EN BANC

[G.R. No. L-19547. January 31, 1967.]

SERAPIO DAUAN, petitioner-appellee, vs. THE SECRETARY OF AGRICULTURE AND
NATURAL RESOURCES AND THE DIRECTOR OF LANDS, respondents-appellees, SIMON
ILARDE, ROMUALDO ILARDE, LORD CALANGAN, SANTOS BAYSA and BASILIA TOMAS,
respondents-appellants.
Asterio T . Saquing for respondents-appellants.
Solicitor General for respondents-appellees.
Pedro C . Flores for petitioner-appellee.
SYLLABUS
1. ADMINISTRATIVE LAW; RULE REGARDING EXHAUSTION OF ADMINISTRATIVE
REMEDIES NOT ABSOLUTE. — While the rule of exhaustion Of administrative remedies would
indeed require an appeal to be taken to the President before resort to the courts can be made (Calo vs.
Fuertes, G. R. No. L-16537, June 29, 1962; Rellin vs. Cabigas, 109 Phil. 1128; Gamao vs. Calamba,
109 Phil. 542; Miguel vs. Reyes, 93 Phil., 542; Mari vs. Secretary, 92 Phil., 410), it is equally true that
the rule is not without exception. The rule does not apply where the question in dispute is purely a legal
one, and nothing of an administrative nature is to be or can be done (Pascual vs. Provincial Board, 106
Phil 466; Kimpo vs. Tabanar, G. R. No. L-16476, Oct. 31, 1961).
2. EVIDENCE; CONCLUSION DRAWN FROM FACTS IS CONCLUSION OF LAW. — It is a
rule now settled that the conclusion drawn from facts is a conclusion of law which the courts may
review (Alfafara vs. Mapa, 95 Phil., 125).
3. HOMESTEAD; CONVEYANCES WITHOUT PREVIOUS APPROVAL OF SECRETARY
OF AGRICULTURE AND NATURAL RESOURCES ARE VOID. — The conveyances to the
appellants, which were admittedly made without the previous approval of the Secretary of Agriculture
and Natural Resources, are void and, consequently, that appellants return the possession of the land in
question to the appellee upon the return to them of the purchase price they had paid to the appellee
(Tinio vs. Frances, 98 Phil., 32; Oliveros vs. Porciongcola, 69 Phil., 305). We do not forget, of course
that a transfer of rights without the previous approval of the Secretary of Agriculture and Natural
Resources "shall result in the cancellation of the entry and the refusal of the patent" of the appellee but
the cancellation is not automatic and as long as the Government has not chosen to act, the rights of
appellee must stand.
DECISION
REGALA, J p:
This case involves claims to 14.25 hectares of public land in Bambang, Sto. Domingo, Nueva Vizcaya.
The land was originally applied for as homestead by Jose Aquino. Upon his death, Aquino was
succeeded by his children who sold their rights to the land to the present appellee, Serapio Dauan.
Appellee himself filed an application (H.A. No. 206623) for a homestead of the land on February 14,
1935, but there is considerable dispute as to whether this application was approved by the Director of
Lands. This point became a crucial issue between the parties as appellee subsequently sold his rights to
various portions of the homestead to the appellants without securing the approval of the Secretary of
Agriculture and Natural Resources and both parties took the view that, if appellee's application had
been approved, then the transfer of rights to appellants must be approved by the Secretary; otherwise,
no such approval was necessary. Thus, it appears that on December 16, 1943, appellee sold his rights to
one-half of the land to appellant Simon Ilarde and that on July 24, 1951, he sold his rights to 4 hectares
to appellant Lord Calangan and to 3 hectares to appellant Basilia Tomas. On March 28, 1955, Calangan
and Tomas in turn sold their rights to some part of the land to Santos Baysa. These sales were all made
without the previous approval of the Secretary of Agriculture and Natural Resources. The basis of
contention of both parties is the following provision of the Public Land Act (Com. Act No. 141):
"Sec. 20. If at any time after the approval of the application and before the patent is issued, the
applicant shall prove to the satisfaction of the Director of Lands that he has complied with all
requirements of the law, but can not continue with his homestead, through no fault of his own, and
there is a bona fide purchaser for the rights and improvements of the applicant on the land, and that the
conveyance is not made for purposes of speculation, then the applicant, with the previous approval of
the Secretary of Agriculture and Commerce, may transfer his rights to the land and improvements to
any person legally qualified to apply for a homestead, and immediately after such transfer, the
purchaser shall file a homestead application to the land so acquired and shall succeed the original
homesteader in his rights and obligations beginning with the date of the approval of said application of
the purchaser. Any person who his so transferred his rights may again apply for a new homestead.
Every transfer made without the previous approval of the Secretary of Agriculture and Commerce shall
be null and void and shall result in the cancellation of the entry and the refusal of the patent." 1
The dispute arose when appellee asked the Bureau of Lands to cancel the application for free patents
which the appellants filed, covering the portions of the homestead sold to them. Appellee questioned
the validity of the sales, claiming that the agreement was that of a loan and that at any rate the supposed
sales were void for having been made without the prior approval of the Secretary of Agriculture and
Natural Resources. On the other hand, appellants maintained that their agreement with the appellee was
that of a sale and, that as the homestead application of appellee himself had not been approved by the
Director of Lands, no approval by the Secretary of the subsequent sales to them was necessary.
The Director of Lands held the transactions to be sales and sustained their validity on a finding that the
homestead application of appellee had not been approved. His decision was subsequently affirmed on
appeal by the Secretary of Agriculture and Natural Resources. Said the Secretary:
"The records . . . do not reveal that appellant's H.A. No. 206623 has ever been approved, in spite of the
fact that it was filed as early as 1935. Over the allegation of the appellant (appellee herein) that his
homestead application was approved but the records thereof were lost during the war is the verity that
there are no reconstituted records to point to such approval of application nor is there any evidence to
show that he has ever attempted to reconstitute the documents relative to the said approval.
