable for
the Court to rule that because the Prosecution failed to properly allege the elements
of the crime, as well as to prove that any implied conspiracy to commit plunder or
any other crime existed among GMA, Aguas and Uriarte there was no conspiracy to
commit plunder among them. As a result, GMA and Aguas could be criminally
responsible only for their own respective actions, if any.

III.

No proof of amassing, or accumulating, or acquiring

ill-gotten wealth of at least P50 Million

was adduced against GMA and Aguas

The Sandiganbayan sustained the sufficiency of the evidence to convict the


petitioners for plunder on the basis that the Prosecution established all the
elements of plunder.

After a review of the records, we find and rule that the Prosecution had no case for
plunder against the petitioners. cTDaEH

To successfully mount a criminal prosecution for plunder, the State must allege and
establish the following elements, namely:

1. That the offender is a public officer who acts by herself or in connivance with
members of her family, relatives by affinity or consanguinity, business associates,
subordinates or other persons;

2. That the offender amasses, accumulates or acquires ill-gotten wealth through


a combination or series of the following overt or criminal acts: (a) through
misappropriation, conversion, misuse, or malversation of public funds or raids on
the public treasury; (b) by receiving, directly or indirectly, any commission, gift,
share, percentage, kickback or any other form of pecuniary benefits from any
person and/or entity in connection with any government contract or project or by
reason of the office or position of the public officer; (c) by the illegal or fraudulent
conveyance or disposition of assets belonging to the National Government or any of
its subdivisions, agencies or instrumentalities of Government owned or controlled
corporations or their subsidiaries; (d) by obtaining, receiving or accepting directly or
indirectly any shares of stock, equity or any other form of interest or participation
including the promise of future employment in any business enterprise or
undertaking; (e) by establishing agricultural, industrial or commercial monopolies or
other combinations and/or implementation of decrees and orders intended to
benefit particular persons or special interests; or (f) by taking advantage of official
position, authority, relationship, connection or influence to unjustly enrich himself or
themselves at the expense and to the damage and prejudice of the Filipino people
and the Republic of the Philippines; and,

3. That the aggregate amount or total value of the ill-gotten wealth amassed,
accumulated or acquired is at least P50,000,000.00. 46

The corpus delicti of plunder is the amassment, accumulation or acquisition of ill-


gotten wealth valued at not less than P50,000,000.00. The failure to establish the
corpus delicti should lead to the dismissal of the criminal prosecution. ITAaHc

As regards the element that the public officer must have amassed, accumulated or
acquired ill-gotten wealth worth at least P50,000,000.00, the Prosecution adduced
no evidence showing that either GMA or Aguas or even Uriarte, for that matter, had
amassed, accumulated or acquired ill-gotten wealth of any amount. There was also
no evidence, testimonial or otherwise, presented by the Prosecution showing even
the remotest possibility that the CIFs of the PCSO had been diverted to either GMA
or Aguas, or Uriarte.

The absolute lack of evidence on this material but defining and decisive aspect of
the criminal prosecution was explicitly noted in the concurring and partial dissenting
opinion of Justice Rodolfo A. Ponferrada of the Sandiganbayan, to wit:

Here the evidence of the prosecution failed to show the existence of the crime of
plunder as no evidence was presented that any of the accused, accumulated and/or
acquired ill-gotten wealth. In fact, the principal witness of the prosecution when
asked, said that she does not know the existence or whereabouts of the alleged ill-
gotten wealth, to wit:

Q: Of course, you don't know where is this ill-gotten wealth are (sic) now?

A: Yes, Your Honors. We don't know whether they saved it, squandered it or
what? We don't know, Your Honor. 47 [bold emphasis supplied]

After Atty. Tolentino, as the Prosecution's main witness, conceded lack of any
knowledge of the amassing, accumulating or acquiring of ill-gotten wealth of at
least P50,000,000.00, nothing more remained of the criminal prosecution for
plunder. Hence, the Sandiganbayan should have granted the demurrers of GMA and
Aguas, and dismissed the criminal action against them.

IV.

The Prosecution failed to prove the

predicate act of raiding the public treasury

The Sandiganbayan observed that the Prosecution established the predicate act of
raiding the public treasury, to wit: cSaATC
Secondly, the terms "unjust enrichment," "benefit," and "pecuniary benefit" are only
mentioned in the predicate acts mentioned in par. 2, 5 and 6 of Section 1 (d) of the
Plunder Law. Paragraph 1 of the same section where "raids on the public treasury" is
mentioned did not mention "unjust enrichment" or "personal benefit". Lastly, the
predicate act covering "raids on the public treasury" is lumped up with the phrases
misappropriation, conversion, misuse and malversation of public funds. Thus, once
public funds, as in the case of CIF funds, are illegally accumulated, amassed or
acquired. To the tune of P50 Million or more, there will be no need to establish any
motive to gain, or much more establish where the money eventually ended up. As
stated in Our Resolution dated November 5, 2013:

It should be noted that in both R.A. No. 7080 and the PCGG rules, the enumeration
of the possible predicate acts in the commission of plunder did not associate or
require the concept of personal gain/benefit or unjust enrichment with respect to
raids on the public treasury, as a means to commit plunder. It would, therefore,
appear that a "raid on the public treasury" is consummated where all the acts
necessary for its execution and accomplishment are present. Thus a "raid on the
public treasury" can be said to have been achieved thru the pillaging or looting of
public coffers either through misuse, misappropriation or conversion, without need
of establishing gain or profit to the "raider" gets material possession of a
government asset through improper means and has free disposal of the same, the
raid or pillage is completed.

xxx xxx xxx

Clearly, the improper acquisition and illegal use of CIF funds, which is obviously a
government asset, will amount to a raid on the public treasury, and therefore fall
into the category of ill-gotten wealth.

xxx xxx xxx

. . . It is not disputed that Uriarte asked for and was granted authority by Arroyo to
use additional CIF funds during the period 2008-2010. Uriarte was able to
accumulate during that period CIF funds in the total amount of P352,681,646. This
was through a series of withdrawals as cash advances of the CIF funds from the
PCSO coffers, as evidenced by the disbursement vouchers and checks issued and
encashed by her, through her authorized representatives.

These flagrant violations of the rules on the use of CIF funds evidently characterize
the series of withdrawals by and releases to Uriarte as "raids" on the PCSO coffers,
which is part of the public treasury. These were, in every sense, "pillage," as Uriarte
looted government funds and appears to have not been able to account for it. The
monies came into her possession and, admittedly, she disbursed it for purposes
other than what these were intended for, thus amounting to "misuse" of the
same. . . .
In this case, to require proof that monies went to a plunderer's bank account or was
used to acquire real or personal properties or used for any other purpose to
personally benefit the plunderer, is absurd. Suppose a plunderer had already
amassed, acquired or accumulated P50 Million or more of government funds and
just decide to keep it in his vault and never used such funds for any purpose to
benefit him, would that not be plunder? Or, if immediately right after such
amassing, the monies went up in flames or recovered by the police, negating any
opportunity for the purpose to actually benefit, would that not still be plunder?
Surely, in such cases, a plunder charge could still prosper and the argument that
the fact of personal benefit should still be evidence-based must fail. 48 CHTAIc

The Sandiganbayan contended that in order to prove the predicate act of raids of
the public treasury, the Prosecution need not establish that the public officer had
benefited from such act; and that what was necessary was proving that the public
officer had raided the public coffers. In support of this, it referred to the records of
the deliberations of Congress to buttress its observation.

We do not share the Sandiganbayan's contention.

The phrase raids on the public treasury is found in Section 1 (d) of R.A. No. 7080,
which provides:

Section 1. Definition of Terms. . . .

xxx xxx xxx

d) Ill-gotten wealth means any asset, property, business enterprise or material


possession of any person within the purview of Section Two (2) hereof, acquired by
him directly or indirectly through dummies, nominees, agents, subordinates and/or
business associates by any combination or series of the following means or similar
schemes:

1) Through misappropriation, conversion, misuse, or malversation of public


funds or raids on the public treasury;

xxx xxx xxx

To discern the proper import of the phrase raids on the public treasury, the key is to
look at the accompanying words: misappropriation, conversion, misuse or
malversation of public funds. This process is conformable with the maxim of
statutory construction noscitur a sociis, by which the correct construction of a
particular word or phrase that is ambiguous in itself or is equally susceptible of
various meanings may be made by considering the company of the words in which
the word or phrase is found or with which it is associated. Verily, a word or phrase in
a statute is always used in association with other words or phrases, and its meaning
may, therefore, be modified or restricted by the latter. 49
To convert connotes the act of using or disposing of another's property as if it were
one's own; to misappropriate means to own, to take something for one's own
benefit; 50 misuse means "a good, substance, privilege, or right used improperly,
unforeseeably, or not as intended;" 51 and malversation occurs when "any public
officer who, by reason of the duties of his office, is accountable for public funds or
property, shall appropriate the same or shall take or misappropriate or shall
consent, through abandonment or negligence, shall permit any other person to take
such public funds, or property, wholly or partially." 52 The common thread that
binds all the four terms together is that the public officer used the property taken.
Considering that raids on the public treasury is in the company of the four other
terms that require the use of the property taken, the phrase raids on the public
treasury similarly requires such use of the property taken. Accordingly, the
Sandiganbayan gravely erred in contending that the mere accumulation and
gathering constituted the forbidden act of raids on the public treasury. Pursuant to
the maxim of noscitur a sociis, raids on the public treasury requires the raider to use
the property taken impliedly for his personal benefit. cHDAIS

The Prosecution asserts that the Senate deliberations removed personal benefit as a
requirement for plunder. In not requiring personal benefit, the Sandiganbayan
quoted the following exchanges between Senator Enrile and Senator Taada, viz.:

Senator Enrile. The word here, Mr. President, "such public officer or person who
conspired or knowingly benefited". One does not have to conspire or rescheme. The
only element needed is that he "knowingly benefited". A candidate for the Senate
for instance, who received a political contribution from a plunderer, knowing that
the contributor is a plunderer and therefore, he knowingly benefited from the
plunder, would he also suffer the penalty, Mr. President, for life imprisonment?

Senator Taada. In the committee amendments, Mr. President, we have deleted


these lines 1 to 4 and part of line 5, on page 3. But, in a way, Mr. President, it is
good that the Gentleman is bringing out these questions, I believe that under the
examples he has given, the Court will have to. . .

Senator Enrile. How about the wife, Mr. President, he may not agree with the
plunderer to plunder the country but because she is a dutiful wife or a faithful
husband, she has to keep her or his vow of fidelity to the spouse. And, of course,
she enjoys the benefits out of the plunder. Would the Gentleman now impute to her
or him the crime of plunder simply because she or he knowingly benefited out of the
fruits of the plunder and, therefore, he must suffer or he must suffer the penalty of
life imprisonment?

The President. That was stricken out already in the Committee amendment.
Senator Taada. Yes, Mr. President. Lines 1 to 4 and part of line 5 were stricken out
in the Committee amendment. But, as I said, the examples of the Minority Floor
Leader are still worth spreading the Record. And, I believe that in those examples,
the Court will have just to take into consideration all the other circumstances
prevailing in the case and the evidence that will be submitted.

The President. In any event, 'knowingly benefited' has already been stricken off." 53

The exchanges between Senator Enrile and Senator Taada reveal, therefore, that
what was removed from the coverage of the bill and the final version that
eventually became the law was a person who was not the main plunderer or a co-
conspirator, but one who personally benefited from the plunderers' action. The
requirement of personal benefit on the part of the main plunderer or his co-
conspirators by virtue of their plunder was not removed. EATCcI

As a result, not only did the Prosecution fail to show where the money went but,
more importantly, that GMA and Aguas had personally benefited from the same.
Hence, the Prosecution did not prove the predicate act of raids on the public
treasury beyond reasonable doubt.

V.

Summation

In view of the foregoing, the Court inevitably concludes that the Sandiganbayan
completely ignored the failure of the information to sufficiently charge conspiracy to
commit plunder against the petitioners; and ignored the lack of evidence
establishing the corpus delicti of amassing, accumulation and acquisition of ill-
gotten wealth in the total amount of at least P50,000,000.00 through any or all of
the predicate crimes. The Sandiganbayan thereby acted capriciously, thus gravely
abusing its discretion amounting to lack or excess of jurisdiction.

Grave abuse of discretion means such capricious or whimsical exercise of judgment


which is equivalent to lack of jurisdiction. 54 To justify the issuance of the writ of
certiorari, the abuse of discretion must be grave, as when the power is exercised in
an arbitrary or despotic manner by reason of passion or personal hostility, and the
abuse must be so patent and 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, as to be equivalent to having acted without jurisdiction. 55 HTcADC

WHEREFORE, the Court GRANTS the petitions for certiorari; ANNULS and SETS ASIDE
the resolutions issued in Criminal Case No. SB-12-CRM-0174 by the Sandiganbayan
on April 6, 2015 and September 10, 2015; GRANTS the petitioners' respective
demurrers to evidence; DISMISSES Criminal Case No. SB-12-CRM-0174 as to the
petitioners GLORIA MACAPAGAL-ARROYO and BENIGNO AGUAS for insufficiency of
evidence; ORDERS the immediate release from detention of said petitioners; and
MAKES no pronouncements on costs of suit.

SO ORDERED.

Velasco, Jr., Leonardo-de Castro, Brion, Peralta, Del Castillo, Perez, Mendoza, Reyes
and Jardeleza, JJ., concur.

Sereno, C.J., I join the Dissent of J. Leonen and attach my separate Dissent.

Carpio, J., I join the Dissenting Opinion of J. Leonen.

Perlas-Bernabe, J., Please see my separate concurring and dissenting opinion.

Leonen, J., I dissent. See separate opinion.

Caguioa, J., I join the dissent of J. Leonen.

EN BANC

[G.R. No. 204605. July 19, 2016.]

INTELLECTUAL PROPERTY ASSOCIATION OF THE PHILIPPINES, petitioner, vs. HON.


PAQUITO OCHOA, IN HIS CAPACITY AS EXECUTIVE SECRETARY, HON. ALBERT DEL
ROSARIO, IN HIS CAPACITY AS SECRETARY OF THE DEPARTMENT OF FOREIGN
AFFAIRS, AND HON. RICARDO BLANCAFLOR, IN HIS CAPACITY AS THE DIRECTOR
GENERAL OF THE INTELLECTUAL PROPERTY OFFICE OF THE PHILIPPINES,
respondents.

DECISION

BERSAMIN, J p:

In this special civil action for certiorari and prohibition, the Intellectual Property
Association of the Philippines (IPAP) seeks to declare the accession of the Philippines
to the Protocol Relating to the Madrid Agreement Concerning the International
Registration of Marks (Madrid Protocol) unconstitutional on the ground of the lack of
concurrence by the Senate, and in the alternative, to declare the implementation
thereof as unconstitutional because it conflicts with Republic Act No. 8293,
otherwise known as the Intellectual Property Code of the Philippines (IP Code). 1
AIDSTE

We find and declare that the President's ratification is valid and constitutional
because the Madrid Protocol, being an executive agreement as determined by the
Department of Foreign Affairs, does not require the concurrence of the Senate.

Antecedents
The Madrid System for the International Registration of Marks (Madrid System),
which is the centralized system providing a one-stop solution for registering and
managing marks worldwide, allows the trademark owner to file one application in
one language, and to pay one set of fees to protect his mark in the territories of up
to 97 member-states. 2 The Madrid System is governed by the Madrid Agreement,
concluded in 1891, and the Madrid Protocol, concluded in 1989. 3

The Madrid Protocol, which was adopted in order to remove the challenges deterring
some countries from acceding to the Madrid Agreement, has two objectives,
namely: (1) to facilitate securing protection for marks; and (2) to make the
management of the registered marks easier in different countries. 4 SDAaTC

In 2004, the Intellectual Property Office of the Philippines (IPOPHL), the government
agency mandated to administer the intellectual property system of the country and
to implement the state policies on intellectual property, began considering the
country's accession to the Madrid Protocol. However, based on its assessment in
2005, the IPOPHL needed to first improve its own operations before making the
recommendation in favor of accession. The IPOPHL thus implemented reforms to
eliminate trademark backlogs and to reduce the turnaround time for the registration
of marks. 5

In the meanwhile, the IPOPHL mounted a campaign for information dissemination to


raise awareness of the Madrid Protocol. It launched a series of consultations with
stakeholders and various business groups regarding the Philippines' accession to
the Madrid Protocol. It ultimately arrived at the conclusion that accession would
benefit the country and help raise the level of competitiveness for Filipino brands.
Hence, it recommended in September 2011 to the Department of Foreign Affairs
(DFA) that the Philippines should accede to the Madrid Protocol. 6

After its own review, the DFA endorsed to the President the country's accession to
the Madrid Protocol. Conformably with its express authority under Section 9 of
Executive Order No. 459 (Providing for the Guidelines in the Negotiation of
International Agreements and its Ratification) dated November 25, 1997, the DFA
determined that the Madrid Protocol was an executive agreement, The IPOPHL, the
Department of Science and Technology, and the Department of Trade and Industry
concurred in the recommendation of the DFA. 7

On March 27, 2012, President Benigno C. Aquino III ratified the Madrid Protocol
through an instrument of accession. The instrument of accession was deposited
with the Director General of the World Intellectual Property Organization (WIPO) on
April 25, 2012. 8 The Madrid Protocol entered into force in the Philippines on July 25,
2012. 9

Petitioner IPAP, an association of more than 100 law firms and individual
practitioners in Intellectual Property Law whose main objective is to promote and
protect intellectual property rights in the Philippines through constant assistance
and involvement in the legislation of intellectual property law, 10 has commenced
this special civil action for certiorari and prohibition 11 to challenge the validity of
the President's accession to the Madrid Protocol without the concurrence of the
Senate. Citing Pimentel, Jr. v. Office of the Executive Secretary, the IPAP has
averred:

Nonetheless, while the President has the sole authority to negotiate and enter into
treaties, the Constitution provides a limitation to his power by requiring the
concurrence of 2/3 of all the members of the Senate for the validity of the treaty
entered into by him. Section 21, Article VII of the 1987 Constitution provides that
"no treaty or international agreement shall be valid and effective unless concurred
in by at least two-thirds of all the Members of the Senate." The 1935 and the 1973
Constitution also required the concurrence by the legislature to the treaties entered
into by the executive. 12 AaCTcI

According to the IPAP, the Madrid Protocol is a treaty, not an executive agreement;
hence, respondent DFA Secretary Albert Del Rosario acted with grave abuse of
discretion in determining the Madrid Protocol as an executive agreement. 13

The IPAP has argued that the implementation of the Madrid Protocol in the
Philippines, specifically the processing of foreign trademark applications, conflicts
with the IP Code, 14 whose Section 125 states:

Sec. 125. Representation; Address for Service. If the applicant is not domiciled
or has no real and effective commercial establishment in the Philippines, he shall
designate by a written document filed in the office, the name and address of a
Philippine resident who may be served notices or process in proceedings affecting
the mark. Such notices or services may be served upon the person so designated by
leaving a copy thereof at the address specified in the last designation filed. If the
person so designated cannot be found at the address given in the last designation,
such notice or process may be served upon the Director. (Sec. 3, R.A. No. 166 a)

It has posited that Article 2 of the Madrid Protocol provides in contrast:

Article 2

Securing Protection through International Registration

(1) Where an application for the registration of a mark has been filed with the
Office of a Contracting Party, or where a mark has been registered in the register of
the Office of a Contracting Party, the person in whose name that application
(hereinafter referred to as "the basic application") or that registration (hereinafter
referred to as "the basic registration") stands may, subject to the provisions of this
Protocol secure protection for his mark in the territory of the Contracting Parties, by
obtaining the registration of that mark in the register of the International Bureau of
the World Intellectual Property Organization (hereinafter referred to as "the
international registration," "the International Register," "the International Bureau"
and "the Organization", respectively), provided that,

(i) where the basic application has been filed with the Office of a Contracting
State or where the basic registration has been made by such an Office, the person
in whose name that application or registration stands is a national of that
Contracting State, or is domiciled, or has a real and effective industrial or
commercial establishment, in the said Contracting State,

(ii) where the basic application has been filed with the Office of a Contracting
Organization or where the basic registration has been made by such an Office, the
person in whose name that application or registration stands is a national of a State
member of that Contracting Organization, or is domiciled, or has a real and effective
industrial or commercial establishment, in the territory of the said Contracting
Organization. acEHCD

(2) The application for international registration (hereinafter referred to as "the


international application") shall be filed with the International Bureau through the
intermediary of the Office with which the basic application was filed or by which the
basic registration was made (hereinafter referred to as "the Office of origin"), as the
case may be.

(3) Any reference in this Protocol to an "Office" or an "Office of a Contracting


Party" shall be construed as a reference to the office that is in charge, on behalf of a
Contracting Party, of the registration of marks, and any reference in this Protocol to
"marks" shall be construed as a reference to trademarks and service marks.

(4) For the purposes of this Protocol, "territory of a Contracting Party" means,
where the Contracting Party is a State, the territory of that State and, where the
Contracting Party is an intergovernmental organization, the territory in which the
constituting treaty of that intergovernmental organization applied.

The IPAP has insisted that Article 2 of the Madrid Protocol means that foreign
trademark applicants may file their applications through the International Bureau or
the WIPO, and their applications will be automatically granted trademark protection
without the need for designating their resident agents in the country. 15

Moreover, the IPAP has submitted that the procedure outlined in the Guide to the
International Registration of Marks relating to representation before the
International Bureau is the following, to wit:

Rule 3(1)(a) 09.02 References in the Regulations, Administrative Instructions or in


this Guide to representation relate only to representation before the International
Bureau. The questions of the need for a representative before the Office of origin or
the Office of a designated Contracting Party (for example, in the event of a refusal
of protection issued by such an Office), who may act as a representative in such
cases and the method of appointment, are outside the scope of the Agreement,
Protocol and Regulations and are governed by the law and practice of the
Contracting Party concerned.

which procedure is in conflict with that under Section 125 of the IP Code, and
constitutes in effect an amendment of the local law by the Executive Department.
16

The IPAP has prayed that the implementation of the Madrid Protocol in the
Philippines be restrained in order to prevent future wrongs considering that the IPAP
and its constituency have a clear and unmistakable right not to be deprived of the
rights granted them by the IP Code and existing local laws. 17 EcTCAD

In its comment in behalf of the respondents, the Office of the Solicitor General
(OSG) has stated that the IPAP does not have the locus standi to challenge the
accession to the Madrid Protocol; that the IPAP cannot invoke the Court's original
jurisdiction absent a showing of any grave abuse of discretion on the part of the
respondents; that the President's ratification of the Madrid Protocol as an executive
agreement is valid because the Madrid Protocol is only procedural, does not create
substantive rights, and does not require the amendment of the IP Code; that the
IPAP is not entitled to the restraining order or injunction because it suffers no
damage from the ratification by the President, and there is also no urgency for such
relief; and the IPAP has no clear unmistakable right to the relief sought. 18

Issues

The following issues are to be resolved, namely:

I. Whether or not the IPAP has locus standi to challenge the President's
ratification of the Madrid Protocol;

II. Whether or not the President's ratification of the Madrid Protocol is valid and
constitutional; and

III. Whether or not the Madrid Protocol is in conflict with the IP Code.

Ruling of the Court

The petition for certiorari and prohibition is without merit.

A.

The issue of legal standing to sue, or locus standi

The IPAP argues in its reply 19 that it has the locus standi to file the present case by
virtue of its being an association whose members stand to be injured as a result of
the enforcement of the Madrid Protocol in the Philippines; that the injury pertains to
the acceptance and approval of applications submitted through the Madrid Protocol
without local representation as required by Section 125 of the IP Code; 20 and that
such will diminish the rights granted by the IP Code to Intellectual Property Law
practitioners like the members of the IPAP. 21

The argument of the IPAP is untenable.

Legal standing refers to "a right of appearance in a court of justice on a given


question." 22 According to Agan, Jr. v. Philippine International Air Terminals Co., Inc.,
23 standing is "a peculiar concept in constitutional law because in some cases, suits
are not brought by parties who have been personally injured by the operation of a
law or any other government act but by concerned citizens, taxpayers or voters who
actually sue in the public interest." SDHTEC

The Court has frequently felt the need to dwell on the issue of standing in public or
constitutional litigations to sift the worthy from the unworthy public law litigants
seeking redress or relief. The following elucidation in De Castro v. Judicial and Bar
Council 24 offers the general understanding of the context of legal standing, or
locus standi for that purpose, viz.:

In public or constitutional litigations, the Court is often burdened with the


determination of the locus standi of the petitioners due to the ever-present need to
regulate the invocation of the intervention of the Court to correct any official action
or policy in order to avoid obstructing the efficient functioning of public officials and
offices involved in public service. It is required, therefore, that the petitioner must
have a personal stake in the outcome of the controversy, for, as indicated in Agan,
Jr. v. Philippine International Air Terminals Co., Inc.:

The question on legal standing is whether such parties have "alleged such a
personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court so
largely depends for illumination of difficult constitutional questions." Accordingly, it
has been held that the interest of a person assailing the constitutionality of a
statute must be direct and personal. He must be able to show, not only that the law
or any government act is invalid, but also that he sustained or is in imminent
danger of sustaining some direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or privilege to
which he is lawfully entitled or that he is about to be subjected to some burdens or
penalties by reason of the statute or act complained of.

It is true that as early as in 1937, in People v. Vera, the Court adopted the direct
injury test for determining whether a petitioner in a public action had locus standi.
There, the Court held that the person who would assail the validity of a statute must
have "a personal and substantial interest in the case such that he has sustained, or
will sustain direct injury as a result." Vera was followed in Custodio v. President of
the Senate, Manila Race Horse Trainers' Association v. De la Fuente, Anti-Chinese
League of the Philippines v. Felix, and Pascual v. Secretary of Public Works.

Yet, the Court has also held that the requirement of locus standi, being a mere
procedural technicality, can be waived by the Court in the exercise of its discretion.
For instance, in 1949, in Araneta v. Dinglasan, the Court liberalized the approach
when the cases had "transcendental importance." Some notable controversies
whose petitioners did not pass the direct injury test were allowed to be treated in
the same way as in Araneta v. Dinglasan. HSAcaE

In the 1975 decision in Aquino v. Commission on Elections, this Court decided to


resolve the issues raised by the petition due to their "far-reaching implications,"
even if the petitioner had no personality to file the suit. The liberal approach of
Aquino v. Commission on Elections has been adopted in several notable cases,
permitting ordinary citizens, legislators, and civic organizations to bring their suits
involving the constitutionality or validity of laws, regulations, and rulings.

However, the assertion of a public right as a predicate for challenging a supposedly


illegal or unconstitutional executive or legislative action rests on the theory that the
petitioner represents the public in general. Although such petitioner may not be as
adversely affected by the action complained against as are others, it is enough that
he sufficiently demonstrates in his petition that he is entitled to protection or relief
from the Court in the vindication of a public right. 25

The injury that the IPAP will allegedly suffer from the implementation of the Madrid
Protocol is imaginary, incidental and speculative as opposed to a direct and material
injury required by the foregoing tenets on locus standi. Additionally, as the OSG
points out in the comment, 26 the IPAP has misinterpreted Section 125 of the IP
Code on the issue of representation. The provision only states that a foreign
trademark applicant "shall designate by a written document filed in the office, the
name and address of a Philippine resident who may be served notices or process in
proceedings affecting the mark;" it does not grant anyone in particular the right to
represent the foreign trademark applicant. Hence, the IPAP cannot justly claim that
it will suffer irreparable injury or diminution of rights granted to it by Section 125 of
the IP Code from the implementation of the Madrid Protocol.

Nonetheless, the IPAP also emphasizes that the paramount public interest involved
has transcendental importance because its petition asserts that the Executive
Department has overstepped the bounds of its authority by thereby cutting into
another branch's functions and responsibilities. 27 The assertion of the IPAP may be
valid on this score. There is little question that the issues raised herein against the
implementation of the Madrid Protocol are of transcendental importance.
Accordingly, we recognize IPAP's locus standi to bring the present challenge. Indeed,
the Court has adopted a liberal attitude towards locus standi whenever the issue
presented for consideration has transcendental significance to the people, or
whenever the issues raised are of paramount importance to the public. 28

B.

Accession to the

Madrid Protocol was constitutional

The IPAP submits that respondents Executive Secretary and DFA Secretary Del
Rosario gravely abused their discretion in determining that there was no need for
the Philippine Senate's concurrence with the Madrid Protocol; that the Madrid
Protocol involves changes of national policy, and its being of a permanent character
requires the Senate's concurrence, 29 pursuant to Section 21, Article VII of the
Constitution, which states that "no treaty or international agreement shall be valid
and effective unless concurred in by at least two-thirds of all the Members of the
Senate." AScHCD

Before going further, we have to distinguish between treaties and international


agreements, which require the Senate's concurrence, on one hand, and executive
agreements, which may be validly entered into without the Senate's concurrence.
Executive Order No. 459, Series of 1997, 30 notes the following definitions, to wit:

Sec. 2. Definition of Terms.

a. International agreement shall refer to a contract or understanding,


regardless of nomenclature, entered into between the Philippines and another
government in written form and governed by international law, whether embodied
in a single instrument or in two or more related instruments.

b. Treaties international agreements entered into by the Philippines which


require legislative concurrence after executive ratification. This term may include
compacts like conventions, declarations, covenants and acts.

c. Executive Agreements similar to treaties except that they do not require


legislative concurrence.

The Court has highlighted the difference between treaties and executive
agreements in Commissioner of Customs v. Eastern Sea Trading, 31 thusly:

International agreements involving political issues or changes of national policy and


those involving international arrangements of a permanent character usually take
the form of treaties. But international agreements embodying adjustments of detail
carrying out well-established national policies and traditions and those involving
arrangements of a more or less temporary nature usually take the form of executive
agreements.
In the Philippines, the DFA, by virtue of Section 9, Executive Order No. 459, 32 is
initially given the power to determine whether an agreement is to be treated as a
treaty or as an executive agreement. To determine the issue of whether DFA
Secretary Del Rosario gravely abused his discretion in making his determination
relative to the Madrid Protocol, we review the jurisprudence on the nature of
executive agreements, as well as the subject matters to be covered by executive
agreements.

The pronouncement in Commissioner of Customs v. Eastern Sea Trading 33 is


instructive, to wit: HESIcT

. . . The concurrence of said House of Congress is required by our fundamental law


in the making of "treaties" (Constitution of the Philippines, Article VII, Section 10[7]),
which are, however, distinct and different from "executive agreements," which may
be validly entered into without such concurrence.

"Treaties are formal documents which require ratification with the approval of two
thirds of the Senate. Executive agreements become binding through executive
action without the need of a vote by the Senate or by Congress.

xxx xxx xxx

". . . the right of the Executive to enter into binding agreements without the
necessity of subsequent Congressional approval has been confirmed by long usage.
From the earliest days of our history we have entered into executive agreements
covering such subjects as commercial and consular relations, most-favored-nation
rights, patent rights, trademark and copyright protection, postal and navigation
arrangements and the settlement of claims. The validity of these has never been
seriously questioned by our courts.

xxx xxx xxx

Agreements with respect to the registration of trademarks have been concluded by


the Executive with various countries under the Act of Congress of March 3, 1881 (21
Stat. 502). . . .

xxx xxx xxx

In this connection, Francis B. Sayre, former U.S. High Commissioner to the


Philippines, said in his work on "The Constitutionality of Trade Agreement Acts":

Agreements concluded by the President which fall short of treaties are commonly
referred to as executive agreements and are no less common in our scheme of
government than are the more formal instruments treaties and conventions. They
sometimes take the form of exchanges of notes and at other times that or more
formal documents denominated 'agreements' or 'protocols'. The point where
ordinary correspondence between this and other governments ends and
agreements whether denominated executive agreements or exchanges of notes
or otherwise begin, may sometimes be difficult of ready ascertainment. It would
be useless to undertake to discuss here the large variety of executive agreements
as such, concluded from time to time. Hundreds of executive agreements, other
than those entered into under the trade-agreements act, have been negotiated with
foreign governments. . . . It would seem to be sufficient, in order to show that the
trade agreements under the act of 1934 are not anomalous in character, that they
are not treaties, and that they have abundant precedent in our history, to refer to
certain classes of agreements heretofore entered into by the Executive without the
approval of the Senate. They cover such subjects as the inspection of vessels,
navigation dues, income tax on shipping profits, the admission of civil aircraft,
customs matters, and commercial relations generally, international claims, postal
matters, the registration of trademarks and copyrights, etcetera. Some of them
were concluded not by specific congressional authorization but in conformity with
policies declared in acts of Congress with respect to the general subject matter,
such as tariff acts; while still others, particularly those with respect of the
settlement of claims against foreign governments, were concluded independently of
any legislation. (Emphasis ours) AcICHD

As the foregoing pronouncement indicates, the registration of trademarks and


copyrights have been the subject of executive agreements entered into without the
concurrence of the Senate. Some executive agreements have been concluded in
conformity with the policies declared in the acts of Congress with respect to the
general subject matter.

It then becomes relevant to examine our state policy on intellectual property in


general, as reflected in Section 2 of our IP Code, to wit:

Section 2. Declaration of State Policy. The State recognizes that an effective


intellectual and industrial property system is vital to the development of domestic
and creative activity, facilitates transfer of technology, attracts foreign investments,
and ensures market access for our products. It shall protect and secure the
exclusive rights of scientists, inventors, artists and other gifted citizens to their
intellectual property and creations, particularly when beneficial to the people, for
such periods as provided in this Act.

The use of intellectual property bears a social function. To this end, the State shall
promote the diffusion of knowledge and information for the promotion of national
development and progress and the common good.

It is also the policy of the State to streamline administrative procedures of


registering patents, trademarks and copyright, to liberalize the registration on the
transfer of technology, and to enhance the enforcement of intellectual property
rights in the Philippines. caITAC
In view of the expression of state policy having been made by the Congress itself,
the IPAP is plainly mistaken in asserting that "there was no Congressional act that
authorized the accession of the Philippines to the Madrid Protocol." 34

Accordingly, DFA Secretary Del Rosario's determination and treatment of the Madrid
Protocol as an executive agreement, being in apparent contemplation of the express
state policies on intellectual property as well as within his power under Executive
Order No. 459, are upheld. We observe at this point that there are no hard and fast
rules on the propriety of entering into a treaty or an executive agreement on a
given subject as an instrument of international relations. The primary consideration
in the choice of the form of agreement is the parties' intent and desire to craft their
international agreement in the form they so wish to further their respective
interests. The matter of form takes a back seat when it comes to effectiveness and
binding effect of the enforcement of a treaty or an executive agreement, inasmuch
as all the parties, regardless of the form, become obliged to comply conformably
with the time-honored principle of pacta sunt servanda. 35 The principle binds the
parties to perform in good faith their parts in the agreements. 36

C.

There is no conflict between the

Madrid Protocol and the IP Code.

The IPAP also rests its challenge on the supposed conflict between the Madrid
Protocol and the IP Code, contending that the Madrid Protocol does away with the
requirement of a resident agent under Section 125 of the IP Code; and that the
Madrid Protocol is unconstitutional for being in conflict with the local law, which it
cannot modify.

The IPAP's contentions stand on a faulty premise. The method of registration


through the IPOPHL, as laid down by the IP Code, is distinct and separate from the
method of registration through the WIPO, as set in the Madrid Protocol. Comparing
the two methods of registration despite their being governed by two separate
systems of registration is thus misplaced.