"xxx xxx xxx
"Of course, in all these transfers none ever secured any prior approval of the Director of Lands,
required in Section 20 of the Public Land Law, as amended by Republic Act No. 1242, but it should be
noted that the said provision of law demands such approval only when transfer of rights is executed
after the approval of a homestead application and, in the present case, there is no showing that the
homestead application of the appellant, basis of the rights so transferred, had ever been approved at the
time the transfers in question were executed."
Appellee did not appeal to the President. Instead, he filed this petition for certiorari in the Court of First
Instance of Nueva Vizcaya, charging that both Director of Lands and Secretary of Agriculture and
Natural Resources gravely abused their discretion in finding that his application had not been approved
and, consequently, in ruling that prior approval of the transfers to them was not required.
The court granted appellee's petition, stating:
"The court has noticed that the past war has caused the disappearance of the prewar records of the
homestead in question, but the papers pertinent thereto presented by the petitioner are, in the opinion of
this Court, more than sufficient to bring us to a legitimate conclusion that the petitioner is a holder of a
perfected homestead entitled to grant from the government, and having said petitioner remained in the
possession for a period of more than 23 years, he is entitled to the protection of the law; the sales
application of Romualdo Ilarde is null and void with respect to the portion which embraces or includes
a portion of the homestead of the petitioner [the court having found no evidence at all that the portion
was conveyed to Romualdo Ilarde by the appellees; the free patent applications of the respondent
Simon Ilarde, Basilia Tomas and Lord Calangan, having not been previously approved by the Secretary
of Agriculture and Natural Resources are null and void, and as respondent Santos Baysa derives his
alleged rights from Basilia Tomas and Lord Calangan necessarily his application is also null and void."
Appellants asked for a reconsideration of this decision and, failing to secure one, brought this matter
before us on appeal. They contend that the decision of the Director of Lands, which was affirmed by
the Secretary of Agriculture and Natural Resources, became final for failure of the appellee to appeal to
the President, with the result that this petition for certiorari should not have been entertained.
Moreover, it is claimed that the trial court erred in ruling that appellee's application had been approved
after it had once been found by the Director and the Secretary that no such approval had been given.
While the rule of exhaustion of administrative remedies would indeed require an appeal to be taken to
the President before resort to the courts can be made, 2 it is equally true that the rule is not without
exception. For instance, the rule does not apply where the question in dispute is purely a legal one, and
nothing of an administrative nature is to be or can be done. 3
Here the question was whether from the evidence submitted by the parties it could fairly be concluded
that appellee's homestead application had been granted. Were the matter a simple process of
ascertaining from the records whether the application had been granted, we would agree with
appellants that it is a question of fact. But precisely because the records of the Bureau of Lands had
been destroyed during the war that circumstantial evidence had to be introduced and it is a rule now
settled that the conclusion drawn from the facts is a conclusion of law which the courts may review. 4
And now to the main question: Is there warrant for the lower court's conclusion that appellee's
application for a homestead had been approved? We believe there is:
First, it appears that sometime in 1936, a certain Teodocia Escobedo claimed in the Bureau of Lands
(Claim No. 103) the land in question and its improvements and contested appellee's application for this
purpose. In a decision dated January 28, 1941, dismissing the claim, the Director of Lands made a
statement from which it may fairly be inferred that appellee had been allowed to enter the land and that
his application had been granted, since under section 13 of the Public Land Act entry is allowed only
after the approval of the application.
Second, the documents entitled "Transfer of Homestead Rights," whereby appellee transferred his
rights to 4 hectares to appellant Calangan and 3 hectares to Basilia Tomas, recite in the first
"WHEREAS" that "by virtue of Homestead Application No. 206623 approved on January 28, 1941 in
accordance with Chapter IV of Com. Act No. 141, as amended, the Director of Lands allowed
SERAPIO DAUAN to enter upon, occupy, cultivate, and reside on the tract of land described as
follows . . ." Incidentally, these documents are in the form prescribed by the Bureau of Lands. The date
given (January 28, 1941) as date of approval of the application is the date of the decision in Claim No.
103.
Third, if appellee's application had not been approved then he obviously had no right to transfer to the
appellants, since as already pointed out, under section 13 of the statute, only after the approval of his
application can an applicant enter and cultivate the land being applied for.
Fourth, appellee had all qualifications prescribed by the statute 5 and the presumption is that in the
performance of his duty, the Director granted appellee's application. Indeed, section 13 of the statute
commands the Director to approve the application "upon the filing (thereof) . . . if he finds that the
application should be approved . . . and authorize the applicant to take possession of the land upon
payment of five pesos, Philippine currency, as entry fee." The fact that appellee was in possession of
the homestead at the time of the conveyances to the appellants, coupled by the lack of any thing to
show that he was not in possession of the requisite qualifications, fairly indicates that his application
had been approved by the Director of Lands.
These are circumstances strongly favoring the inference that appellee's application had been granted. In
disregarding them and in insisting instead on the presentation of the records or reconstituted records to
prove the grant of appellee's application, respondent land officials acted in excess of jurisdiction. This
is not the first time circumstantial evidence is admitted to prove the grant of official sanction. In Garcia
vs. Valera, 88 Phil. 472 (1951), the question was whether the sale of a homestead had been previously
approved by the Secretary of Agriculture and Natural Resources. The trial court held that as defendant
failed to prove that the sale was approved, the same was void. In reversing the lower court's ruling, the
Supreme Court held:
"It is significant that appellee's witness did not definitely declare that the sale in question did not carry
the requisite approval when it was presented for registration; that the appellant at least testified, and
this is uncontradicted, that he took to the office of the register of deeds of Nueva Vizcaya a letter
obtained from the Bureau of Lands in connection with his sale; and that the corresponding transfer
certificate of title (No. 3313) was issued in the name of appellant by the register of deeds of Nueva
Vizcaya in virtue of the sale made by Marcelo Uson. All these, coupled with the fact that the record
does not show any constitutional or legal ground for not approving the sale in question and with the
legal presumptions that official duty has been regularly performed and the law has been obeyed, fairly
lead to the conclusion that the sale from Marcelo Uson to the appellant was made in conformity with
Commonwealth Act No. 456 . . ."