In arguing that the Madrid Protocol conflicts with Section 125 of the IP Code, the
IPAP highlights the importance of the requirement for the designation of a resident
agent. It underscores that the requirement is intended to ensure that non-resident
entities seeking protection or privileges under Philippine Intellectual Property Laws
will be subjected to the country's jurisdiction. It submits that without such resident
agent, there will be a need to resort to costly, time consuming and cumbersome
extra-territorial service of writs and processes. 37

The IPAP misapprehends the procedure for examination under the Madrid Protocol.
The difficulty, which the IPAP illustrates, is minimal, if not altogether inexistent. The
IPOPHL actually requires the designation of the resident agent when it refuses the
registration of a mark. Local representation is further required in the submission of
the Declaration of Actual Use, as well as in the submission of the license contract.
38 The Madrid Protocol accords with the intent and spirit of the IP Code, particularly
on the subject of the registration of trademarks. The Madrid Protocol does not
amend or modify the IP Code on the acquisition of trademark rights considering that
the applications under the Madrid Protocol are still examined according to the
relevant national law. In that regard, the IPOPHL will only grant protection to a mark
that meets the local registration requirements. TAIaHE

WHEREFORE, this Court DISMISSES the petition for certiorari and prohibition for lack
of merit; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Peralta, Del Castillo, Perez,
Reyes and Caguioa, JJ., concur.

Brion, J., see: concurring opinion.

Mendoza, * J., is on official leave.

Perlas-Bernabe, J., please see my concurring opinion.

Leonen, J., see separate concurring opinion.

Jardeleza, ** J., took no part.

[A.C. No. 11078. July 19, 2016.]

VERLITA V. MERCULLO and RAYMOND VEDANO, complainants, vs. ATTY. MARIE


FRANCES E. RAMON, respondent.

DECISION

BERSAMIN, J p:

This case concerns the complaint for the disbarment of Atty. Marie Frances E.
Ramon for violating Rule 1.01, Canon 1 of the Code of Professional Responsibility
and the Lawyer's Oath for deceiving the complainants in order to obtain the
substantial amount of P350,000.00 on the pretext of having the foreclosed asset of
the latter's mother redeemed.

Antecedents

In the period from 2002 to 2011, the National Home Mortgage Finance Corporation
(NHMFC) sent several demand letters to Carmelita T. Vedao 1 regarding her unpaid
obligations secured by the mortgage covering her residential property in
Novaliches, Caloocan City. 2 To avoid the foreclosure of the mortgage, Carmelita
authorized her children, Verlita Mercullo and Raymond Vedao (complainants
herein), to inquire from the NHMFC about the status of the obligations. Verlita and
Raymond learned that their mother's arrears had amounted to P350,000.00, and
that the matter of the mortgage was under the charge of respondent Atty. Ramon,
but who was not around at that time.

On June 20, 2012, Carmelita received a letter from the sheriff of the Regional Trial
Court (RTC) in Caloocan City, stating that her property would be put up for auction
in July 2013. Verlita and Raymond thus went to the NHMFC to see the respondent,
who advised them about their right to redeem the property within one year from the
foreclosure. 3 HTcADC

In August 2013, Verlita and Raymond called up the respondent, and expressed their
intention to redeem the property by paying the redemption price. The latter agreed
and scheduled an appointment with them on August 30, 2013.

On August 30, 2013, the respondent arrived at the designated meeting place at
around 1:30 p.m., carrying the folder that Verlita and Raymond had seen at the
NHFMC when they inquired on the status of their mother's property. After the
respondent had oriented them on the procedure for redemption, the complainants
handed P350,000.00 to the respondent, who signed an acknowledgment receipt. 4
The respondent issued two acknowledgment receipts for the redemption price and
for litigation expenses, 5 presenting to the complainants her NHMFC identification
card. Before leaving them, she promised to inform them as soon as the documents
for redemption were ready for their mother's signature. 6

On September 4, 2013, the respondent met with Verlita and handed a letter 7 that
she had signed, along with the special power of attorney (SPA) for Carmelita's
signature. 8 The letter reads:

Office of the Clerk of Court and Ex Officio Sheriff

Regional Trial Court

Caloocan City

Re: Redemption of the property covered by EJF No. 7484-2013

Dear Atty. Dabalos,

Please assist Ms. Carmelita Vedano, through her Attorney-in-Fact in redeeming the
property covered by EJF No. 7484-2013. Please provide the necessary computation
as to the full redemption amount in order for Ms. Vedano to redeem the same.

Thank you.

Truly yours,
(Sgd.)

Atty. Marie Frances E. Ramon

Verlita and Raymond went to the NHMFC on September 9, 2013 to follow up on the
redemption, but discovered that the respondent had already ceased to be
connected with the NHMFC. On September 20, 2013, they met with her at Branch
145 of the Regional Trial Court in Makati City where she was attending a hearing.
She informed them that the redemption was under process, and that the certificate
of redemption would be issued in two to three weeks time. 9 CAIHTE

After communicating through text messages with the respondent, Verlita and
Raymond finally went to see the Clerk of Court of the Regional Trial Court in
Caloocan City on November 27, 2013 to inquire on the status of the redemption.
There, they discovered that the respondent had not deposited the redemption price
and had not filed the letter of intent for redeeming the property. 10

On December 5, 2013, Verlita and Raymond again went to Branch 145 of the
Regional Trial Court in Makati City where the respondent had a hearing, and handed
to her their demand letter requiring her to return the amount she had received for
the redemption. 11 She acknowledged the letter and promised to return the money
on December 16, 2013 by depositing the amount in Verlita's bank account.
However, she did not fulfill her promise and did not show up for her subsequent
scheduled hearings in Branch 145. 12

With their attempts to reach the respondent being in vain, Verlita and Raymond
brought their disbarment complaint in the Integrated Bar of the Philippines (IBP).

Findings and Recommendation of the IBP

The respondent did not submit her answer when required to do so. She also did not
attend the mandatory conference set by the IBP despite notice. Hence, the
investigation proceeded ex parte. 13

IBP Commissioner Arsenio P. Adriano submitted his Report and Recommendation, 14


whereby he found the respondent to have violated Rule 1.01 of the Code of
Professional Responsibility for engaging in deceitful conduct, and recommended her
suspension from the practice of law for two years, and her return to the
complainants of P350,000.00. with legal interest from December 2, 2013.

The IBP Board of Governors adopted Commissioner Adriano's recommendation as


stated in its Resolution No. XXI-2014-929, 15 viz.:

RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED AND APPROVED, the


Report and Recommendation of the Investigating Commissioner in the above-
entitled case, herein made part of this Resolution as Annex "A", and finding the
recommendation to be fully supported by the evidence on record and applicable
laws, and for violation of Rule 1.01 of the Code of Professional Responsibility, Atty.
Marie Frances E. Ramon is hereby SUSPENDED from the practice of law for two (2)
years and Ordered to Return the amount of Three Hundred Fifty Thousand
(P350,000.00) Pesos to Complainant.

Ruling of the Court

The Court declares the respondent guilty of dishonesty and deceit.

The Lawyer's Oath is a source of the obligations and duties of every lawyer. Any
violation of the oath may be punished with either disbarment, or suspension from
the practice of law, or other commensurate disciplinary action. 16 Every lawyer
must at no time be wanting in probity and moral fiber which are not only conditions
precedent to his admission to the Bar, but are also essential for his continued
membership in the Law Profession. 17 Any conduct unbecoming of a lawyer
constitutes a violation of his oath. aScITE

The respondent certainly transgressed the Lawyer's Oath by receiving money from
the complainants after having made them believe that she could assist them in
ensuring the redemption in their mother's behalf. She was convincing about her
ability to work on the redemption because she had worked in the NHFMC. She did
not inform them soon enough, however, that she had meanwhile ceased to be
connected with the agency. It was her duty to have so informed them. She further
misled them about her ability to realize the redemption by falsely informing them
about having started the redemption process. She concealed from them the real
story that she had not even initiated the redemption proceedings that she had
assured them she would do. Everything she did was dishonest and deceitful in order
to have them part with the substantial sum of P350,000.00. She took advantage of
the complainants who had reposed their full trust and confidence in her ability to
perform the task by virtue of her being a lawyer. Surely, the totality of her
actuations inevitably eroded public trust in the Legal Profession.

As a lawyer, the respondent was proscribed from engaging in unlawful, dishonest,


immoral or deceitful conduct in her dealings with others, especially clients whom
she should serve with competence and diligence. 18 Her duty required her to
maintain fealty to them, binding her not to neglect the legal matter entrusted to
her. Thus, her neglect in connection therewith rendered her liable. 19 Moreover, the
unfulfilled promise of returning the money and her refusal to communicate with the
complainants on the matter of her engagement aggravated the neglect and
dishonesty attending her dealings with the complainants.

The respondent's conduct patently breached Rule 1.01, Canon 1 of the Code of
Professional Responsibility, which provides:

CANON 1 A lawyer shall uphold the constitution, obey the laws of the land and
promote respect for law and for legal processes.
Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral, or deceitful
conduct. DETACa

Evil intent was not essential in order to bring the unlawful act or omission of the
respondent within the coverage of Rule 1.01 of the Code of Professional
Responsibility. 20 The Code exacted from her not only a firm respect for the law and
legal processes but also the utmost degree of fidelity and good faith in dealing with
clients and the moneys entrusted by them pursuant to their fiduciary relationship.
21

Yet another dereliction of the respondent was her wanton disregard of the several
notices sent to her by the IBP in this case. Such disregard could only be wrong
because it reflected her undisguised contempt of the proceedings of the IBP, a body
that the Court has invested with the authority to investigate the disbarment
complaint against her. She thus exhibited her irresponsibility as well as her utter
disrespect for the Court and the rest of the Judiciary. It cannot be understated that a
lawyer in her shoes should comply with the orders of the Court and of the Court's
duly constituted authorities, like the IBP, the office that the Court has particularly
tasked to carry out the specific function of investigating attorney misconduct. 22

The respondent deserves severe chastisement and appropriate sanctions. In this


regard, the IBP Board of Governors recommended her suspension for two years from
the practice of law, and her return of the amount of P350,000.00 to the
complainants. The recommended penalty is not commensurate to the gravity of the
misconduct committed. She merited a heavier sanction of suspension from the
practice of law for five years. Her professional misconduct warranted a longer
suspension from the practice of law because she had caused material prejudice to
the clients' interest. 23 She should somehow be taught to be more ethical and
professional in dealing with trusting clients like the complainants and their mother,
who were innocently too willing to repose their utmost trust in her abilities as a
lawyer and in her trustworthiness as a legal professional. In this connection, we
state that the usual mitigation of the recommended penalty by virtue of the
misconduct being her first offense cannot be carried out in her favor considering
that she had disregarded the several notices sent to her by the IBP in this case. As
to the return of the P350,000.00 to the complainant, requiring her to restitute with
legal interest is only fair and just because she did not comply in the least with her
ethical undertaking to work on the redemption of the property of the mother of the
complainants. In addition, she is sternly warned against a similar infraction in the
future; otherwise, the Court will have her suffer a more severe penalty.

WHEREFORE, the Court FINDS and HOLDS ATTY. MARIE FRANCES E. RAMON guilty of
violating Canon 1, Rule 1.01 of the Code of Professional Responsibility and the
Lawyer's Oath; SUSPENDS HER FROM THE PRACTICE OF LAW FOR A PERIOD OF FIVE
YEARS EFFECTIVE FROM NOTICE, with the STERN WARNING that any similar
infraction in the future will be dealt with more severely; ORDERS her to return to the
complainants the sum of P350,000.00 within 30 days from notice, plus legal interest
of 6% per annum reckoned from the finality of this decision until full payment; and
DIRECTS her to promptly submit to this Court written proof of her compliance within
the same period of 30 days from notice of this decision. HEITAD

Let copies of this decision be furnished to the Office of the Bar Confidant, to be
appended to Atty. Marie Frances E. Ramon's personal record as an attorney; to the
Integrated Bar of the Philippines; and to the Office of the Court Administrator for
dissemination to all courts throughout the country for their information and
guidance.

SO ORDERED.

Sereno, C.J., Carpio, Velasco, Jr., Leonardo-de Castro, Peralta, Del Castillo, Perez,
Reyes, Perlas-Bernabe, Leonen, Jardeleza and Caguioa, JJ., concur.

Brion, * J., is on leave.

Mendoza, ** J., is on official leave.

[G.R. No. 213847. July 12, 2016.]

JUAN PONCE ENRILE, petitioner, vs. SANDIGANBAYAN (THIRD DIVISION), AND


PEOPLE OF THE PHILIPPINES, respondents.

RESOLUTION

BERSAMIN, J p:

The People of the Philippines, represented by the Office of the Special Prosecutor of
the Office of the Ombudsman, have filed their Motion for Reconsideration to assail
the decision promulgated on August 18, 2015 granting the petition for certiorari of
the petitioner, and disposing thusly:

WHEREFORE, the Court GRANTS the petition for certiorari; ISSUES the writ of
certiorari ANNUL[L]ING and SETTING ASIDE the Resolutions issued by the
Sandiganbayan (Third Division) in Case No. SB-14-CRM-0238 on July 14, 2014 and
August 8, 2014; ORDERS the PROVISIONAL RELEASE of petitioner Juan Ponce Enrile
in Case No. SB-14-CRM-0238 upon posting of a cash bond of P1,000,000.00 in the
Sandiganbayan; and DIRECTS the immediate release of petitioner Juan Ponce Enrile
from custody unless he is being detained for some other lawful cause. HTcADC

No pronouncement on costs of suit.

SO ORDERED. 1
The People rely on the following grounds for the reversal of the decision of August
18, 2015, to wit:

I. THE DECISION GRANTING BAIL TO PETITIONER WAS PREMISED ON A FACTUAL


FINDING THAT HE IS NOT A FLIGHT RISK, ON A DETERMINATION THAT HE SUFFERS
FROM A FRAGILE STATE OF HEALTH AND ON OTHER UNSUPPORTED GROUNDS
UNIQUE AND PERSONAL TO HIM. IN GRANTING BAIL TO PETITIONER ON THE
FOREGOING GROUNDS, THE DECISION UNDULY AND RADICALLY MODIFIED
CONSTITUTIONAL AND PROCEDURAL PRINCIPLES GOVERNING BAIL WITHOUT
SUFFICIENT CONSTITUTIONAL, LEGAL AND JURISPRUDENTIAL BASIS.

A. THE DECISION OPENLY IGNORED AND ABANDONED THE CONSTITUTIONALLY-


MANDATED PROCEDURE FOR DETERMINING WHETHER A PERSON ACCUSED OF A
CRIME PUNISHABLE BY RECLUSION PERPETUA OR LIFE IMPRISONMENT SUCH AS
PLUNDER CAN BE GRANTED BAIL. CAIHTE

B. THE DECISION ALSO DISREGARDED CONSTITUTIONAL PRINCIPLES AND


RELEVANT COURT PROCEDURES WHEN IT GRANTED PETITIONER'S REQUEST FOR
BAIL ON THE GROUND THAT HE IS NOT A FLIGHT RISK, PREMISED ON A LOOSE
FINDING THAT THE PRINCIPAL PURPOSE OF BAIL IS MERELY TO SECURE THE
APPEARANCE OF AN ACCUSED DURING TRIAL.

C. CONTRARY TO THE STRICT REQUIREMENTS OF THE 1987 CONSTITUTION ON


THE MATTER OF GRANTING BAIL TO PERSONS ACCUSED OF CRIMES PUNISHABLE BY
RECLUSION PERPETUA OR LIFE IMPRISONMENT, THE DECISION ERRONEOUSLY HELD
THAT PETITIONER SHOULD BE GRANTED BAIL BECAUSE OF HIS FRAGILE STATE OF
HEALTH, AND BECAUSE OF OTHER UNSUPPORTED AND DEBATABLE GROUNDS AND
CIRCUMSTANCES PURELY PERSONAL AND PECULIAR TO HIM, WITHOUT REFERENCE
TO THE STRENGTH OF THE PROSECUTION'S EVIDENCE AGAINST HIM.

II. THE DECISION VIOLATES THE PEOPLE'S CONSTITUTIONAL RIGHT TO DUE


PROCESS OF LAW SINCE IT WAS BASED ON GROUNDS NOT RAISED IN THE PETITION
AND THEREFORE NEVER REFUTED OR CONTESTED.

III. THE DECISION GAVE PREFERENTIAL TREATMENT AND UNDUE FAVOR TO


PETITIONER IN A MANNER INCONSISTENT WITH THE EQUAL PROTECTION CLAUSE OF
THE 1987 CONSTITUTION. 2

The People argue that the decision is inconsonant with deeply-embedded


constitutional principles on the right to bail; that the express and unambiguous
intent of the 1987 Constitution is to place persons accused of crimes punishable by
reclusion perpetua on a different plane, and make their availment of bail a matter of
judicial discretion, not a matter of right, only upon a showing that evidence of their
guilt is not strong; and that the Court should have proceeded from the general
proposition that the petitioner had no right to bail because he does not stand on
equal footing with those accused of less grave crimes.
The People contend that the grant of provisional liberty to a person charged with a
grave crime cannot be predicated solely on the assurance that he will appear in
court, but should also consider whether he will endanger other important interests
of the State, the probability of him repeating the crime committed, and how his
temporary liberty can affect the prosecution of his case; that the petitioner's fragile
state of health does not present a compelling justification for his admission to bail;
that age and health considerations are relevant only in fixing the amount of bail;
and that even so, his age and health condition were never raised or litigated in the
Sandiganbayan because he had merely filed thereat a Motion to Fix Bail and did not
thereby actually apply for bail. aScITE

Lastly, the People observe that the decision specially accommodated the petitioner,
and thus accorded him preferential treatment that is not ordinarily enjoyed by
persons similarly situated.

Ruling of the Court

The Court finds no compelling or good reason to reverse its decision of August 18,
2015.

To start with, the People were not kept in the dark on the health condition of the
petitioner. Through his Omnibus Motion dated June 10, 2014 and his Motion to Fix
Bail dated July 7, 2014, he manifested to the Sandiganbayan his currently frail
health, and presented medical certificates to show that his physical condition
required constant medical attention. 3 The Omnibus Motion and his Supplemental
Opposition dated June 16, 2014 were both heard by the Sandiganbayan after the
filing by the Prosecution of its Consolidated Opposition. 4 Through his Motion for
Reconsideration, he incorporated the findings of the government physicians to
establish the present state of his health. On its part, the Sandiganbayan, to satisfy
itself of the health circumstances of the petitioner, solicited the medical opinions of
the relevant doctors from the Philippine General Hospital. 5 The medical opinions
and findings were also included in the petition for certiorari and now form part of
the records of the case.

Clearly, the People were not denied the reasonable opportunity to challenge or
refute the allegations about his advanced age and the instability of his health even
if the allegations had not been directly made in connection with his Motion to Fix
Bail.

Secondly, the imputation of "preferential treatment" in "undue favor" of the


petitioner is absolutely bereft of basis. 6 A reading of the decision of August 18,
2015 indicates that the Court did not grant his provisional liberty because he was a
sitting Senator of the Republic. It did so because there were proper bases legal as
well as factual for the favorable consideration and treatment of his plea for
provisional liberty on bail. By its decision, the Court has recognized his right to bail
by emphasizing that such right should be curtailed only if the risks of flight from this
jurisdiction were too high. In our view, however, the records demonstrated that the
risks of flight were low, or even nil. The Court has taken into consideration other
circumstances, such as his advanced age and poor health, his past and present
disposition of respect for the legal processes, the length of his public service, and
his individual public and private reputation. 7 There was really no reasonable way
for the Court to deny bail to him simply because his situation of being 92 years of
age when he was first charged for the very serious crime in court was quite unique
and very rare. To ignore his advanced age and unstable health condition in order to
deny his right to bail on the basis alone of the judicial discretion to deny bail would
be probably unjust. To equate his situation with that of the other accused indicted
for a similarly serious offense would be inherently wrong when other conditions
significantly differentiating his situation from that of the latter's unquestionably
existed. 8

Section 2, Rule 114 of the Rules of Court expressly states that one of the conditions
of bail is for the accused to "appear before the proper court whenever required by
the court or these Rules." The practice of bail fixing supports this purpose. Thus, in
Villaseor v. Abao, 9 the Court has pronounced that "the principal factor
considered (in bail fixing), to the determination of which most factors are directed,
is the probability of the appearance of the accused, or of his flight to avoid
punishment." 10 The Court has given due regard to the primary but limited purpose
of granting bail, which was to ensure that the petitioner would appear during his
trial and would continue to submit to the jurisdiction of the Sandiganbayan to
answer the charges levelled against him. 11

Bail exists to ensure society's interest in having the accused answer to a criminal
prosecution without unduly restricting his or her liberty and without ignoring the
accused's right to be presumed innocent. It does not perform the function of
preventing or licensing the commission of crime. The notion that bail is required to
punish a person accused of crime is, therefore, fundamentally misplaced. Indeed,
the practice of admission to bail is not a device for keeping persons in jail upon
mere accusation until it is found convenient to give them a trial. The spirit of the
procedure is rather to enable them to stay out of jail until a trial with all the
safeguards has found and adjudged them guilty. Unless permitted this conditional
privilege, the individuals wrongly accused could be punished by the period of
imprisonment they undergo while awaiting trial, and even handicap them in
consulting counsel, searching for evidence and witnesses, and preparing a defense.
12 Hence, bail acts as a reconciling mechanism to accommodate both the accused's
interest in pretrial liberty and society's interest in assuring his presence at trial. 13

Admission to bail always involves the risk that the accused will take flight. 14 This is
the reason precisely why the probability or the improbability of flight is an important
factor to be taken into consideration in granting or denying bail, even in capital
cases. The exception to the fundamental right to bail should be applied in direct
ratio to the extent of the probability of evasion of prosecution. Apparently, an
accused's official and social standing and his other personal circumstances are
considered and appreciated as tending to render his flight improbable. 15

The petitioner has proven with more than sufficient evidence that he would not be a
flight risk. For one, his advanced age and fragile state of health have minimized the
likelihood that he would make himself scarce and escape from the jurisdiction of our
courts. The testimony of Dr. Jose C. Gonzales, Director of the Philippine General
Hospital, showed that the petitioner was a geriatric patient suffering from various
medical conditions, 16 which, singly or collectively, could pose significant risks to
his life. The medical findings and opinions have been uncontested by the
Prosecution even in their present Motion for Reconsideration. DETACa

WHEREFORE, the Court DENIES the Motion for Reconsideration for lack of merit.

SO ORDERED.

Velasco, Jr., Leonardo-de Castro, Peralta, Perez and Mendoza JJ., concur.

Sereno, C.J., Carpio, Del Castillo, Perlas-Bernabe and Caguioa, JJ., join the dissent
opinion of J. Leonen.

Brion, J., see: Separate concur opinion.

Reyes, * J., is on official leave.

Leonen, J., I dissent, see separate opinion.

Jardeleza, ** J., took no part.

[G.R. No. 195641. July 11, 2016.]

TARCISIO S. CALILUNG, petitioner, vs. PARAMOUNT INSURANCE CORPORATION, RP


TECHNICAL SERVICES, INC., RENATO L. PUNZALAN and JOSE MANALO, JR.,
respondents.

DECISION

BERSAMIN, J p:

The issue concerns the rate of interest on the debt decreed in a final and executory
decision. This issue has emerged during the stage of the execution of the judgment,
and the petitioner as the winning party sought compounded interest pursuant to
Article 2212 of the Civil Code. The trial court ultimately ruled that compounded
interest should not be recovered because the final and executory decision did not
decree the compounding of interest. Thus, the petitioner has directly come to the
Court for recourse.
Antecedents

On March 16, 2005, the Court promulgated its resolution in G.R. No. 136326 entitled
Paramount Insurance Corporation v. Tarcisio S. Calilung and RP Technical Services,
Inc. upholding the judgment promulgated on August 14, 1998, whereby the Court of
Appeals (CA) affirmed the decision of the Regional Trial Court (RTC), Branch 154, in
Pasig City holding the respondents jointly and severally liable to pay to the
petitioner the principal obligation of P718,750.00, with interest at 14% per annum
from October 7, 1987 until full payment, plus attorney's fees equivalent to 5% of the
amount due, and the costs of suit.

The resolution of March 16, 2005 summarized the factual and procedural
antecedents, 1 as follows: AScHCD

Sometime in 1987, Tarcisio S. Calilung, herein respondent, commissioned Renato


Punzalan, President of the RP Technical Services, Inc. (RPTSI), a domestic
corporation, also impleaded as respondent, of his desire to buy shares of stocks (sic)
worth P1,000,000.00 from RPTSI.

During the consultation meeting among the officers and stockholders of RPTSI, they
did not agree with Calilung's proposal because he will be in complete control of the
corporation. Instead, he allowed to buy P2,820.00 worth of shares with the
understanding that the remaining balance of P718,750.00 would be invested to
finance Shell Station Project in Batangas then being undertaken by respondent
RPTSI.

On October 9, 1987, respondent Punzalan, on behalf of RPTSI, executed a


promissory note in favor of Calilung in the amount of P718,750 with 14% interest
per annum, payable on or before April 9, 1988. The payment of this promissory note
was guaranteed by petitioner Paramount Insurance Corporation (Paramount) under
Surety Bond No. G (16) 7003 dated October 27, 1987. On the same date, Punzalan
and Jose Manalo, Jr., another officer of RPTSI, executed an indemnity agreement to
the effect that Paramount would be reimbursed of all expenses it will incur under
the surety bond.

However, RPTSI failed to pay Calilung the amount stated in the promissory note
when it fell due, prompting him to file with the Regional Trial Court (RTC), Branch
154, Pasig City, a complaint for sum of money against RPTSI and Paramount,
docketed as Civil Case No. 56194. For its part, Paramount filed a third party
complaint against RPTSI and its corporate officers, Punzalan and Manalo, Jr., seeking
reimbursement for all expenses it may incur under the surety bond.

In its answer, RPTSI denied that it authorized Punzalan and Manalo, Jr. to execute
the promissory note and claimed that it did not profit from the loan obtained from
Calilung.
Paramount, in its answer, alleged that the terms and conditions of the surety bond
have been novated when Calilung, without its consent, extended an extension to
RPTSI to pay its obligation. Hence, Paramount has no obligation to pay the amount
of the promissory note.

In their answer to the third party complaint, both Punzalan and Manalo, Jr. denied
any liability in the indemnity agreement because they contracted it as officers of
the corporation, not in their personal capacities.

Paramount, RPTSI and its officers, Punzalan and Manalo, Jr., jointly challenged the
validity of the promissory note on the ground that the contract is simulated. RPTSI
did not intend to be bound by the promissory note. Paramount insisted that since no
money was actually involved, the contract is entirely fictitious. HESIcT

After trial, the RTC rendered its Decision, the dispositive portion which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff (now respondent)


and against the defendants RP Technical Services, Incorporated (now respondent)
and Paramount Insurance Corporation (now petitioner), jointly and severally, to pay
plaintiff the following sums:

1) P718,750.00 with interest at 14% per annum from October 7, 1987, until fully
paid;

2) 5% of the amount due above as attorney's fees; plus

3) costs.

and in favor of defendant-third party plaintiff, Paramount Insurance Corporation


against the defendant RP Technical Services, Incorporated and third party
defendants, Messrs. Renato Punzalan and Jose M. Manalo, Jr. jointly and severally, to
pay the former whatever sum it shall pay to the plaintiff as above ordered.

SO ORDERED.

Paramount, Punzalan and Manalo, Jr., interposed an appeal to the Court of Appeals.
In its Decision dated August 14, 1998, the Appellate Court affirmed in toto the
judgment of the trial court. Their motion for reconsideration was likewise denied in a
Resolution dated November 13, 1998.

Hence, this petition for review on certiorari.

Paramount, herein petitioner, contends that the Court of Appeals erred in holding
that the promissory note is valid. Petitioner insists that the note was simulated and
that respondents committed fraud in introducing it to execute a surety bond to
secure payment of the said note.
Here, the issues of whether the promissory note is simulated or not is whether its
execution was attended with fraud evidently involved questions of fact and
evidentiary matters which are not proper in a petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, as amended. It is basic that factual
issues are beyond the province of this Court, for it is not its function to weigh the
evidence all [over] again. Factual findings of the trial court, when adopted and
affirmed by the Court of Appeals, as in this case, are binding and conclusive upon
this Court and generally will not be reviewed on appeal. There are exceptions to this
general rule, but petitioner failed to show that this case is one of them. AcICHD

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 43870 are AFFIRMED. Costs against petitioner.

SO ORDERED.

The March 16, 2005 resolution of the Court became final and executory on July 19,
2005, and was recorded in the Court's Book of Entries of Judgments on the same
date. 2 Thereafter, the decision was remanded to the RTC for execution.

In the RTC, the petitioner moved for execution, and sought the recovery of
compounded interest on the judgment debt. Acting on the petitioner's motion for
execution, the RTC issued three orders.

The first order, dated July 28, 2009, reads:

After evaluating the respective submissions of the parties, the court hereby holds in
favor of the defendant. Indeed, the decision sought to be implemented awarded
plaintiff the amount of P718,750.00 with interest at 14% per annum from October 7,
1987 until fully paid. There is nothing in the dispositive portion of the decision that
would justify the conclusion that the 14% interest imposed by the court should
further earn interest of 12% per annum. As correctly pointed out by the defendant,
where the decision is clear there is no room for further interpretation or adding to or
subtracting therefrom.

xxx xxx xxx

In this particular case, since the judgment or decision to be executed did not
provide for any compounding of interest, it is clear that the interest should be the
simple interest of 14% per annum counted from October 7, 1987.

Anent the parties' reference to the case of Eastern Shipping, supra, the court is
more inclined to subscribe to the position taken by the defendant. Indeed, the 12%
per annum finds application only if the obligation breached is for the payment of a
sum of money, i.e., loan or forbearance of money. The Supreme Court in the same
case held that the interest due (in case the obligation breached is a loan or
forbearance of money) shall itself earn interest from the time it is judicially
demanded. In the instant case, it can hardly be contended that the obligation of the
defendant to the plaintiff that was breached consisted in the payment of a sum of
money or a loan or forbearance of money. It is very clear that the obligation of the
defendant arose from its liability under a surety bond that it issued. Such obligation
cannot by any stretch of imagination be considered a loan or forbearance of money.

Anent the second part of the Omnibus Motion for the consignment of the
P2,993,152.65, let it be noted that a check in the same amount has been tendered
by the defendant to plaintiff, Atty. Tarcisio S. Calilung, and the latter has duly
received the same. caITAC

WHEREFORE, premises considered, order is hereby given fixing the amount of


interest on the principal claim of P718,750.00 at fourteen percent (14%) per annum
from October 7, 1987 until fully paid.

There will be no compounding of interest as this has no basis in law.

SO ORDERED. 3

Through the second order, issued on September 1, 2010, the RTC reconsidered the
first order upon motion of the petitioner by allowing the recovery of compounded
interest, viz.:

After going over the submission of the plaintiff in his Motion for Reconsideration and
the opposition thereto interposed by the defendant, the court is constrained to
change its former position and hold in favor of the plaintiff. A review of the facts of
the case will show that while the obligation of Paramount arose from its contract of
surety with defendant RP Technical Services, Inc., it is undeniable however that the
obligation being secured or guaranteed by defendant Paramount is a loan obligation
of the defendant RP Technical Services, Inc. to the plaintiff Calilung. As such, when
the defendant RP Technical Services, Inc. defaulted in its obligation, the guaranty
ripened into a loan obligation. In other words, the obligation of defendant
Paramount to the plaintiff was transferred (sic) from one of suretyship agreement to
an obligation for the payment of a sum of money corresponding to the unpaid
obligation of defendant RP Technical Services, Inc. to the plaintiff Calilung, which
obligation was guaranteed by the defendant Paramount. Be it noted that as a surety
obligation, the same became due and demandable upon the default of the principal
debtor (RP Technical Services, Inc.) to pay its obligation to plaintiff Calilung.

xxx xxx xxx

In the instant case, since the principal debtor (RP Technical Services, Inc.) has
defaulted in the payment of its obligation to the plaintiff and the latter has made a
demand upon the defendant Paramount for the payment of the loan obligation of RP
Technical Services, Inc., the surety (defendant Paramount Insurance Corp.)
effectively stepped into the shoes of principal debtor RP Technical Services, Inc. and
assumed the latter's obligation to the plaintiff which obligation is one for the
payment of sum of money.

Following the ruling in Eastern Shipping, the interest due on RP Technical Services,
Inc.'s obligation to plaintiff shall itself earn interest from the time demand was made
for its payment. As ruled by the court, the interest shall commence to run on
October 7, 1987. TAIaHE

WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED.


Compounding of interest is allowed pursuant to the Eastern Shipping Lines ruling
supra.

SO ORDERED. 4

In the third order, dated February 10, 2011, however, the RTC, acting on the motion
for reconsideration of Paramount Insurance Corporation, reverted to its stance
under the first order to the effect that compounded interest on the judgment debt
should not be recovered, to wit:

After a careful study of the respective positions forwarded by the parties and of the
applicable jurisprudence on the matter, the court is inclined to take the position of
defendant Paramount Insurance Corporation. Indeed, the order of the court dated
September 1, 2010 has to be reconsidered because it is not in accord with the rule
on immutability of decision (sic). In a long line of cases, it has been held that:

xxx xxx xxx

In the present case, the decision of Honorable Ramon R. Buenaventura which has
long become final and executory and is the subject of plaintiff's Motion for Execution
did not mention anything about the compounding of interest that was awarded in
favor of the plaintiff. The decision only said that it will earn interest at fourteen
percent (14%) per annum.

WHEREFORE, in view of the foregoing the "Motion for Reconsideration" of the Order
of the court dated September 1, 2010 filed by Paramount Insurance Corporation is
hereby GRANTED and the court's September 1, 2010 Order is SET ASIDE.

SO ORDERED. 5

Hence, this appeal by the petitioner. ICHDca

Issue

The petitioner argues that Article 2212 of the Civil Code and the rules set in Eastern
Shipping Lines v. Court of Appeals (234 SCRA 78) are applicable to the judgment
award in his favor; 6 that the obligation of the respondents was a loan or
forbearance of money; 7 that the correct computation of the judgment award as
inclusive of compounded interest would not constitute a modification or alteration of
the judgment proscribed by the doctrine of the immutability of judgments; and that
considering the lengthy dilatory appeals resorted to by Paramount Insurance
Corporation, restoring the stipulated 25% of the award as attorney's fees and
imposing expenses of litigation should be appropriate.

Paramount Insurance Corporation counters 8 that its obligation, having arisen only
out of a surety bond, was neither a loan nor a forbearance of money; 9 that because
its suretyship with RP Technical Services, Inc. was separate and distinct from the
petitioner's loan contract with RP Technical Services, Inc., the Eastern Shipping
ruling and Article 2212 of the Civil Code did not apply; 10 that the compounding of
interest would violate the immutability of judgments; 11 that restoring the
petitioner's claim for 25% of the award as attorney's fees would also violate the
immutability of judgments; and that the stipulation on the amount of attorney's fees
in the promissory note did not bind the respondent. 12

Ruling of the Court

The appeal lacks merit. cDHAES

It is settled that upon the finality of the judgment, the prevailing party is entitled, as
a matter of right, to a writ of execution to enforce the judgment, the issuance of
which is a ministerial duty of the court. 13

The judgment directed the respondents to pay to the petitioner the principal
amount of P718,750.00, plus interest of 14% per annum from October 7, 1987 until
full payment; 5% of the amount due as attorney's fees; and the costs of suit. Being
already final and executory, it is immutable, and can no longer be modified or
otherwise disturbed. 14 Its immutability is grounded on fundamental considerations
of public policy and sound practice, which demand that the judgment of the courts,
at the risk of occasional errors, must become final at some definite date set by law
or rule. 15 Indeed, the proper enforcement of the rule of law and the administration
of justice require that litigation must come to an end at some time; and that once
the judgment attains finality, the winning party should not be denied the fruits of his
favorable result.