We hold therefore that the conveyances to the appellants, which were admittedly made without the
previous approval of the Secretary of Agriculture and Natural Resources, are void and, consequently,
that appellants return the possession of the land in question to the appellee upon the return to them of
the purchase price they had paid to the appellee. 6 We do not forget, of course, that a transfer of rights
without the previous approval of the Secretary of Agriculture and Natural Resources "shall result in the
cancellation of the entry and the refusal of the patent" of the appellee but the cancellation is not
automatic and as long as the Government has not chosen to act, the rights of appellee must stand. 7
Wherefore, the decision appealed from is affirmed, without pronouncement as to costs.
Concepcion, C . J ., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J. P., Zaldivar, Sanchez and Ruiz
Castro, JJ ., concur.
Footnotes
1. The power to approve transfer of rights under Section 20 is now given to the Director of Lands.
See Rep. Act No. 1242.
2. E.g. Calo vs. Fuertes, G.R. No. L-16537, June 29, 1962. See also Rellin vs. Cabigas, G.R. L-
15926, Oct. 31, 1960; Gamao vs. Calamba, G.R. L-13349, Sept. 30, 1960; Miguel vs. Reyes, 93 Phil.
542; Mari vs. Secretary, 92 Phil. 410.
3. Pascual vs. Provincial Board, G.R. L-11959, Oct. 31, 1959. Nor does the rule apply to a party
who claims the land in dispute as his private property. Kimpo vs. Tabanar, G.R. L-16476, Oct. 31,
1961.
4. Alfafara vs. Mapa, 95 Phil. 125, 133 (1954).
5. Section 12 of the Public Land Act provides:
"Any citizen of the Philippines over the age of eighteen years, or the head of a family,
who does not own more than twenty-four hectares of land in the Philippines or has not had the benefit
of any gratuitous allotment of more than twenty-four hectares of land since the occupation of the
Philippines by the United States, may enter a homestead of not exceeding twenty-four hectares of
agricultural land of the public domain."
6. Tinio vs. Frances, 98 Phil. 32 (1955); Oliveros vs. Porciongcola, 69 Phil. 305 (1940).
7. See Villacorta vs. Ulanday, 73 Phil. 655 (1942); Eugenio vs. Perdido, 97 Phil. 41 (1955).
EN BANC
[G.R. No. L-13115. February 29, 1960.]
TRINIDAD DE LOS REYES VDA. DE SANTIAGO, for herself and in behalf of her minor children,
MAMERTO, LEONILA and ANDREA, all surnamed SANTIAGO, petitioner, vs. ANGELA S.
REYES and WORKMEN'S COMPENSATION COMMISSION, respondents.
Carlos E. Santiago for petitioners.
Engracio Rafanan for respondent Commission.
SYLLABUS
1. WORKMEN'S COMPENSATION; DEATH OF JEEPNEY DRIVER BEYOND REGULAR
ROUTE; PRESUMPTION THAT DEATH OCCURRED BY REASON OF AND IN THE COURSE
OF EMPLOYMENT. — The deceased in the case at bar was the driver of a jeepney operated by
respondent. He was last seen operating the said jeepney on a certain day, and the following day his
dead body was found in the province of Quezon, obviously a victim of murder. The route of the
jeepney driven by the deceased was within Manila and suburbs, and the Workmen's Compensation
Commission, in denying the claim for compensation filed by the heirs of the deceased, stated that there
was nothing in the record which justified the presumption that the deceased was forcibly taken away, at
the point of a gun or a knife, from his regular orbit of employment. Held: Section 69, par. (q), Rule 123
of the Rules of Court, establishes the presumption that "the ordinary course of business has been
followed," There is no question that immediately before leaving Manila the deceased was engaged in
his employment. The presumption is that he performed his duties legally and in accordance with the
rules and regulations, because that was his regular obligation. It was incumbent upon respondent to
prove that the deceased voluntarily went out of his route and drove his jeepney towards the province of
Quezon. In the absence of evidence to that effect, it must be concluded that the deceased was forced by
circumstances beyond his will to go outside his ordinary route. There being a presumption under the
provisions of Section 43 of the Workmen's Compensation Act that the deceased died while in the
course of his employment, his death must be presumed to have arisen out of said employment.
Consequently, his heirs are entitled to receive the compensation provided for by law.
DECISION
LABRADOR, J p:
This is a petition to review the decision of the majority of the members of the Workmen's
Compensation Commission, denying a claim for compensation of petitioners for the death of Victorio
Santiago, driver of a jeepney operated by the respondent. The said deceased was the driver of an
autocalesa belonging to respondent and was last seen operating said autocalesa at 9:00 in the evening of
September 26, 1955. In the morning of September 27, 1955, his dead body was found in Tayabas,
Quezon obviously a victim of murder by persons who were at large and whose identities were not
known. Apparently the driver must have been attacked with blunt instrument or instruments as an
examination of his head disclosed that it was heavily fractured, fragmenting it into many pieces,
crushing and lacerating the brain. (Stipulation of Facts). Other pertinent facts in the stipulation of facts
submitted by the parties are as follows:
"That there is a specific instruction given by the respondent to the deceased to follow the route
prescribed by the Public Service Commission. In the case of jeep driven by the deceased, its route is
within Manila and suburbs;
That it has always been the practice of the respondent that, whenever the driver is accepted, specific
instruction is given to him to follow faithfully the traffic rules and regulations, especially speeding and
overloading, and he is requested also not to operate beyond the route given by the Public Service
Commission. In case the driver goes beyond the route prescribed by the Public Service Commission, a
fine of P50.00 is imposed which is paid by the respondent. However, in case of the traffic violations
especially speeding, it is the driver who pays." (p. 2, Annex "E").
Two of the members of the Commission made the following finding on the question as to whether or
not the death of Victoriano Santiago arose out of and was occasioned in the court of his employment.