An elucidation on the concept of interest is appropriate at this juncture. The kinds of


interest that may be imposed in a judgment are the monetary interest and the
compensatory interest. In this regard, the Court has expounded in Siga-an v.
Villanueva: 16

Interest is a compensation fixed by the parties for the use or forbearance of money.
This is referred to as monetary interest. Interest may also be imposed by law or by
courts as penalty or indemnity for damages. This is called compensatory interest.
The right to interest arises only by virtue of a contract or by virtue of damages for
delay or failure to pay the principal loan on which interest is demanded. TCAScE
Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated in
writing. As can be gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation
therefor in writing is prohibited by law.

xxx xxx xxx

There are instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest. Article 2209 of
the Civil Code states that if the obligation consists in the payment of a sum of
money, and the debtor incurs delay, a legal interest of 12% per annum may be
imposed as indemnity for damages if no stipulation on the payment of interest was
agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall
earn legal interest from the time it is judicially demanded, although the obligation
may be silent on this point.

All the same, the interest under these two instances may be imposed only as a
penalty or damages for breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other words, the two
instances apply only to compensatory interest and not to monetary interest. 17 . . .
ASEcHI

The only interest to be collected from the respondents is the 14% per annum on the
principal obligation of P718,750.00 reckoned from October 7, 1987 until full
payment. There was no basis for the petitioner to claim compounded interest
pursuant to Article 2212 18 of the Civil Code considering that the judgment did not
include such obligation. As such, neither the RTC nor any other court, including this
Court, could apply Article 2212 of the Civil Code because doing so would infringe
the immutability of the judgment. Verily, the execution must conform to, and not
vary from, the decree in the final and immutable judgment. 19

It is cogent to observe that under the express terms of the judgment, the
respondents' obligation to pay the 14% interest per annum was joint and several.
This meant that the respondents were in passive solidarity in relation to the
petitioner as their creditor, enabling him to compel either or both of them to pay the
entire obligation to him. Stated differently, each of the respondents was a debtor of
the whole as to the petitioner, but each respondent, as to the other, was only a
debtor of a part. 20 Thus, Article 1216 of the Civil Code states:

Article 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected. (1144a)

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the
orders issued on July 28, 2009 and February 10, 2011 by the Regional Trial Court,
Branch 154, in Pasig City to the effect that the only interest to be collected from the
respondents is 14% per annum reckoned from October 7, 1987 until full payment;
DIRECTS the Regional Trial Court to forthwith issue the writ of execution to enforce
the final and executory judgment in accordance with the decree thereof; and
ORDERS the petitioner to pay the costs of suit.

SO ORDERED. cTDaEH

Leonardo-de Castro, * Perlas-Bernabe, Jardeleza ** and Caguioa, JJ., concur.

[G.R. No. 195147. July 11, 2016.]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE NATIONAL BANK,


respondent.

DECISION

BERSAMIN, J. p

At issue is whether or not the respondent bank's interbank call loans transacted in
1997 were subject to documentary stamp taxes. HTcADC

The petitioner appeals the September 21, 2010 decision rendered in C.T.A. EB Case
No. 512, 1 whereby the Court of Tax Appeals (CTA) En Banc affirmed the
cancellation of Assessment No. 97-000064 for deficiency documentary stamp taxes
imposed on the interbank call loans of respondent Philippine National Bank (PNB);
and the resolution issued on January 10, 2011 2 denying the petitioner's motion for
reconsideration.

Antecedents

On March 23, 2000, the petitioner issued Letter of Authority No. 00058992, which
PNB received on March 28, 2000. The letter of authority authorized the examination
of PNB's books of accounts and other accounting records in relation to its internal
revenue taxes for taxable year 1997. 3 On May 12, 2003, PNB received the
preliminary assessment notice with details of discrepancies dated March 31, 2003,
which indicated that PNB had deficiency payments of documentary stamp taxes
(DST), withholding taxes on compensation, and expanded withholding taxes for
taxable year 1997. 4 On May 26, 2003, the petitioner issued a formal assessment
notice, together with a formal letter of demand and details of discrepancies,
requiring PNB to pay the following deficiency taxes: 5
Assessment No. 97-000064 for deficiency P39,550,963.50

DST arising from PNB's interbank call

loans and special savings account

Assessment No. 97-000067 for deficiency 2,173,972.25

expanded withholding tax

TOTAL P41,724,935.75

============

PNB immediately paid Assessment No. 97-000067 on May 30, 2003, but filed a
protest against Assessment No. 97-000064. The petitioner denied PNB's protest
through the final decision on disputed assessment dated December 10, 2003. 6

On January 16, 2004, PNB filed its petition for review in the CTA (C.T.A. Case No.
6850). 7

On March 3, 2009, after trial, the CTA (First Division) rendered judgment, disposing:

WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED.


Accordingly, the assessment for deficiency documentary stamp taxes on petitioner's
Interbank Call Loans for taxable year 1997 is hereby CANCELLED. However, the
assessment for deficiency documentary stamp tax on petitioner's Special Savings
Account for taxable year 1997 is hereby AFFIRMED.

Petitioner is hereby ORDERED to PAY respondent the amount of FOURTEEN MILLION


SIX HUNDRED EIGHTY EIGHT THOUSAND FOUR HUNDRED SIXTY THREE PESOS AND
FIFTEEN CENTAVOS (P14,688,463.15), representing deficiency documentary stamp
tax for taxable year 1997, computed as follows: CAIHTE

Special Savings Account 7,833,847,016.00

Documentary Stamp Tax (0.30/200) 11,750,770.52

Surcharge 25% 2,937,692.63

Total Amount Due 14,688,463.15

=============
In addition, petitioner is hereby ORDERED to PAY a penalty equivalent to twenty five
percent (25%) and a delinquency interest equivalent to twenty percent (20%) per
annum on the amount of P14,688,463.15 from February 15, 2004 until such amount
is paid in full, pursuant to Sections 248 and 249 of the Tax Code.

SO ORDERED. 8

Both parties moved for partial reconsideration. 9 On July 7, 2009, the CTA in Division
denied the petitioner's motion for partial reconsideration but held in abeyance the
resolution of PNB's motion for partial reconsideration pending its submission of its
supplemental formal offer of evidence to admit tax abatement documents. 10

Consequently, the petitioner appealed to the CTA En Banc on August 10, 2009.

On September 21, 2010, the CTA En Banc promulgated its assailed decision, viz.:

WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit. The
assailed Decision dated March 3, 2009 and Resolution dated July 7, 2009 insofar as
the cancellation of the assessment for Documentary Stamp Taxes on PNB's
Interbank Call Loans for the taxable year 1997 is concerned, are AFFIRMED. No
pronouncement as to costs.

SO ORDERED. 11

The petitioner sought reconsideration, 12 but the CTA En Banc denied the motion
through the resolution dated January 10, 2011. 13

Hence, this appeal by the petitioner.

Issue

The sole issue concerns whether or not PNB's interbank call loans for taxable year
1997 are subject to DST. The petitioner argues that:

THE PNB'S TRANSACTIONS UNDER INTERBANK CALL LOANS ARE CONSIDERED LOAN
AGREEMENTS BETWEEN PNB AND THE OTHER BANKS, HENCE, THEY ARE SUBJECT
TO DOCUMENTARY STAMP TAXES (DST) UNDER SECTION 180 OF THE NATIONAL
INTERNAL REVENUE CODE (NIRC) OF 1977, AS AMENDED BY REPUBLIC ACT (R.A.)
NO. 7660 OF 1994.

II

THE FURTHER AMENDMENTS OF SECTION 180 OF THE 1977 NIRC (AS AMENDED BY
R.A. NO. 7660 OF 1994) BY R.A. NO. 8424 OF 1998 AND R.A. NO. 9243 OF 2004
CONFIRM THE NATURE AND CHARACTER OF INTERBANK CALL LOANS AS LOAN
AGREEMENTS AND/OR DEBT INSTRUMENTS, HENCE, THEY ARE SUBJECT TO DST.
aScITE

III

THERE IS NO LAW OR PROVISION IN THE 1977 NIRC, AS AMENDED BY R.A. NO. 7660
OF 1994, THAT SPECIFICALLY AND EXPRESSLY EXEMPTS PNB'S INTERBANK CALL
LOANS FOR THE TAXABLE YEAR 1997 FROM THE PAYMENT OF DST. 14

Ruling

The appeal lacks merit.

The petitioner claims that while interbank call loans were not considered as deposit
substitute debt instruments, PNB's interbank call loans, which had a maturity of
more than five days, were included in the concept of loan agreements; hence, the
interbank call loans were subject to DST. 15

The petitioner's claim cannot be upheld.

Firstly, the maturity of PNB's interbank call loans was irrelevant in determining its
DST liability for taxable year 1997, relation to which the applicable law was the
National Internal Revenue Code of 1977 (1977 NIRC), as amended by Presidential
Decree No. 1959 16 and Republic Act No. 7660. 17 The five-day maturity of
interbank call loans came to be introduced only by Section 22 (y) 18 of the National
Internal Revenue Code of 1997 (1997 NIRC), to wit:

xxx xxx xxx

(y) The term 'deposit substitutes' shall mean an alternative from of obtaining
funds from the public (the term 'public' means borrowing from twenty (20) or more
individual or corporate lenders at any one time) other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrowers own
account, for the purpose of relending or purchasing of receivables and other
obligations, or financing their own needs or the needs of their agent or dealer.
These instruments may include, but need not be limited to bankers' acceptances,
promissory notes, repurchase agreements, including reverse repurchase
agreements entered into by and between the Bangko Sentral ng Pilipinas (BSP) and
any authorized agent bank, certificates of assignment or participation and similar
instruments with recourse: Provided, however, That debt instruments issued for
interbank call loans with maturity of not more than five (5) days to cover deficiency
in reserves against deposit liabilities, including those between or among banks and
quasi-banks, shall not be considered as deposit substitute debt instruments. (Bold
underscoring supplied for emphasis)

xxx xxx xxx


The provisions of the 1997 NIRC cannot be given retrospective effect to the
prejudice of PNB. This is because tax laws are prospective in application, unless
their retroactive application is expressly provided. 19

Secondly, PNB's interbank call loans are not taxable under Section 180 of the 1977
NIRC, as amended by R.A. No. 7660, which states:

Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest and others not payable on
sight or demand. On all loan agreements signed abroad wherein the object of the
contract is located or used in the Philippines; bills of exchange (between points
within the Philippines), drafts, instruments and securities issued by the Government
or any of its instrumentalities or certificates of deposits drawing interest, or orders
for the payment of any sum of money otherwise than at sight or on demand, or on
all promissory notes, whether negotiable or non-negotiable, except bank notes
issued for circulation, and on each renewal of any such note, there shall be collected
a documentary stamp tax of Thirty centavos (P0.30) on each two hundred pesos, or
fractional part thereof, of the face value of any such agreement, bill of exchange,
draft, certificate of deposit, or note: Provided, That only one documentary stamp tax
shall be imposed on either loan agreement, or promissory notes issued to secure
such loan, whichever will yield a higher tax: Provided, however, That loan
agreements or promissory notes the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000) executed by an individual for his purchase
on installment for his personal use or that of his family and not for business, resale,
barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt
from the payment of the documentary stamp tax provided under this section." (Bold
underscoring supplied for emphasis) DETACa

The petitioner insists that PNB's interbank call loans fell under the definition of a
loan agreement found in Section 3 (b) of Revenue Regulations No. 9-94, to wit:

xxx xxx xxx

(b) 'Loan agreement' refers to a contract in writing where one of the parties
delivers to another money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid. The term shall include
credit facilities, which may be evidenced by credit memo, advice or drawings.

The terms "Loan Agreement" under Section 180 and "Mortgage" under Section 195,
both of the Tax Code, as amended, generally refer to distinct and separate
instruments. A loan agreement shall be taxed under Section 180, while a deed of
mortgage shall be taxed under Section 195. 20

xxx xxx xxx


The insistence is bereft of merit.

An interbank call loan refers to the cost of borrowings from other resident banks and
non-bank financial institutions with quasi-banking authority that is payable on call or
demand. 21 It is transacted primarily to correct a bank's reserve requirements. 22
Under the Manual of Regulation for Banks (MORB) issued by the Bangko Sentral ng
Pilipinas (BSP), interbank borrowings, 23 which include interbank call loans, shall be
evidenced by deposit substitute instruments containing the minimum features
prescribed under Section X235.3 of the MORB, except those that are settled through
the banks' respective demand deposit accounts with the BSP via Philpass. 24 Simply
put, an interbank call loan is considered as a deposit substitute transaction by a
bank performing quasi-banking functions to cover reserve deficiencies. It does not
fall under the definition of a loan agreement. Even if it does, the DST liability under
Section 180, supra, will only attach if the loan agreement was signed abroad but the
object of the contract is located or used in the Philippines, which was not the case in
regard to PNB's interbank call loans.

We note, however, that for taxation purposes interbank call loans are not
considered as deposit substitutes by express provision of Section 20 (y) of the 1977
NIRC, as amended by P.D. No. 1959, viz.:

Sec. 1. A new subsection (y) is inserted in Sec. 2 of the National Internal


Revenue Code to read as follows:

xxx xxx xxx

(y) 'Deposit substitutes' shall mean an alternative form of obtaining funds from
the public, other than deposit, through the issuance, endorsement, or acceptance of
debt instruments for the borrower's own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own needs or the
needs of their agent or dealer. These instruments may include but need not be
limited to banker's acceptances, promissory notes, repurchase agreements,
certificates of assignment or participation and similar instruments with recourse as
may be authorized by the Central Bank of the Philippines, for banks and non-bank
financial intermediaries or by the Securities and Exchange Commission of the
Philippines for commercial, industrial, finance companies and other non-financial
companies: Provided, however, that only debt instruments issued for inter-bank call
loans to cover deficiency in reserves against deposit liabilities including those
between or among banks and quasi-banks shall not be considered as deposit
substitute debt instruments. (Bold emphasis supplied.) HEITAD

The foregoing notwithstanding, it can readily be discerned from Section 180, supra,
that the DST of P0.30 on each P200.00, or fractional part thereof, shall only be
imposed on the face value of: (1) loan agreements; (2) bills of exchange; (3) drafts;
(4) instruments and securities issued by the Government or any of its
instrumentalities; (5) certificates of deposits drawing interest; (6) orders for the
payment of any sum of money otherwise than at sight or on demand; and (7)
promissory notes, whether negotiable or non-negotiable, except bank notes issued
for circulation, and on each renewal of any such note. Interbank call loans, although
not considered as deposit substitutes, are not expressly included among the taxable
instruments listed in Section 180; hence, they may not be held as taxable. As the
Court has pointedly pronounced in Commissioner of Internal Revenue vs. Fortune
Tobacco Corporation: 25

. . . The rule in the interpretation of tax laws is that a statute will not be construed
as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax
cannot be imposed without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in construing statutes applies
with peculiar strictness to tax laws and the provisions of a taxing act are not to be
extended by implication. In answering the question of who is subject to tax statutes,
it is basic that in case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens because burdens are
not to be imposed nor presumed to be imposed beyond what statutes expressly and
clearly import. As burdens, taxes should not be unduly exacted nor assumed
beyond the plain meaning of the tax laws.

In fine, the cancellation of Assessment No. 97-000064 was in order.

WHEREFORE, the Court DENIES the petition for review on certiorari; and AFFIRMS
the decision promulgated on September 21, 2010 in C.T.A. EB Case No. 512. No
pronouncement on costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

FIRST DIVISION

[G.R. No. 166890. June 29, 2016.]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. APOLONIO BAUTISTA, JR., respondent.

DECISION

BERSAMIN, J p:

The applicant for judicial confirmation of imperfect title must trace his possession of
the subject land to June 12, 1945, or earlier. Any length of possession that does not
comply with the requirement cannot support the application, which must be then
dismissed for failure to comply with Commonwealth Act No. 141 (Public Land Act)
and Presidential Decree No. 1529 (Property Registration Decree).

The Case
The Government appeals the adverse judgment promulgated on September 30,
2004, 1 whereby the Court of Appeals (CA) affirmed the decision of the Municipal
Trial Court (MTC) of Subic, Zambales rendered on November 17, 1998 in LRC Case
No. N-12-10-96 entitled In Re: Application for Land Registration of Lot 17078 of Cad.
547-D, Subic Cadastre 2 granting the application of respondent Apolonio Bautista, Jr.
for the judicial confirmation of title of Lot 17078 of Cad. 547-D, Subic Cadastre.
SaCIDT

Antecedents

After acquiring Lot 17078 of Cad. 547-D, Subic Cadastre, located in Capisanan,
Subic, Zambales from Mario Jardin on February 15, 1971 and Cornelia Villanueva on
May 25, 1973, Apolonio, Sr. had the property declared for taxation purposes. He had
been the sole and exclusive possessor and occupant from the time of acquisition
until his death, with no party questioning his possession and ownership, or staking
any adverse claim against him thereon. 3 He died in 1987, and was succeeded by
his children, namely: respondent Apolonio, Jr. and his siblings. Apolonio, Sr.'s
children executed an extra-judicial settlement of their father's estate, whereby
Apolonio, Jr.'s brothers and sisters waived their rights in his favor. Thus, the property
was declared for taxation purposes in Apolonio, Jr.'s name under Tax Declaration No.
014-0432A of the Municipality of Subic, Zambales. There were no arrears in real
estate taxes. 4 The declared value was P73,040.00. 5 SCaITA

On October 21, 1996, Apolonio Jr. commenced LRC Case No. N-12-10-96 in the MTC.
He later on testified that his father had been in actual possession since 1969, and
had eventually acquired the land from Jardin and Villanueva through the notarized
Deeds of Absolute Sale dated February 15, 1971, and May 25, 1973; and that his
father had paid taxes on the land.