"There is nothing in the record which justified the assumption that he was forcibly taken away, at the
point of a gun or a knife from his regular orbit of employment. The most that may be conceded,
however remote it seems, is the possibility that, to use the referee's own word, "he, the driver, might
have been lured," by his assassins to get away from his regular route, only to be robbed of his earnings,
the jeep, and, which is the most important, his life. But this only demonstrates the voluntariness of his
act of going out to the ordinary way of fulfilling his assigned job. It only adds to the inevitable
conclusion that he went with his attackers in disregard not only of the instructions or orders of his
employer but also of the rules and regulations of the Public Service Commission, which rules
undeniably should be regarded as having the force of law, having been set by authorities for the
observance of those to whom they are addressed, this deceased driver not excluded. If there is any
material finding that is to be made out in this case, it is that the drivers act in deviating from the route
prescribed for his observance constituted a positive factor in bringing about his own demise. His
departure from the route where his employment only required him to be, in fact, brought him to an area
fraught with extra risks or hazards not foreseeably and ordinary attached to the employment for which
he was hired.
This Commission finds that the deceased willfully violated public service rules and regulations and the
instructions of his employer in undertaking a trip too far beyond the limits of the line in which his
jeepney was authorized to operate. And with this as the basis, the correct determination of the second
issue can be reached upon consideration of the following precedents: . . .." (pp. 5-6, Annex "E").
Associate Commissioner Nieves Baens del Rosario dissented from the opinion of the majority. She
says in part:
"In connection with the 'arising out of and in the course of employment' requirement in relation to the
presumptions in favor of the employee, Larson makes this comment:
'The burden of proving his cases beyond speculation and conjecture is on the claimant. He is aided in
some jurisdiction by presumptions that help to supply the minimum evidence necessary to support an
award, and which shift the burden to the defendant when some connection of the injury with the work
has been prove.' (p. 232, W/O.S. by Larson, Vol. 2)
And in this jurisdiction where such presumptions in favor of the employee are provided in our
Workmen's Compensation Act, our Supreme Court in the aforecited Batangas Transportation case
ruled:
'Our position is that once it is proved that the employee died in the course of the employment, the legal
presumption in the contrary, is that the claim comes within the provisions of the compensation law
(Sec. 44). In other words, that accident arose out of the workmen's employment (2-A).'
Another presumption created in favor of the employee and which is more specific than the all
embracing presumption that the claim comes within the provisions of 'the Act' is that one provided in
sub-section 3 of Section 44. It reads: '3. That the injury was not occasioned by the willful intention of
the injured employee to bring about the injury or death of himself or of another.' This presumption
arises from the natural rule, against suicides and once the presumption is established, the burden of
proof shifts to the employer. He is, under the Workmen's Compensation Act, required to present
'substantial evidence' to overcome such presumption.
In the case of Travellers Insurance Company vs. Cardillo, 140 F-2d 10 (1943) the court stated:
'The evidence necessary to overcome the presumption then must do more than create doubt or set up
non-compensable alternative explanations of the accident. It must be 'evidence such as a reasonable
mind must accept as adequate to support a conclusion.'
No such evidence was presented by the herein respondent.
In explanation of this policy, the Court held in the same Batangas Transportation case:
'It is not unfair; the employer has the means and the facilities to know the cause; and should not be
allowed to profit by concealing it. Nay, he should take active steps to ascertain the cause of the murder;
not just continue its operations unmolested.'
And in the case of Travellers Insurance Co. cited above the following reason was given:
'The death of the employee usually deprives the dependent of his best witness — the employee himself
— and, especially where the accident is unwitnessed, some latitude should be given the claimant.
Hence, presumptions or inference that an unwitnessed death arose out of the employment are allowed
in some jurisdictions, where the employer provides no contrary proof, and when last seen deceased was
working or had properly recessed.'
Here, the respondent employer has not provided any contrary proof, and Santiago when he was last
seen doing his regular work of driving . . ." (pp: 14-16, Annex "G").
Section 43 of the Workmen's Compensation Act, as amended by Section 24 of Republic Act 772,
establishes the following presumptions:
"In any proceeding for the enforcement of the claim for compensation under this Act, it shall be
presumed in the absence of substantial evidence to the contrary —
1. That the claim comes within the provisions of this Act;
2. That sufficient notice thereof was given;
3. That the injury was not occasioned by the willful intention of the injured employee to bring
about the injury or death of himself or of another;
4. That the injury did not result solely from the intoxication of the injured employee while on
duty; and
5. That the contents of verified medical and surgical reports introduced in evidence by claimants
for compensation are correct."
The decision of the majority of the members of the Commission reasons out that the deceased had
received specific instructions not to operate beyond the route given by the Public Service Commission
(only within the city of Manila), and his act in getting outside of the city was his free and voluntary act,
because he disregarded the orders of his employer as well as the rules and regulations of the Public
Service Commission. The majority concludes that the deceased willfully violated Public Service
Commission rules and regulations and, therefore, death did not arise out of or by reason of his
employment.
The flaw in the above reasoning of the majority is that it violates the presumption expressly laid down
by the following provision of Section 69, par. (q), rule 123, Rules of Court:
"The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome
by other evidence:
xxx xxx xxx
(q) That the ordinary course of business has been followed;
xxx xxx xxx
There is no question that immediately before leaving Manila the deceased was engaged in his
employment. The presumption is that he performed his duties legally and in accordance with the rules
and regulations, because that was his regular obligation.
Inasmuch as the law established the presumption that the deceased followed the law and regulations, it
was incumbent upon respondent to prove that he did otherwise, or that he failed to comply with the
regulations. In other words it was incumbent upon the respondent herein to prove that the deceased
voluntarily went out of his route and drove his jeepney towards the province of Quezon, not that the
deceased voluntarily went to that province thereby going beyond the route provided for the vehicle that
he was driving.
Petitioners claim that the deceased voluntarily went out of his ordinary route. Petitioners also have the
obligation to prove this fact, this being an affirmative allegation. They failed to do so.
There being no such evidence submitted by the respondent, i.e., that the going of the deceased to
Quezon province was made voluntarily by him, we must conclude, pursuant to the presumption that
every person performs his duty or obligation, that he was forced by circumstances beyond his will to go
outside his ordinary route; in other words that while driving in the city he must have been forced to go
out and drive to the province of Quezon on the threats of the malefactors guilty of assaulting and killing
him against his (deceased) will.
In the case of Batangas Transportation Co. vs. Josefina de Rivera, et al., G. R. No. L-7658, prom. May
8, 1956, decided by this Court, in which a driver of a bus, while so driving was suddenly attacked by
his assailant who boarded the bus and thereafter stabbed him, the majority of this Court held that the
driver died in the course of his employment even if there were indications (not sufficient to prove) that
there was personal animosity between the assailant and the victim, which may have caused the assault.
In said case the reason for the decision of this Court was that circumstances or indications show that the
deceased died while driving the bus, thus that his death must have been due to his employment.
The present case is stronger than the above-cited case of Batangas Transportation Co. vs. de Rivera, for
while in said previous case there were indications which showed personal animosities which may have
been the root cause of the assault, in the case at bar, there are no such indications. On the other hand,
there is a presumption that the deceased died while in the course of his employment, and therefore his
death must be presumed to have arisen out of said employment.
We, therefore, find that the decision of the majority which has been appealed from is not in consonance
with the law and the express provision of Section 43 of the Workmen's Compensation Law; and that by
reason of such express provision of the law, we must hold that Victoriano Santiago died by reason of
and in the course of his employment and consequently his heirs are entitled to receive the compensation
provided for by law in such cases.
Decision rendered by the court below is hereby set aside, and respondent is hereby ordered to pay the
compensation due the heirs under the law. Without costs. So ordered.
Parás, C. J. Bengzon, Bautista Angelo, Reyes, J. B. L., Endencia, Barrera and Gutiérrez David, JJ.,
concur.
EN BANC
[G.R. No. L-21335. December 17, 1966.]
ABOITIZ SHIPPING CORPORATION, petitioner, vs. VIVENCIA ANDO PEPITO, and the Minors,
LOLITA, ALBERTO, NELSON, MARYLEN and MARIA, all surnamed PEPITO, represented by
their mother, VIVENCIA ANDO PEPITO, respondents.
P. B. Uy, Calderon, for petitioner.
G. C. Ariesgado for respondents.
SYLLABUS
1. WORKMEN'S COMPENSATION COMMISSION; NON-CONTROVERSION OF CLAIM
OF COMPENSATION, EFFECT OF; CASE AT BAR, FACT OF DEATH NOT ADMITTED. —
Non-controversion in workmen's compensation cases, as in the case of pleadings in ordinary civil
cases, means admission of fact, not conclusions of law. In the case at bar, the mere failure to controvert
the statement in the notice and claim for compensation that "the herein deceased was lost or reported
missing" at sea while the vessel was navigating, does not import an admission that the man is actually
dead, but that he was just lost or missing.
2. ID.; DEATH COMPENSATION AWARD NULL WITHOUT INQUIRY INTO FACT OF
DEATH; EMPLOYERS CONSTITUTIONAL RIGHT TO DUE PROCESS VIOLATED. — Where an
employer is directed to pay death compensation without inquiry as to the fact and circumstances of
death, the employer's right to due process enshrined in Section 1(1) of Article III of the Constitution is
violated. Because of this, the compensation award is a nullity.
3. ID.; INVESTIGATION REPORT PRESENTED EX PARTE IS HEARSAY TWICE
REMOVED; RULE IN WORKMEN'S COMPENSATION CASE. — An investigation report, which
was not brought up at any hearing, is of no value as evidence because whatever the investigator said
therein would not rise above the level of hearsay twice removed. Besides, under section 7 of the
Workmen's Compensation Law, any party in interest shall have the opportunity to examine and rebut
all ex parte evidence received by the Commissioner which should be reduced to writing.
4. ID.; EVENT ARISING OUT OF, AND IN THE COURSE OF, EMPLOYMENT. — Even
though the employee was off-duty when he disappeared on the vessel at sea, the event arose out of, and
took place in the course of, employment because the employee had no choice but to be in the vessel.
5. PRESUMPTION OF DEATH AFTER LAPSE OF FOUR YEARS; ART 391 (3), CIVIL
CODE, APPLIED; EVIDENCE OF UNKNOWN WHEREABOUTS NECESSARY. — The
disappearance of the employee, which occurred more than four years ago, falls under par. 3, Art. 391,
Civil Code, which presumes the death of a person or all purposes, including the division of estate
among his heirs, if he "has been in danger of death under other circumstances and his existence has not
been known for four years" or thereafter.
DECISION
SANCHEZ, J p:
Between the night of November 30 and the ear]y morning of December 1, 1961, Demetrio Pepito, a
crew member of M/V P. Aboitiz, disappeared therefrom while said vessel was on voyage.
On December 26, 1961, petitioner received from respondent Vivencia Ando Pepito a letter dated
December 12, 1961, stating —
"You are hereby notified that one of your employees, Mr. Demetrio Pepito, a crew member of M/V P.
Aboitiz, one of your vessels, was reported missing as per record of the Deck Log Book of the M/V P.
Aboitiz while said vessel was navigating from Surigao to Tandag. It is our belief that Mr. Pepito is
already dead. A diligent search has been made but the same is rendered futile."
On January 12, 1962, Vivencia Ando Pepito, for herself and in behalf of her children, the other
respondents, filed with Regional Office No. 8, Department of Labor, Cebu City, a notice and claim for
compensation, asking for death benefits, and describing the circumstances of the alleged death of
Demetrio Pepito on the night of November 30, 1961 in the following manner, viz: "While the vessel
was navigating from Surigao to Tandag, the herein deceased was lost or reported missing as per record
of the deck log of the M/V P. Aboitiz".
Having received on February 15, 1962 from the chief, labor operations section of said regional office, a
letter enclosing the foregoing claim, petitioner, on February 16, 1962, sent to that office the employer's
report of accident or sickness, controverting the claim for compensation and alleging that Demetrio
Pepito was found missing on December 1, 1961 and giving its own version of the incident as follows:
"Pepito disappeared while off duty, and when the vessel was near Bucas Grande Island while the ship
was in navigation on a calm sea and good weather. We do not know if he purposely jumped and swam
ashore".