The Government did not interpose any timely objection to the testimony of
Apolonio, Jr. It did not also object to the documentary evidence (i.e., the deeds of
absolute sale and tax declarations) offered by him. Hence, the MTC admitted all the
evidence presented by Apolonio, Jr.

In due course, the MTC granted Apolonio, Jr.'s application, and declared him as the
owner in fee simple of the land, 6 and confirmed his ownership thereof. 7

The Government appealed the decision to the Court of Appeals (CA), which, on
September 30, 2004, promulgated its assailed decision affirming the ruling of the
MTC. 8 The CA pointed out that the Government did not present evidence against
the claim of Apolonio Jr.; and that the Government did not timely object to his
testimony on the ground of its being hearsay. 9

Issue
In this appeal, the Government reiterates that the testimony of Apolonio, Jr. on
possession, being hearsay, had no probative value; that the alienation of public land
should always undergo careful scrutiny; and that the Court should carefully re-
examine the factual issues that could alter the result of the case. 10

The Government points out that Apolonio, Jr. had given only general statements
pertaining to the open, continuous, exclusive and notorious possession of his father
since 1971; that such statements were mere conclusions of law, and did not prove
the alleged possession; that because the application for judicial confirmation of
imperfect title was filed on October 21, 1996, the applicable law was Section 48 (b)
of Commonwealth Act No. 141 (Public Land Act), as amended by Presidential Decree
No. 1073; that, accordingly, the required period of possession must be "since June
12, 1945 or earlier," as stated in Republic v. Doldol, 11 a more stringent
requirement the non-compliance with which was fatal to his cause. 12

Lastly, the Government points out that tax declarations or tax receipts did not
suffice to prove ownership of land in fee simple; that although it was the State's
policy to encourage and promote distribution of alienable public lands as an ideal of
social justice, stringent safeguards must be adopted and applied to prevent the
lands from going to the wrong hands; and that Apolonio, Jr.'s reliance on hearsay
evidence showed his unfitness to own the land. 13

In response, Apolonio Jr. insists that he had duly established his lawful occupation of
the land as owner in fee simple; that the Government did not timely object to his
testimony, and did not also controvert his evidence; that the property had been
properly identified; and that the lower courts had observed the legal safeguards and
guidelines in granting his application for judicial confirmation of his ownership in fee
simple. 14 cHECAS

Ruling of the Court

We reverse.

The Government has correctly insisted that the requisite period of possession of the
property should conform to that provided for in Section 48 (b) of the Public Land
Act, as amended by Presidential Decree No. 1073, which has limited the right to
apply for judicial confirmation to citizens of the Philippines "who by themselves or
through their predecessors in interest have been in open, continuous, exclusive, and
notorious possession and occupation of alienable and disposable lands of the public
domain, under a bona fide claim of acquisition of ownership, since June 12, 1945, or
earlier, immediately preceding the filing of the application for confirmation of title
except when prevented by war or force majeure. . . ." The provision is reprised by
Section 14 (1) of Presidential Decree No. 1529 (Property Registration Decree),
adopting the length of possession and occupation of alienable and disposable lands
of the public domain under a bona fide claim of ownership since June 12, 1945, or
earlier.
We note that in its amendment of the Public Land Act that took effect on January 25,
1977, Presidential Decree No. 1073 changed the length of the requisite possession
from "thirty (30) years immediately preceding the filing of the application" to
possession "since June 12, 1945, or earlier." Republic v. Naguit 15 has explained this
change thusly:

When the Public Land Act was first promulgated in 1936, the period of possession
deemed necessary to vest the right to register their title to agricultural lands of the
public domain commenced from July 26, 1894. However, this period was amended
by R.A. No. 1942, which provided that the bona fide claim of ownership must have
been for at least thirty (30) years. Then in 1977, Section 48(b) of the Public Land Act
was again amended, this time by P.D. No. 1073, which pegged the reckoning date at
June 12, 1945. . . .

Based on the records before us, Apolonio, Jr. presented only himself to establish the
possession and ownership of his father, Apolonio, Sr., who was his immediate
predecessor-in-interest. He did not present as witnesses during the trial either of the
transferors of Apolonio, Sr. that is, Mario Jardin or Cornelia Villanueva to
establish the requisite length of the possession of the predecessors-in-interest of
the applicant that would be tacked to his own. His personal incompetence to attest
to the possession of the property within the time required by law underscored the
weakness of the evidence on possession, particularly as it has not been denied that
the applicant had arrived in the Philippines only on November 28, 1987. Considering
that the possession and occupation of the property in question by Apolonio, Jr. and
his predecessors-in-interest were not shown in the records to have been "since June
12, 1945, or earlier," the application must be rejected.

We should stress that only the title of those who had possessed and occupied
alienable and disposable lands of the public domain within the requisite period
could be judicially confirmed. Indeed, alienable public land held by a possessor,
either personally or through his predecessors-in-interest, openly, continuously and
exclusively during the prescribed statutory period is converted to private property
by the mere lapse or completion of the period. 16

That the Government did not timely object to the admission of the testimony of
Apolonio, Jr., or of the other evidence presented by him was of no consequence to
the success of the application. If he had no personal knowledge of the facts
establishing the possession of property for the requisite period, no court can give
any value to his assertion, particularly as it was conceded by him no less that he
had no personal or direct competence to know the truth of his assertion. It was one
thing for the trial court to admit the evidence, but quite another to give it any worth
for purposes of judicial adjudication.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and
SETS ASIDE the decision promulgated on September 30, 2004; DISMISSES the
application of respondent Apolonio Bautista, Jr. for the judicial confirmation of his
imperfect title in LRC Case No. N-12-10-96; and ORDERS Apolonio Bautista, Jr. to pay
the costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

Footnotes

[G.R. No. 163157. June 27, 2016.]

SPOUSES BERNABE MERCADER, JR. and LORNA JURADO-MERCADER, OLIVER


MERCADER, GERALDINE MERCADER and ESRAMAY MERCADER, petitioners, vs.
SPOUSES JESUS BARDILAS and LETECIA GABUYA BARDILAS, respondents.

DECISION

BERSAMIN, J p:

The owner of the servient estate retains ownership of the portion on which the
easement is established, and may use the same in such manner as not to affect the
exercise of the easement. 1

The Case

This appeal seeks to undo and reverse the decision promulgated on March 18, 2003
"only insofar as Civil Case No. CEB-12783 is concerned," whereby the Court of
Appeals (CA) partly affirmed the judgment rendered on October 10, 1995 by the
Regional Trial Court (RTC) in Civil Case No. CEB-12783 and Civil Case No. CEB-
13384. In so doing, the CA recognized the right of the respondents as the owners of
the servient estate to the road right of way.

Antecedents

The issue concerns the right of way between the owners of three parcels of land
denominated as Lot No. 5808-F-1, Lot No. 5808-F-2-A and Lot 5808-F-2-B. The lots
were portions of Lot No. 5808-F, situated in Barangay Punta Princesa in Cebu City
with an area of 2,530 square meters, and registered under Transfer Certificate of
Title No. 78424 of the Registry of Deeds in Cebu City in the name of "Arsenia
Fernandez, of legal age, married to Simeon Cortes, both Filipinos." 2 Another
subdivision lot derived from Lot No. 5808-F was Lot No. 5808-F-3. ITAaHc

Lot No. 5808-F-1, which fronted a side street within the Clarita Village, contained
289 square meters, and was registered under TCT No. 88156 in the names "OLIVER,
14 yrs. old, GERALDINE, 12 yrs. old, ESRAMAY, 10 yrs. old, all surnamed MERCADER,
Filipino, minors, and single." 3 Such registered owners were the children of
petitioner Bernabe Mercader, Jr. by his first wife, Rebecca Gabuya Mercader, who
had died in 1975.

Lot No. 5808-F-2-A, situated behind Lot No. 5808-F-1, had an area of 89 square
meters. It was covered by TCT No. 107914 in the names of "spouses BERNABE
MERCADER AND LORNA JURADO, of legal age, Filipinos," 4 and was particularly
described as follows:

A parcel of land (Lot 5808-F-2-A, Psd-07-018600, being a portion of Lot 5808-F-2,


Psd-07-01-004579). Situated in the Barrio of Punta Princesa, City of Cebu, Province
of Cebu, Island of Cebu. Bounded on the North and East along lines 1-2-3 by Lot
5808-F-2-B, with existing Right of Way (3.00 meters wide); of the subdivision plan;
on the South along line 3-4 by Lot 5726, Cebu Cadastre; and on the West, along line
4-1 by Lot 5808-F-1, Psd-07-01-004579. Beginning at a point marked "1" on plan
being S. 50 deg. 59'W., 411.55 m. from BM No. 44, Cebu Cadastre; thence N. 60
deg. 34' E., 4.99 m. to point 2; thence S. 20 deg. 33' E., 17.95 m. to point 3; thence
S. 60 deg. 34' W., 4.99 m. to point 4; thence N. 20 deg. 33' W., 17.94 m. to point of
beginning; containing an area of EIGHTY NINE (89) SQUARE METERS, more or
less. . . . (Emphasis Supplied)

Lot No. 5808-F-2-B, situated behind Lot No. 5808-F-2-A, contained 249 square
meters, and was covered by TCT No. 107915 in the names of "spouses LETECIA
GABUYA BARDILAS and JESUS BARDILAS, of legal age, Filipinos." 5 It was particularly
described as follows:

A parcel of land (Lot 5808-F-2-B, Psd-07-018600, being a portion of Lot 5808-F-2,


Psd-07-01-004579). Situated in the Barrio of Punta Princesa, City of Cebu, Province
of Cebu, Island of Cebu. Bounded on the SW., along line 1-2 by Lot 5808-F-1, Psd-07-
01-004579; on the West along line 2-3 by Lot 5726, Cebu Cad.; on the North along
line 3-4-5 by Lot 5725, Cebu Cadastre; on the East, along line 5-6 by Lot 5808-F-3,
Psd-07-01-004579; on the South along line 6-7 by Lot 5726, Cebu Cad. and on the
West, along line 7-8-1 by Lot 5808-F-2-A of the subdivision plan; with a Road Right
of Way (3.00 meters wide). Beginning at a point marked "1" on plan being S. 50
deg., 59'W., 411.55 m. from BM No. 44, Cebu Cadastre; thence S. 64 deg. 87'W.,
16.02 m. to point 2; thence N. 22 deg. 23'W., 3.01 m. to point 3; thence N. 64 deg.
10'E., 16.12 m. to point 4; thence N. 64 deg. 10'E., 14.00 m. to point 5; thence S. 21
deg. 20'E., 20.01 m. to point 6; thence S. 60 deg. 34' W., 9.40 m. to point 7; thence
N. 20 deg. 33'W., 17.95 m. to point 8; thence S. 60 deg. 34'W., 4.99 m. to the point
of the beginning. Containing an area of TWO HUNDRED FORTY NINE (249) SQUARE
METERS, more or less. . . . (Emphasis supplied) cSaATC

The right of way mentioned in the TCT No. 107915 of the Spouses Bardilas (Lot No.
5808-F-2-B) exited into the Clarita Subdivision and was roughly 300 lineal meters
from Buhisan Road, a national road.
Behind Lot No. 5808-F-2-B was Lot No. 5808-F-3, registered under TCT No. 88158 in
the name of "LETECIA GABUYA BARDILAS, married to JESUS BARDILAS, both of legal
age and Filipinos," 6 particularly described as follows:

A parcel of land (Lot 5808-F-3, Psd-07-07-004579, bearing a portion of 5808-F, psd-


07-07-003019); situated in the District of Punta Princesa, Ciky (sic) of Cebu, Island
of Cebu. Bounded on the Ne. and NW. along lines 1-2-3- by lot 5808-F-4; on the NW.,
along line 3-4 by lot 5808-F-5; along line 4-5 by lot 5808-F-6, all of the subdivision
plan; on the NW., along line 5-6 by Lot 5725, Cebu Cadastre; on the East and SE.,
along lines 7-8-9 by lot 5808-B; on the SE., along line 9-1 by lot 5808-C; along 10-
11-12 bylot (sic) 5808-D; along line 12-13-14 by Lot 5808-E., all psd-0701003019;
on the SE., along line 14-45 by lot 5726, Cebu Cadastre; on the SW., along line 15-
16 by Lot 5808-F-2 of the subdivision plan; and on the NW, along line 16-1 by lot
5725, Cebu Cadastre. . . .

In relation to Lot No. 5808-F-3, there is another right of way about 40 lineal meters
away from Buhisan Road. 7

On May 11, 1992, the Clarita Village Association erected a concrete perimeter fence
to close the exit point of the right of way of the Spouses Bardilas from Lot No. 5808-
F-2-B to the existing road within Clarita Village. The closure forced the Spouses
Bardilas to use the second exit to Buhisan Road, which is from their Lot No. 5808-F-
3.

At the instance of the Clarita Village Association, and the Spouses Bardilas, Engr.
Edgar T. Batiquin of the Office of the Building Official of Cebu City, conducted his
verification/investigation of the vicinity of the disputed right of way. Engr. Batiquin
later on reported to the Building Official the following findings in his letter dated
June 15, 1992, 8 to wit:

Per verification/investigation conducted in connection with the above subject the


findings are to wit:

1. That the fence constructed by the association should have the necessary
permit;

2. Said fence encroached a small portion of the road right-of-way of Ms. Bardilas
(please see attached sketch plan, color red);

3. That a fence and portion of the residential house owned by Mr. Bernabe
Mercader have also encroached the road right-of-way (please see attached sketch
plan, color green); CHTAIc

4. Total area encroached on the right-of-way is 14.00 square meters.

Subsequently, on July 1, 1992, Barangay Chairman Jose F. Navarro of Punta Princesa,


Cebu City convened a meeting among the interested parties at the Chinese Temple
inside the Clarita Village. In attendance were officers of the Clarita Village
Association, including petitioner Bernabe Mercader, Jr., and barangay officials. The
Clarita Village Association explained that its closure of the right of way had been for
the purpose of preventing individuals of "questionable character" from using the
right of way to enter the area to steal from the residents of the Clarita Village. The
meeting resulted in the discussion and agreement of the following matters, to wit: 9

1) The villagers/Clarita Village Association WILL HAVE NO OBJECTION for the


spouses: Jesus and Letecia Bardilas (on their own expense) (sic) demolish a portion
of the wall fence erected on a portion of Clarita Village side street blocking the said
spouses' right of way; and replace with IRON GATE so that they can use it
anytime. Buying cost of the iron gate as well as labor cost in replacing the
knocked out portion of the said wall fence with iron gate will be shouldered by
spouses: Jesus and Letecia Bardilas.

2) KEYS TO THE IRON GATE. One (1) key will be given to the spouses MR. &
MRS. BERNABE MERCADER so that at anytime they can open the gate in going thru
their residence. ONE (1) key will be kept by spouses: Jesus and Letecia Bardilas for
their usage in opening the iron gate anytime they may open it.

3) All parties present were in accord that the contents of items 1 to 3 STAND as
their agreement in solving this instant case, and also in accord to implement the
agreement as soon as possible. THEY ALSO AGREE THAT IN VIEW OF THIS
AGREEMENT, THEY ALL CONSIDER THIS CASE AMICABLY SETTLED.

By letter dated August 14, 1992, 10 the Spouses Bardilas, through Atty. Alfredo J.
Sipalay, informed the Spouses Mercader of the encroachment by about 14 square
meters of the latter's residential house and fence on the right of way. Hence, they
wrote that they were giving the latter two alternatives, namely:

1. Pay THIRTY THOUSAND PESOS (P30,000.00) for the 14 square meters which
your house and wall fence have encroached (the amount represents P2,000.00 per
square meter, which is the fair market value of the property plus P2,000.00 for the
expenses the Spouses Bardilas have incurred as a result of the encroachment of
your property); or

2. Demolish the wall fence and the portion of your house which encroached my
clients' property.

On August 19, 1992, the Spouses Mercader, through Atty. Rolindo A. Navarro,
responded by insisting that as the owners of Lot No. 5808-F-2-A they were equally
entitled to the right of way; and that they were proposing to buy the equivalent
portion of the right of way to which they were entitled at a reasonable price, viz.: 11
cHDAIS

Dear Compaero:
Your letter dated August 14, 1992 addressed to Mr. Bernabe Mercader has been
referred to me for appropriate response.

In this connection, please be informed that my said client is equally entitled to the
use of the road-right-of-way subject of your letter having bought Lot No. 5808-F-2-A
which is one of the two dominant estates entitled thereto. The other estate is Lot
No. 5808-F-2-B owned by your clients. Incidentally, this road-right-of-way has not
been used for its purpose as the exit to Clarita Village has been closed. Attached
herewith is copy of TCT No. 107914 for Lot No. 5808-F-2-A as Annex "A".

However, if your client is willing, my client proposes to buy the equivalent portion of
the road-right-of-way to which they are entitled to at a reasonable price.

Please feel free to communicate with me on this matter.

In their reply of August 24, 1992, 12 the Spouses Bardilas rejected the claim of the
Spouses Mercader that they were entitled to the use of the right of way, and
reiterated their demand for P30,000.00 as the fair market value of the property,
stating:

Dear Atty. Navarro:

This is in reply to your letter dated August 19, 1992 which our office received on
August 20, 1992.

My clients, Spouses Jesus and Letecia Bardilas, disagree with Mr. Bernabe
Mercader's claim that he is entitled to the use of their road right of way. Attached as
Annex "A" is a photocopy of my clients' TCT No. 107915 of the property in question
which clearly states that my clients' property is subject to three (3) meters wide
right of way. Mr. Mercader's TCT No. 107914, which was issued on the same day and
time as my clients' TCT on March 30, 1989 at 10:10 a.m., don't (sic) have the same
provision regarding the use of a right of way. This is because Mr. Mercader's
property is fronting the street while my clients' property is situated at the back of
Mr. Mercader's property; hence, the provision regarding the right of way on my
clients' TCT.