On March 21, 1962, without hearing, the Regional Administrator issued an award for death benefits to
respondents, planted upon the ground that "the right to compensation of the claimant has not been
controverted by respondent within the period provided for by law".
Motion to reconsider was of no avail. Petitioner sought review from the Workmen's Compensation
Commission. In a decision dated March 8, 1963, said Commission affirmed. The reconsideration
sought was thwarted in the Commission's en banc resolution of April 5, 1963.
We are now called upon to review on certiorari the Commission's decision of March 8, 1963 and its
resolution of April 5, 1963.
1. There should be no quarrel as to the fact that petitioner came to know of the disappearance of
Demetrio Pepito on December 1, 1961. Petitioner so admits in its report of accident of sickness. And
then, on December 26, 1961 petitioner received from respondent Vivencia Ando Pepito a letter
informing it of the fact that Demetrio Pepito was reported missing on December 1, 1961, as per record
of the deck log book of M/V P. Aboitiz.
Decidedly, the purported controversion — filed on February 16, 1962 — was made beyond the periods
set forth in the law and the rules and regulations of the Workmen's Compensation Commission,
namely, 14 days from the date of accident or 10 days from knowledge thereof. 1
2. Logically the next problem we face is the scope of the non-controversion which may be
clamped upon petitioner.
By Section 2 Rule 7 of the Rules of the Workmen's Compensation Commission, "[A]ll the general
rules of procedure in the Courts of First Instance shall be suppletory to the Rules of the Workmen's
Compensation Commission but the commission shall not be bound by the technical rules of procedure".
We go deep into the recitals of the notice and claim for compensation. It simply says that while the
vessel was navigating, "the herein deceased was lost or reported missing." This claim was filed on
January 12, 1962, or barely 42 days after the event took place. At that time, no presumption existed that
Demetrio Pepito was dead. The boat was not lost. This opens up a number of possibilities. Because
nothing is certain. Nobody knows what has happened to him. He could have transferred to another
vessel or watercraft. He could even have swam to safety. Or he could have died. Or worse, he could
have taken his own life. Legal implications — such as right to compensation, succession, the legal
status of the wife — are so important that courts should not so easily be carried to the conclusion that
the man is dead. 2 The result is that death cannot be taken as a fact.
Non-controversion in compensation cases, as in the case of pleadings in ordinary civil cases, 3 simply
means admission of facts, not conclusions of law.
As applied to the case before us, the mere failure to controvert the statement that Demetrio Pepito is
believed to be "dead" or "'deceased" because he "was lost" or was "reported missing", does not import
an admission that the man is actually dead, but that he was just lost or missing.
We, therefore, rule that petitioner's non-controversion admits but the fact that Demetrio Pepito was lost
or missing, but certainly is not an admission of the actual fact of death.
3. But petitioner was directed to pay compensation without inquiry into the fact and circumstances
of death. This trenches upon petitioner's right to due process enshrined in Section 1 (1) of Article III of
the Constitution that "[N]o person shall be deprived of life, liberty, or property without due process of
law." The award having been made before petitioner was given an opportunity to be heard on the
debatable fact and circumstances of death, that award has no leg to stand on. We nullify that award as a
violation of a constitutional prescription.
4. But the Commission would want to downgrade petitioner's cry of denial of due process by a
reference to a certain investigation report dated January 12, 1962, made — barely 42 days, after the
incident — by one Anselmo M. Morales, a constabulary sergeant, to the effect that Demetrio Pepito
was "on board said boat on her maiden voyage to Tandag, Surigao del Sur; that at about 2:00 o'clock
a.m. on December 1, 1961, Francisco Ygot, a watchman on duty, noticed that Demetrio Pepito was not
in the crews' sleeping quarters; that when a thorough search of the boat failed to locate the missing
crew member, the boat's course was reversed upon instruction of its captain in order to look for him;
that because no trace of Demetrio Pepito or his body could be found, the search was abandoned and the
boat then proceeded to Tandag; and that no one knew what happened to Demetrio Pepito because he
disappeared at midnight on a rough sea (big waves)." 4 This report does not prove death. At best, it
confirms a known fact — disappearance, with the circumstance that "no one knew what happened to
Demetrio Pepito." Besides, said report was not brought up at any hearing. It was but the result of an
investigation. Whatever the investigator said would not rise above the level of hearsay twice removed.
By Section 7 of the Workmen's Compensation law "[A]ll ex parte evidence received by the
Commissioner shall be reduced to writing and any party in interest shall have the opportunity to
examine and rebut the same." Petitioner was not afforded an opportunity to as much as examine or
contradict this report. It thus results that said report is of no value as evidence.
5. The employer-employee relationship is conceded. The event arose out of, and took place in the
course of, employment. It matters not that the disappearance occurred, as alleged by petitioner, while
Demetrio Pepito was off-duty. For, that incident happened while the boat was on a sea voyage. He had
no choice. He had to be in the vessel. 5
6. From the time the event took place, i.e., from the night of November 30, 1961, to this date,
more than 4 years have elapsed. It is because of this that we approach this problem with a practical end
in view. By this time, it cannot be gainsaid that the case of the disappearance of Demetrio Pepito could
come within the coverage of paragraph 3, Article 391 of the Civil Code, which reads:
"ART. 391. The following shall be presumed dead for all purposes, including the division of estate
among the heirs:
xxx xxx xxx
(3) A person who has been in danger of death under other circumstances and his existence has not
been known for four years." 6
With the known facts namely, that Demetrio Pepito was lost or missing while the boat was navigating,
he could have been in danger of death. But of course, evidence must be taken that his existence has not
been known for four years or thereafter.