It is true that my clients' road right of way has been closed since June, 1992 due to
a wall constructed by the Clarita Village Association resulting in much
inconvenience to my clients since they have to pass through a circuitous and muddy
road. However, in a meeting with their Barangay Captain, the officers of the Clarita
Village Association already agreed to let my clients pass through the wall provided
they will put up a gate between the walls. My clients already have a three (3) meter
wide gate ready to be put up only to discover that it won't fit because Mr. Mercader
has encroached their road right of way. Hence, my letter to Mr. Mercader on August
14, 1992, informing him to pay P30,000.00 to my clients or to demolished (sic) his
wall fence and portions of his house which encroached my clients' road right of way.
EATCcI

Since Mr. Mercader opts to pay my clients, we reiterate our demand for P30,000.00
which is the fair market value of my clients' property.

We hope we could settle this matter within this week.

Civil Case No. CEB-12783

Finding the demand for payment of P30,000.00 by the Spouses Bardilas to be


unlawful, unwarranted and unfounded, the Spouses Mercader commenced on
September 8, 1992 their action for declaratory relief, injunction and damages
against the Spouses Bardilas in the RTC in Cebu City (Civil Case No. CEB-12783).
The case was assigned to Branch 20.

The Spouses Mercader alleged that they were the lawful and registered owners of
adjoining lots, to wit: Lot No. 5808-F-1 and Lot No. 5808-F-2-A where their
residential house stood; 13 and that their Lot No. 5808-F-2-A and the Spouses
Bardilas' Lot No. 5805-F-2-B were portions of Lot No. 5808-F-2 that had been
subdivided and sold separately to each of them; 14 that Lot No. 5808-F-2-A was
bounded on the North and the East by Lot No. 5808-F-2-B; that in 1989, they had
used a negligible portion of the easement to build their fence and a portion of their
residential house, without impairing the use for which it was established and
without any objection, protest or complaint from the respondents; that they retained
the ownership of the portion of the property on which the easement was established
pursuant to Article 630 of the Civil Code; that the non-user of the easement had
extinguished it pursuant to Article 631, paragraph 3, of the Civil Code; that the
rights of the dominant and servient estates had merged in them; and that there was
a need to declare their rights to that portion of their property on which the
easement of right of way had been established vis-a-vis the unlawful demands of
the Spouses Bardilas.

The Spouses Mercader prayed that they be declared as having retained the
ownership of the 63.33 square meters where the easement of right of way had been
established; that the merger of the rights of the servient estate owner and
dominant estate owner be declared their favor; 15 and that the Spouses Bardilas be
made to pay damages.

In their answer, 16 the Spouses Bardilas averred that Lot No. 5808-F-2-A and Lot No.
5808-F-2-B used to be parts of Lot No. 5808-F-2; that the right of way in question
was a part of Lot No. 5808-F-2-B that they owned as borne out by the technical
descriptions of Lot No. 5808-F-2-A 17 and Lot No. 5808-F-2-B 18 as well as the
subdivision plan of the properties; 19 that they learned of the encroachment on the
portion of their property being used as right of way only from the survey conducted
by Engr. Batiquin of the Office of the Building Official in June 1992; 20 and that they
then referred the matter to their lawyer for appropriate action. ISHCcT

The Spouses Bardilas stated as affirmative defense that although the property of
the Spouses Mercaders had a gate fronting the side street within the Clarita Village,
they had allowed the latter to use the right of way only because Bernabe Mercader,
Jr. was the husband of the elder sister of Letecia Gabuya Bardilas; that the Spouses
Mercader abused the favor by using the right of way as their garage; that they
requested the Spouses Mercader to move their vehicles out but they got angry and
instigated the closure of the right of way by the Clarita Village Association, where he
was a ranking officer at the start of the dispute; that the Spouses Mercader were
wrongly claiming the extinguishment of the right of way; and that the Spouses
Mercader had no cause of action against them, and should be held liable for
damages in their favor.

During the pre-trial on September 29, 1993, the trial court required the Spouses
Mercader to amend their petition to include the children of Bernabe Mercader, Jr. by
his first wife, Rebecca Gabuya Mercader, due to their being the registered owners of
Lot No. 5808-F-1. The amended petition, dated October 25, 1993, was filed on
November 4, 1993. 21

Civil Case No. CEB-13384

In view of the encroachment by the Spouses Mercader on a portion of the road right
of way, the Spouses Bardilas could not fit their 3-meter wide iron gate. Another
meeting with the officers of the Clarita Village Association was held on November
11, 1992. 22 When the efforts of the parties to amicably settle the issue failed, the
Spouses Bardilas brought on December 24, 1992 their own suit for specific
performance with preliminary prohibitory or mandatory injunction against the
Clarita Village Association and the Spouses Mercader (Civil Case No. CEB-13384) in
the RTC in Cebu City. The case was raffled to Branch 10 of the RTC.

On October 5, 1993, the Spouses Bardilas moved for the consolidation of Civil Case
No. CEB-13384 with Civil Case No. CEB-12783. The RTC (Branch 10) granted the
motion for consolidation. 23

Judgment of the RTC

On October 10, 1995, the RTC rendered its consolidated decision in Civil Case No.
CEB 12783 and Civil Case No. CEB-13384, disposing: 24

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in


favor of petitioner Mercader's (sic) as against spouses Bardilas in Civil Case No.
12783: DHITCc

(a) DECLARING the EXTINGUISHMENT of the easement of road right of way


passing through the real properties of petitioners spouses Mercader's (sic) and
Bernabe Mercader, Jr. and his children and the cancellation of the annotation of said
easement from TCT No. 107914 and TCT No. 88156;

(b) DECLARING petitioner Mercader's (sic) as owners of said extinguished


easement of right of way;

(c) GRANTING to petitioner Mercader's (sic) the right to use and occupy the
extinguised easement which adjoins the Mercader's properties;

(d) ORDERING respondents spouses, Jesus and Letecia Bardilas to pay petitioners
the following amounts:

a) The sum of P100,000.00 as moral damages;

b) The sum of P35,000.00 as attorney's fees; and

c) The sum of P20,000.00 as costs of suit;

and in Civil Case No. 13384:

(a) DISMISSING the amended complaint filed by plaintiffs spouses Bardilas;

(b) DECLARING the road network of the Clarita Village still as private properties
and not public;

(c) DECLARING that the closure of OUTLET NO. 1 of said easement of right of way
by the Clarita Village as lawful and valid;

SO ORDERED.

On October 19, 1995, the Spouses Bardilas moved for a new trial on the ground of
newly discovered evidence, 25 representing that they had obtained the certification
dated August 24, 1995 by Antonio V. Osmea, the developer of the Clarita Village
and the attorney-in-fact of Carmen and Elena Siguenza, the owners of the Clarita
Village, 26 to the effect that the road network of the Clarita Village had been
donated to Cebu City. They appended to the motion the Deed of Donation of Road
Lots 27 and the certification dated July 5, 1995 28 by Antonio B. Sanchez,
Department Head III of the Office of the City Engineer, Department of Engineering
and Public Works of Cebu City, stating that the road network within the Clarita
Village "has been used as part of the road network of the City of Cebu and as such
was asphalted by the city thru F.T. Sanchez Construction in 1980." These
documents, according to the Spouses Bardilas, were newly discovered evidence that
they "could not, with reasonable diligence, have discovered and produced at the
trial." 29 CAacTH

On November 13, 1995, 30 the RTC denied the motion for new trial because: (a) the
Deed of Donation of Road Lots had been in the possession of the movants' counsel,
and had been in fact shown to the court, but had neither been offered nor marked
as evidence during the trial; (b) the certifications (Annexes A and C of the motion for
new trial) had derived their existence from the Deed of Donation of Road Lots, and
could not be considered as newly discovered evidence; (c) the Deed of Donation of
Road Lots did not bear the signature of then Acting City Mayor Eulogio Borres as the
representative of the donee; and (d) the Deed of Donation of Road Lots had not
been notarized. It noted that the failure to comply with the legal requirements for
donations under the Civil Code rendered the donation void and invalid, and could
not alter the result of the litigation.

With the denial of their motion for new trial, the Spouses Bardilas appealed to the
CA. 31

Decision of the CA

In their appeals, the Spouses Bardilas insisted that the RTC committed reversible
errors in declaring: 32

I. That the Mercaders are the owners of the easement of right of way in
question.

II. That the easement of right of way in question has been extinguished.

III. In granting the Mercaders the right to use and occupy the extinguished
easement which adjoins the Mercaders' properties.

IV. In awarding moral damages, attorney's fees and costs of suit to the
Mercaders in Civil Case No. CEB-12783.

V. In dismissing Civil Case No. CEB-13384 and in declaring the closure of the
road right of way in question by Clarita Village as lawful and valid. cEaSHC

On March 18, 2003, the CA promulgated the now assailed decision, 33 modifying
the judgment of the RTC and disposing as follows:

WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the
Regional Trial Court of Cebu City, Branch 20 in Civil Case Nos. CEB-12783 and CEB-
13384 is hereby MODIFIED to read as follows:

WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in


favor of respondents Spouses Jesus and Letecia Bardilas as against the petitioners
Spouses Bernabe and Lorna Mercader, Oliver Mercader, Geraldine Mercader and
Esramay Mercader in Civil Case No. 12783:

1) DECLARING respondents Jesus and Letecia Bardilas as owners of the three (3)
square meter wide road in question;

2) GRANTING to respondents Jesus and Letecia Bardilas the right to use and
occupy the said three (3) square meter wide road; and
3) ORDERING petitioners to pay the respondents the sum of P20,000.00 as and
for attorney's fees;

4) ORDERING the petitioners to pay the costs of suit;

and in Civil Case No. 13384:

1) DISMISSING the amended complaint filed by plaintiffs Spouses Jesus and


Letecia Bardilas; and

2) DECLARING the road network of the Clarita Village still as private properties
and not public.

SO ORDERED. IAETDc

On April 28, 2003, the Spouses Mercader sought the reconsideration of the decision,
34 stating that the CA had "erred in awarding the 3 meter road right of way to the
[Spouses Bardilas] and in ordering the respondent Mercader spouses, et al. to pay
attorney's fees." 35 They argued that because Lot No. 5808-F-2-A and Lot No. 5808-
F-2-B used to be one lot denominated as Lot No. 5808-F-2 that had the same right of
way leading to the Clarita Village, they "are also legally entitled to the other half of
the right of way" as owners of one of the subdivided lots; 36 that, as shown in their
Exhibit H, 37 Lot No. 5808-F-3 of the Spouses Bardilas "has another 3 meter road
right of way towards another point of Buhisan Road which is only about 40 lineal
meters" 38 from their property; and that the award of attorney's fees was "not
proper there being no legal basis to grant the award." 39

On March 16, 2004, 40 however, the CA denied Spouses Mercader's motion for
reconsideration.

Hence, this appeal only insofar as Civil Case No. CEB-12783 was concerned. 41

Issues

The Spouses Mercaders raise the same issues aired in their motion for
reconsideration in the CA. They contend that the technical description of their
property contained the phrase "with existing Right of Way (3.00 meters wide),"
which signified that they were equally "entitled to the road-right-of-way being
conferred upon them by TITLE pursuant to Article 622 of the New Civil Code." They
submit that:

Hence, they too should equally share in its retention for uses other than the
easement after its non-user brought about by the closure of the exit point by Clarita
Village Association. As borne out by the evidence, the respective properties of
petitioners Sps. Bernabe and Lorna Mercader, on one hand, and Sps. Jesus and
Letecia Bardilas, on the other hand, used to be a whole Lot 5808-F-2 with an area of
338 square meters before the same was subdivided into Lot 5808-F-2-A with an area
of 89 square meters for the petitioner spouses and Lot 5808-F-2-B with an area of
249 square meters for the respondents. Before the subdivision, there was already a
3-meter wide road right of way leading towards Clarita Village. Thus, after the
subdivision, the subject easement was annotated in both certificates of title as
earlier stated. Very clearly, petitioners Bernabe and Lorna Mercader, and
respondents Jesus and Letecia Bardilas, should equally share in the area of the
easement. Consequently, the petitioners cannot be ordered to return the portion of
easement on which part of petitioners' house and fence stand. 42 CTIEac

Ruling of the Court

We cannot sustain the petitioners' claim that they acquired their right to the road
right of way by title.

Easement or servitude, according to Valdez v. Tabisula, 43 is "a real right


constituted on another's property, corporeal and immovable, by virtue of which the
owner of the same has to abstain from doing or to allow somebody else to do
something on his property for the benefit of another thing or person." "It exists only
when the servient and dominant estates belong to two different owners. It gives the
holder of the easement an incorporeal interest on the land but grants no title
thereto. Therefore, an acknowledgment of the easement is an admission that the
property belongs to another." 44

It is settled that road right of way is a discontinuous apparent easement 45 in the


context of Article 622 of the Civil Code, which provides that continuous non-
apparent easements, and discontinuous ones, whether apparent or not, may be
acquired only by virtue of title. But the phrase with existing Right of Way in the TCT
is not one of the modes of acquisition of the easement by virtue of a title.
Acquisition by virtue of title, as used in Art. 622 of the Civil Code, refers to "the
juridical act which gives birth to the easement, such as law, donation, contract, and
will of the testator." 46

A perusal of the technical description of Lot No. 5808-F-2-A indicates that the phrase
with existing Right of Way (3.00 meters wide) referred to or described Lot No. 5808-
F-2-B, 47 which was one of the boundaries defining Lot F-2-A. Moreover, under the
Torrens system of land registration, the certificate of title attests "to the fact that
the person named in the certificate is the owner of the property therein described,
subject to such liens and encumbrances as thereon noted or what the law warrants
or reserves. The objective is to obviate possible conflicts of title by giving the public
the right to rely upon the face of the Torrens certificate and to dispense, as a rule,
with the necessity of inquiring further. The Torrens system gives the registered
owner complete peace of mind, in order that he will be secured in his ownership as
long as he has not voluntarily disposed of any right over the covered land." 48 The
Torrens certificate of title is merely an evidence of ownership or title in the particular
property described therein. 49 DcHSEa
What really defines a piece of land is not the area mentioned in its description, but
the boundaries therein laid down, as enclosing the land and indicating its limits. 50
As shown in the subdivision plan of Lot No. 5808-F-2, 51 and based on the technical
description of Lot No. 5808-F-2-B as appearing in TCT No. 107915, 52 the right of
way in dispute, which is "(B)ounded on the SW., along line 1-2 by Lot 5808-F-1, Psd-
07-01-004579; on the West along line 2-3 by Lot 5726, Cebu Cad.; on the North
along line 3-4-5 by Lot 5725, Cebu Cadastre" was part of Lot No. 5808-F-2-B of the
Spouses Bardilas.

It is noteworthy that an encumbrance "subject to 3 meters wide right of way" was


annotated on TCT No. 107915, which covers Lot No. 5808-F-2-B of the Spouses
Bardilas. 53 As the owners of the servient estate, the Spouses Bardilas retained
ownership of the road right of way even assuming that said encumbrance was for
the benefit of Lot No. 5808-F-2-A of the Spouses Mercader. The latter could not
claim to own even a portion of the road right of way because Article 630 of the Civil
Code expressly provides that "[t]he owner of the servient estate retains ownership
of the portion on which the easement is established, and may use the same in such
manner as not to affect the exercise of the easement."

With the right of way rightfully belonging to them as the owners of the burdened
property, the Spouses Bardilas remained entitled to avail themselves of all the
attributes of ownership under the Civil Code, specifically: jus utendi, jus fruendi, jus
abutendi, jus disponendi and jus vindicandi. Article 428 of the Civil Code recognizes
that the owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law. 54 In that regard, the CA cogently pointed
out: 55

Moreover, as owners of the three (3) square meter wide road in dispute, the
appellants (referring to the Bardilas spouses) may rightfully compel the petitioners-
appellees to pay to them the value of the land upon which a portion of their
(petitioners-appellees) house encroaches, and in case the petitioners-appellees fail
to pay, the appellants may remove or demolish the encroaching portion of the
petitioners-appellees' house. . . . .

The second issue concerns the award of attorney's fees. Relying on Bernardo v.
Court of Appeals, (Special Sixth Division), 56 the petitioners argue that the CA erred
"in awarding attorney's fees to the appellants after eliminating or refusing to award
moral and exemplary damages;" 57 that the CA did not make any finding to the
effect "that the appellants were compelled to litigate with third persons or to incur
expenses to protect their interest;" 58 and that, consequently, the grant of
attorneys' fees to the Spouses Bardillas lacked legal basis.

The award of attorney's fees and expenses of litigation is governed by Article 2208
of the Civil Code, to wit: SaCIDT
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:

(1) When exemplary damages is awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil case or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

(8) In actions for indemnity under workmen's compensation and employer's


liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

In Philippine National Construction Corporation v. APAC Marketing Corporation, 59


the Court opined that whenever attorney's fees are granted, the basis for the grant
must be clearly expressed in the judgment of the court. It expounded on why this is
so:

In ABS-CBN Broadcasting Corp. v. CA, this Court had the occasion to expound on the
policy behind the grant of attorney's fees as actual or compensatory damages:
SCaITA

(T)he law is clear the in the absence of stipulation, attorney's fees may be
recovered as actual or compensatory damages under any of the circumstance
provided for in Article 2208 of the Civil Code.

The general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate.
They are not to be awarded every time a party wins a suit. The power of the court to
award attorney's fees under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with third persons or to
incur expenses to protect his rights, still attorney's fees may not be awarded where
no sufficient showing of bad faith could be reflected in a party's persistence in a
case other than an erroneous conviction of the righteousness of his cause.

In Benedicto v. Villaflores, we explained the reason behind the need for the courts to
arrive upon an actual finding to serve as basis for a grant of attorney's fees,
considering the dual concept of these fees as ordinary and extraordinary: cHECAS

It is settled that the award of attorney's fees is the exception rather than the
general rule; counsel's fees are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed on the right to litigate.
Attorney's fees, as part of damages, are not necessarily equated to the amount paid
by a litigant to a lawyer. In the ordinary sense, attorney's fees represent the
reasonable compensation paid to a lawyer by his client for the legal services he has
rendered to the latter; while in its extraordinary concept, they may be awarded by
the court as indemnity for damages to be paid by the losing party to the prevailing
party. Attorney's fees as part of damages are awarded only in the instances
specified in Article 2208 of the Civil Code. As such, it is necessary for the court to
make findings of fact and law that would bring the case within the ambit of these
enumerated instances to justify the grant of such award, and in all cases it must be
reasonable.

We can glean from the above ruling that attorney's fees are not awarded as a
matter of course every time a party wins. We do not put a premium on the right to
litigate. On occasions that those fees are awarded, the basis for the grant must be
clearly expressed in the decision of the court.

In awarding attorney's fees, the CA relied on Article 2208 (11) of the Civil Code. The
exercise of the discretion to allow attorney's fees must likewise be justified. In
Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union, 60 the Court said:

Insofar as the present case is concerned, the lower court made no finding that it
falls within any of the exceptions that would justify the award of attorney's fees,
such as gross and evident bad faith in refusing to satisfy a plainly valid, just and
demandable claim. Even under the broad eleventh exception of the cited article
which allows the imposition of attorney's fees "in any other case where the court
deems it just and equitable that attorney's fees and expenses in litigation should be
recovered," the Court stressed in Buan, supra, that "the conclusion must be borne
out by findings of facts and law. What is just and equitable in a given case is not a
mere matter of feeling but of demonstration. . . . Hence, the exercise of judicial
discretion in the award of attorney's fees under Article 2208 (11) of the Civil Code
demands a factual, legal or equitable justification upon the basis of which the court
exercises its discretion. Without such justification, the award is a conclusion without
a premise, its basis being improperly left to speculation and conjecture." The
summary award of counsel's fees made in the appealed judgment must therefore be
set aside. aTHCSE

Considering that the decision of the CA does not express any justification other than
stating that attorney's fees were being awarded to the respondents "pursuant to
paragraph 11 of Article 2208 of the New Civil Code," the award by the CA must be
set aside; otherwise, attorney's fees would be turned into a premium on the right to
litigate, which is prohibited. Moreover, attorney's fees, being in the nature of actual
damages, should be based on the facts on record and the Court must delineate the
legal reason for such award. 61

WHEREFORE, the Court AFFIRMS the judgment promulgated on March 18, 2003 in
C.A.-G.R. CV No. 53153 with respect to Civil Case No. CEB-12783 subject to the
MODIFICATION that the portion "ordering petitioners to pay the respondents the
sum of P20,000.00 as and for attorney's fees" is DELETED; and ORDERS the
petitioners to pay the costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.

[G.R. No. 215950. June 20, 2016.]

TRIDHARMA MARKETING CORPORATION, petitioner, vs. COURT OF TAX APPEALS,


SECOND DIVISION, AND THE COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION

BERSAMIN, J p:

In this special civil action for certiorari, 1 the taxpayer assails the resolutions issued
on July 8, 2014 2 and December 22, 2014 3 in CTA Case No. 8833 whereby the
Court of Tax Appeals (CTA), Second Division, granted its motion for suspension of
the collection of tax but required it to post a surety bond amounting to
P4,467,391,881.76. HTcADC

The relevant facts follow.

On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN)
from the Bureau of Internal Revenue (BIR) assessing it with various deficiency taxes
income tax (IT), value-added tax (VAT), withholding tax on compensation (WTC),
expanded withholding tax (EWT) and documentary stamp tax (DST) totalling
P4,640,394,039.97, inclusive of surcharge and interest. A substantial portion of the
deficiency income tax and VAT arose from the complete disallowance 4 by the BIR of
the petitioner's purchases from Etheria Trading in 2010 amounting to
P4,942,937,053.82. The petitioner replied to the PAN through its letter dated August
30, 2013. 5
On September 23, 2013, the petitioner received from the BIR a Formal Letter of
Demand assessing it with deficiency taxes for the taxable year ending December
31, 2010 amounting to P4,697,696,275.25, inclusive of surcharge and interest. It
filed a protest against the formal letter of demand. Respondent Commissioner of
Internal Revenue (CIR) required the petitioner to submit additional documents in
support of its protest, and the petitioner complied. 6

On February 28, 2014, the petitioner received a Final Decision on Disputed


Assessment worth P4,473,228,667.87, computed as follows: 7

Tax Type Basic Tax Surcharge Interest Total

1. IT 1,527,100,903.98 763,550,451.99 878,605,999.55


P3,169,257,355.52

2. VAT 612,723,525.25 306,361,762.63 379,049,238.36


1,298,134,526.24

3. WHT 1,679,413.14 1,048,137.84 2,727,550.98

4. DST 534,493.40 336,511.18 871,004.58

5. EWT 1,378,127.78 860,102.76 2,238,230.54

TOTAL 2,143,416,463.55 1,069,912,214.62 1,259,899,989.69 4,473,228,667.87

============= =============
============= =============

The petitioner filed with the CIR a protest through a Request for Reconsideration.
However, the CIR rendered a decision dated May 26, 2014 denying the request for
reconsideration. 8 CAIHTE

Prior to the CIR's decision, the petitioner paid the assessments corresponding to the
WTC, DST and EWT deficiency assessments, inclusive of interest, amounting to
P5,836,786.10. It likewise reiterated its offer to compromise the alleged deficiency
assessments on IT and VAT. 9

On June 13, 2014, the petitioner appealed the CIR's decision to the CTA via its so-
called Petition for Review with Motion to Suspend Collection of Tax, which was
docketed as CTA Case No. 8833 and raffled to the CTA Second Division. 10

The CTA in Division issued the first assailed resolution on July 8, 2014, stating
thusly:
In the instant case, petitioner's Financial Statements and Independent Auditor's
Report for December 31, 2013 and 2012, as identified by its witness, indicate that
the company's total equity for the year 2012 and 2013 was P955,095,301 and
P916,768,767, respectively. To yield to respondent's alleged assessment and
collection in the amount of P4,467,391,881.76 would definitely jeopardize the
normal business operations of petitioner thereby causing irreparable injury to its
ability to continue.

Moreover, considering petitioner's willingness to post bond, as manifested during


the June 19, 2014 hearing, in such reasonable amount as may be fixed by this
Court, pursuant to Section 11 of R.A. No. 1125, as amended, this Court in the
interest of substantial justice, resolves to grant petitioner's Motion.

xxx xxx xxx

WHEREFORE, considering the urgency of the action to be enjoined, petitioner's


Motion for Suspension of Collection of Tax in the amount of P4,467,391,881.76
allegedly representing its deficiency Income Tax and Value Added Tax for taxable
year 2010 is GRANTED. Provided, however, that petitioner deposits with this Court
an acceptable surety bond equivalent to 150% of the assessment or in the amount
of SIX BILLION SEVEN HUNDRED ONE MILLION EIGHTY SEVEN THOUSAND EIGHT
HUNDRED TWENTY TWO and 64/100 PESOS (P6,701,087,822.64) within fifteen (15)
days from notice hereof.

Moreover, pursuant to Supreme Court Circular A.M. No. 04-7-02-SC, otherwise


known as the "Proposed Guidelines on Corporate Surety Bonds", petitioner is hereby
ORDERED to submit the following documents with the surety bond stated above:
aScITE

1. Certified copy of a valid Certificate of Accreditation and Authority issued by


the Office of the Court Administrator;

2. Copy of the Certificate of Compliance with Circular No. 66 of the Insurance


Commission duly certified by the Insurance Commission;

3. Proof of payment of legal fees under the Rules of Court and the documentary
stamp tax (thirty centavos [P0.30] on each four pesos [P4.00] or fractional part
thereof, of the premium charged, pursuant to Section 187 Title VII of Rep. Act No.
8424) and Value Added Tax (VAT) under the National Internal Revenue Code;

4. Photocopy of the Certificate of Accreditation and Authority issued by the


Court Administrator containing the photograph of the authorized agent (after
presentation to the Clerk of Court of the original copy thereof as Copy of the
Certificate of Accreditation and Authority containing the photograph of the agent);
and
5. Secretary Certificate containing the specimen signatures of the agents
authorized to transact business with the courts.

In addition, the said bond must be a continuing bond which shall remain effective
until the above-captioned case is finally decided, resolved or terminated by this
Court without necessity of renewal on a yearly basis, or its validity being dependent
on the payment of a renewal premium pursuant to Section 177 of the Insurance
Code.

Failure to comply with the above requirements will cause the setting aside of this
Resolution granting petitioner's motion for the suspension of the collection of the
tax liability.

xxx xxx xxx

SO ORDERED. 11

The petitioner filed its Motion for Partial Reconsideration praying, among others, for
the reduction of the bond to an amount it could obtain.

On December 22, 2014, the CTA in Division issued its second assailed resolution
reducing the amount of the petitioner's surety bond to P4,467,391,881.76, which
was the equivalent of the BIR's deficiency assessment for IT and VAT. 12

Hence, the petitioner has commenced this special civil action for certiorari,
asserting: DETACa

I.

WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTED GRAVE ABUSE OF
DISCRETION IN REFUSING TO CONSIDER, AND IN COMPLETELY IGNORING, THE
PATENT ILLEGALITY OF THE ASSESSMENT THAT, UNDER LAW AND JURISPRUDENCE,
FULLY JUSTIFIED DISPENSING WITH THE REQUIREMENT OF POSTING A BOND.

II.

WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTED GRAVE ABUSE OF
DISCRETION IN IMPOSING A GARGANTUAN BOND IN THE AMOUNT OF
P4,467,391,881.76 THAT PETITIONER HAS DEMONSTRATED BY UNREFUTED
EVIDENCE TO BE FACTUALLY AND LEGALLY IMPOSSIBLE TO PROCURE.

III.

WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTED GRAVE ABUSE OF
DISCRETION IN GRANTING AN ILLUSORY RELIEF, AND IN EFFECTIVELY DENYING
PETITIONER ACCESS TO THE REMEDY PROVIDED BY LAW. UPON UNCONTRADICTED
EVIDENCE, THE IMPOSITION OF A BOND IS NOT ONLY UNJUST, BUT WILL CAUSE
IRREPARABLE INJURY UPON PETITIONER EVEN BEFORE IT IS HEARD. 13
On February 9, 2015, the Court issued a temporary restraining order 14 enjoining
the implementation of July 8, 2014 and December 22, 2014 resolutions of the CTA in
Division, and the collection of the deficiency assessments.

Issue

Did the CTA in Division commit grave abuse of discretion in requiring the petitioner
to file a surety bond despite the supposedly patent illegality of the assessment that
was beyond the petitioner's net worth but equivalent to the deficiency assessment
for IT and VAT?

Ruling of the Court

The petition for certiorari is meritorious.

Section 11 of Republic Act No. 1125 (R.A. No. 1125), 15 as amended by Republic Act
No. 9282 (RA 9282) 16 it is stated that:

Sec. 11. Who may appeal; effect of appeal. . . .

xxx xxx xxx

No appeal taken to the Court of Tax Appeals from the decision of the Collector of
Internal Revenue or the Collector of Customs shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax
liability as provided by existing law: Provided, however, That when in the opinion of
the Court the collection by the Bureau of Internal Revenue or the Commissioner of
Customs may jeopardize the interest of the Government and/or the taxpayer the
Court at any stage of the proceeding may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court. (bold emphasis supplied.) HEITAD

Clearly, the CTA may order the suspension of the collection of taxes provided that
the taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for
not more than double the amount.

The petitioner argues that the surety bond amounting to P4,467,391,881.76 greatly
exceeds its net worth and makes it legally impossible to procure the bond from
bonding companies that are limited in their risk assumptions. 17 As shown in its
audited financial statements for the year ending December 31, 2013, its net worth
only amounted to P916,768,767.00, 18 making the amount of P4,467,391,881.76
fixed for the bond nearly five times greater than such net worth.

The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within
the parameters delineated in Section 11 of R.A. 1125, as amended. The Court holds,
however, that the CTA in Division gravely abused its discretion under Section 11
because it fixed the amount of the bond at nearly five times the net worth of the
petitioner without conducting a preliminary hearing to ascertain whether there were
grounds to suspend the collection of the deficiency assessment on the ground that
such collection would jeopardize the interests of the taxpayer. Although the amount
of P4,467,391,881.76 was itself the amount of the assessment, it behoved the CTA
in Division to consider other factors recognized by the law itself towards suspending
the collection of the assessment, like whether or not the assessment would
jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in
determining the liability of the taxpayer was legal and valid. Simply prescribing such
high amount of the bond like the initial 150% of the deficiency assessment of
P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing the amount of
the bond to equal the deficiency assessment would practically deny to the
petitioner the meaningful opportunity to contest the validity of the assessments,
and would likely even impoverish it as to force it out of business.

At this juncture, it becomes imperative to reiterate the principle that the power to
tax is not the power to destroy. In Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue, 19 the Court has stressed that:

As a general rule, the power to tax is an incident of sovereignty and is unlimited in


its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who is to pay it. So potent indeed is the power that it was
once opined that the power to tax involves the power to destroy. aDSIHc

Petitioner claims that the assessed DST to date which amounts to P376 million is
way beyond its net worth of P259 million. Respondent never disputed these
assertions. Given the realities on the ground, imposing the DST on petitioner would
be highly oppressive. It is not the purpose of the government to throttle private
business. On the contrary, the government ought to encourage private enterprise.
Petitioner, just like any concern organized for a lawful economic activity, has a right
to maintain a legitimate business. As aptly held in Roxas, et al. v. CTA, et al.:

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector
"kill the hen that lays the golden egg."

Legitimate enterprises enjoy the constitutional protection not to be taxed out of


existence. Incurring losses because of a tax imposition may be an acceptable
consequence but killing the business of an entity is another matter and should not
be allowed. It is counter-productive and ultimately subversive of the nation's thrust
towards a better economy which will ultimately benefit the majority of our people.

Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of


the bond as a condition precedent to suspension of the collection applies only in
cases where the processes by which the collection sought to be made by means
thereof are carried out in consonance with the law, not when the processes are in
plain violation of the law that they have to be suspended for jeopardizing the
interests of the taxpayer. 20

The petitioner submits that the patent illegality of the assessment was sufficient
ground to dispense with the bond requirement because the CIR was essentially
taxing its sales revenues without allowing the deduction of the cost of goods sold by
virtue of the CIR refusing to consider evidence showing that it had really incurred
costs. 21 However, the Court is not in the position to rule on the correctness of the
deficiency assessment, which is a matter still pending in the CTA. Conformably with
the pronouncement in Pacquiao v. Court of Tax Appeals, First Division, and the
Commissioner of Internal Revenue, 22 a ruling that has precedential value herein,
the Court deems it best to remand the matter involving the petitioner's plea against
the correctness of the deficiency assessment to the CTA for the conduct of a
preliminary hearing in order to determine whether the required surety bond should
be dispensed with or reduced.

In Pacquiao, the petitioners were issued deficiency IT and VAT assessments for 2008
and 2009 in the aggregate amount of P2,261,217,439.92, which amount was above
their net worth of P1,185,984,697.00 as reported in their joint Statement of Assets,
Liabilities and Net Worth (SALN). They had paid the VAT assessments but appealed
to the CTA the IT assessments. Notwithstanding their appeal, the CIR still initiated
collection proceedings against them by issuing warrants of distraint or levy against
their properties, and warrants of garnishment against their bank accounts. As a
consequence, they went to the CTA through an urgent motion to lift the warrants
and to suspend the collection of taxes. The CTA in Division found the motion to
suspend tax collection meritorious, and lifted the warrant of distraint or levy and
garnishment on the condition that they post a cash bond of P3,298,514,894.35, or
surety bond of P4,947,772,341.53. They thus came to the Court to challenge the
order to post the cash or surety bond as a condition for the suspension of collection
of their deficiency taxes. In resolving their petition, the Court held and disposed:
ATICcS

Absent any evidence and preliminary determination by the CTA, the Court cannot
make any factual finding and settle the issue of whether the petitioners should
comply with the security requirement under Section 11, R.A. No. 1125. The
determination of whether the methods, employed by the CIR in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as basis.
In this regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this question is, therefore, more
sensible and proper.

For the Court to make any finding of fact on this point would be premature. As
stated earlier, there is no evidentiary basis. All the arguments are mere allegations
from both sides. Moreover, any finding by the Court would pre-empt the CTA from
properly exercising its jurisdiction and settle the main issues presented before it,
that is, whether the petitioners were afforded due process; whether the CIR has
valid basis for its assessment; and whether the petitioners should be held liable for
the deficiency taxes.

xxx xxx xxx

In the conduct of its preliminary hearing, the CTA must balance the scale between
the inherent power of the State to tax and its right to prosecute perceived
transgressors of the law, on one side; and the constitutional rights of petitioners to
due process of law and the equal protection of the laws, on the other. In case of
doubt, the tax court must remember that as in all tax cases, such scale should favor
the taxpayer, for a citizen's right to due process and equal protection of the law is
amply protected by the Bill of Rights under the Constitution. 23

Consequently, to prevent undue and irreparable damage to the normal business


operations of the petitioner, the remand to the CTA of the questions involving the
suspension of collection and the correct amount of the bond is the proper course of
action. ETHIDa

WHEREFORE, the Court GRANTS the petition for certiorari; ANNULS and SETS ASIDE
the resolutions issued on July 8, 2014 and December 22, 2014 in CTA Case No. 8833
requiring the petitioner to post a surety bond of P4,467,391,881.76 as a condition to
restrain the collection of the deficiency taxes assessed against it; PERMANENTLY
ENJOINS the enforcement of the resolutions issued on July 8, 2014 and December
22, 2014 in CTA Case No. 8833; and REQUIRES the Court of Tax Appeals, Second
Division, to forthwith conduct a preliminary hearing in CTA Case No. 8833 to
determine and rule on whether the bond required under Section 11 of Republic Act
No. 1125 may be dispensed with or reduced to restrain the collection of the
deficiency taxes assessed against the petitioner.

No pronouncement on costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.