Upon the view we take of this case, we vote to set aside the appealed decision of March 8, 1963 and the
resolution of April 5, 1963, and to direct that the record hereof be returned to the Workmen's
Compensation Commission with instructions —
1. To hold a hearing, with notice to the parties, to determine (a) whether Demetrio Pepito is alive;
or (b) whether he should be presumed dead, under the provisions of paragraph 3, Article 391 of the
Civil Code; and (c) the circumstances of death if it be found or presumed that he died; and
2. To render judgment accordingly.
No costs. So ordered.
Concepcion, C. J., Reyes, J. B. L., Barrera, Dizon, Regala, Makalintal, Bengzon, J. P., Zaldivar and
Castro, JJ., concur.
Footnotes
1. Section 45, Workmen's Compensation Law; Sec. 2, Rule 5, Workmen's Compensation
Commission Rules.
 2. Article 391, Civil Code; Madrigal Shipping Co., Inc. vs. Del Rosario, et al., L-13130, October
31, 1959, citing Joaquin vs. Navarro, 93 Phil., 257, 265; Victory Shipping Lines vs. Workmen's
Compensation Commission, et al., L-9268, November 28, 1959.
3. Tec Bi & Co. vs. Chartered Bank of India, Australia and China 41 Phil., 596, 605-606;
Dalandan, et al., vs. Julio, et al., L-19101, February 29, 1964.
4. Emphasis supplied.
5. Martha Lumber Mill, Inc. vs. Lagradante, etc., et al., 99 Phil. 434, 437.
6. Art. 391(3), Civil Code, is now Sec. 5(x), par. 3(3), Rule 131, Rules of Court.
SECOND DIVISION
[G.R. No. 39919. January 30, 1934.]
FORTUNATO ORTUA, petitioner-appellant, vs. VICENTE SINGSON ENCARNACION, Secretary
of Agriculture and Commerce, ET AL., respondents-appellees.
Villafuerte, Tible & Valer for appellant.
Solicitor-General Hilado for appellees.
SYLLABUS
1. PHILIPPINE LAND LAW; DECISION OF DIRECTOR OF LANDS APPROVED BY THE
SECRETARY OF AGRICULTURE AND COMMERCE, AUTHORITATIVENESS. — The Director
of Lands has been made by law a quasi-judicial officer. As such officer he makes findings of fact, even
passes upon questions of mixed fact and law, and considers and decides the qualifications of applicants
for the purchase of public lands. The decisions of the Director of Lands on the construction of the
Public Land Law are entitled to great respect by the courts.
2. ID.; ID.; ON QUESTION OF FACT. — A decision rendered by the Director of Lands and
approved by the Secretary of Agriculture and Commerce, upon a question of fact is conclusive and not
subject to be reviewed by the courts, in the absence of a showing that such decision was rendered in
consequence of fraud, imposition, or mistake, other than error of judgment in estimating the value or
effect of evidence, regardless of whatever or not it is consistent with the preponderance of the evidence,
so long as there is some evidence upon which the finding in question could be made.
3. ID.; ID.; ON QUESTION OF LAW. — The decision of the Director of Lands approved by the
Secretary of Agriculture and Commerce on a question of law, is in no sense conclusive upon the courts,
but is subject to review. Any action of the Director of Lands which is based upon a misconstruction of
the law can be corrected by the courts.
4. ID.; ID.; QUALIFICATIONS OF APPLICATIONS TO PURCHASE PUBLIC
AGRICULTURAL LANDS; CITIZENSHIP. — One condition for the purchase of a tract of public
agricultural land provided by the Public Land Law, Act No. 2874, in its sections 23 and 88, is that the
purchaser shall be a citizen of lawful age of the Philippine Islands or of the United States. One, O, born
in the Philippines, of a Filipina mother and a Chinese father, educated in China, who returned to the
Philippines when he was twenty-one years of age, is presumptively a Philippine citizen; has not by his
own acts expressly or impliedly repudiated his Philippine citizenship and chosen Chinese citizenship,
but has always considered himself to be a Filipino and has elected to remain as a Philippine citizen,
Held: That a clear error of law resulted in not considering O a Philippine citizen and so qualified under
the Public and Law to purchase public agricultural lands.
DECISION
MALCOLM, J p:
In this case the petitioner and appellant seeks the issuance of a writ of mandamus directed against the
Secretary of Agriculture and Commerce and the Director of Lands, for the purpose of compelling them
to give due course to his sale's application for a tract of public land. The demurrers interposed to the
complaint by the respondents and appellees were sustained in the trial court, and on the failure of the
petitioner further to amend his complaint, the action was dismissed, without costs.
The principal facts admitted by the pleadings may be stated as follows: In January, 1920, the petitioner
Fortunato Ortua filed an application with the Bureau of Lands for the purchase of a tract of public land
situated in the municipality of San Jose, Province of Camarines Sur. Following an investigation
conducted by the Bureau of Lands, Ortua's application was rejected, allowing him, however, to file a
sale or lease application for the portion of the land classified to be suitable for commercial purposes,
within a period of sixty days from the date of the decision and upon payment of P3,000 for accrued
rents. Two motions for reconsideration of the decision were filed and denied. On appeal to the then
Secretary of Agriculture and Natural Resources (Agriculture and Commerce), the decision was
affirmed, except that the sum of P3,000 was reduced to P400.
It should be explained that one condition for the purchase of a tract of public agricultural land, provided
by the Public Land Law, Act No. 2874, in its sections 23 and 88, is that the purchaser shall be a citizen
of lawful age of the Philippine Islands or of the United States. Fortunato Ortua in his application stated
that he was a Filipino citizen, but the Director of Lands held that on the contrary, Ortua was a Chinese
citizen. On this question, the Director of Lands found established the following facts: Fortunato Ortua
was born in 1885 in Lagonoy, Camarines Sur, Philippine Islands, being the natural son of Irene
Demesa, a Filipina, and Joaquin Ortua, a Chinese. In 1896 Fortunato was sent to China to study. While
he was in China his father and mother were legally married. Fortunato returned to the Philippines in
1906, that is, when he was twenty-one years of age.
It was conceded by the Director of Lands that presumptively Fortunato Ortua was a Philippine citizen,
but certain acts of Ortua were pointed to as demonstrating that he had forfeited his Philippine
citizenship. Thus it was stated that Ortua voluntarily applied for a landing certificate of residence which
was issued by the Insular Collector of Customs and which is only given to Chinese persons. Also, when
Ortua applied for the registration of a boat, and it was denied by the Insular Collector of Customs on
the ground that the appellant was a Chinese citizen, Ortua submitted to the ruling.
The Director of Lands performs his functions pursuant to the provisions of the Public Land Law. In
accordance with this law, the Secretary of Agriculture and Commerce is made the executive officer
charged with carrying out the provisions of the Public Land Law, and he performs this duty through the
Director of Lands (sec. 3). Subject to the control of the executive head, the Director of Lands is by law
vested with direct executive control over land matters, "and his decisions as to questions of fact shall be
conclusive when approved by the Secretary of Agriculture and Commerce." (Sec. 4.)
The foregoing analysis of the pertinent provisions of the Public Land Law will show why in the
opening paragraphs of this decision, we accepted the decision of the Director of Lands on questions of
facts as conclusive. We would even go farther and would hold that the Director of Lands has been
made by law a quasi-judicial officer. As such officer he makes findings of fact, even passes upon
questions of mixed fact and law, and considers and decides the qualifications of applicants for the
purchase of public lands. A discretion is lodged by law in the Director of Lands which should not be
interfered with. The decisions of the Director of Lands on the construction of the Public Land Law are
entitled to great respect by the courts.
Accordingly, to paraphrase the authorities and decisions coming principally from the United States
Supreme Court, we deduce the rule on the subject to be, that a decision rendered by the Director of
Lands and approved by the Secretary of Agriculture and Commerce, upon a question of fact is
conclusive and not subject to be reviewed by the courts, in the absence of a showing that such decision
was rendered in consequence of fraud, imposition, or mistake, other than error of judgment in
estimating the value or effect of evidence, regardless of whether or not it is consistent with the
preponderance of the evidence, so long as there is some evidence upon which the finding in question
could be made. (Vargas and Mañalac, The Philippine Land Registration Law, pp. 738-740; Julian vs.
Apostol [1928], 52 Phil., 422; 50 C. J., 1089 et seq.; Johnson vs. Riddle [1916], 240 U. S., 467.)
There is, however, another side to the case. It certainly was not intended by the legislative body to
remove from the jurisdiction of courts all right to review decisions of the Bureau of Lands, for to do so
would be to attempt something which could not be done legally. Giving force to all possible
intendments regarding the facts as found by the Director of Lands, yet so much of the decision of the
Director of Lands as relates to a question of law is in no sense conclusive upon the courts, but is subject
to review. In other words, any action of the Director of Lands which is based upon a misconstruction of
the law can be corrected by the courts. (Shepley vs. Cowan [1876], 91 U. S., 330; Moore vs. Robbins
[1878], 96 U. S., 530; Marquez vs. Frisbie [1879], 101 U. S., 473; Black vs. Jackson [1900], 177 U. S.,
349; Johnson vs. Riddle, supra.)
Having adjusted this fundamental matter, it is now for the court to determine if the question of law
arising from the undisputed evidence was correctly decided by the Director of Lands. This question is,
if the petitioner Fortunato Ortua should be considered to be a Philippine citizen or a Chinese citizen.
More correctly stated, Fortunato Ortua had a sort of a dual citizenship, and had it within his power
either to elect to become a Philippine citizen or a Chinese citizen. Predicated on these assumptions, we
doubt very much if it could be found that Ortua has by his own acts repudiated his Philippine
citizenship and chosen Chinese citizenship. The Director of Lands gave too much prominence, we
think, to two minor facts, susceptible of explanation. When Ortua returned from China at the age of
twenty-one, it was the most natural thing in the world for him to land as a Chinese, for this would
facilitate entry and obviate complications. Again, when Ortua applied for the registration of a boat,
there may have been any number of reasons why he did not care to appeal from the decision of the
Insular Collector of Customs. On the other hand, some consideration should be given to the intention of
the petitioner, and he vigorously insists that it is his desire to be considered a Philippine citizen. He has
taken a Filipino name. He has gone into business and has improved the property here in question to a
great extent. There has been no implied renunciation of citizenship, because the petitioner has been
domiciled in these Islands except for a short period during his infancy when he temporarily sojourned
in China for study. On the contrary, he states that he has always considered himself to be a Filipino,
and that he has elected to remain as a Philippine citizen. Therefore, on the facts found by the Director
of Lands, we hold that clear error of law resulted in not considering petitioner a Philippine citizen and
so qualified under the Public Land Law to purchase public agricultural lands.
Sustaining the assigned errors, the order of the trial court will be set aside, and the record will be
remanded to the court of origin for further proceedings in accordance with law. No pronouncement as
to costs in this instance.
Villa-Real, Hull, Imperial, and Goddard, JJ., concur.
EN BANC
[G.R. No. L-7042. May 28, 1954.]
CLOTILDE MEJIA VDA. DE ALFAFARA, petitioner-appellant, vs. PLACIDO MAPA, in his
capacity as Secretary of Agriculture and Natural Resources, BENITA COMPANA, ET AL.,
respondents-appellees.
Mariano M. Florido for appellant.
Abundio A. Aldemita for appellees Benito Campana, et al.
Assistant Solicitor General Guillermo E. Torres and Solicitor Jaime de los Angeles for appellee Placido
Mapa.
SYLLABUS
1. PUBLIC LAND LAW; DISPOSITION OF PUBLIC LANDS; DIRECTOR OF LANDS CAN
NOT DISPOSE LAND WITHIN THE FOREST ZONE. — Where the land covered by the homestead
application of petitioner was still within the forest zone or under the jurisdiction of the Bureau of
Forestry, the Director of Lands had no jurisdiction to dispose of said land under the provisions of the
Public Land Law and the petitioner acquired no right to the land.
2. ID.; ID.; EFFECT OF CONTRACT OF LANDLORD AND TENANT EXECUTED IN GOOD
FAITH. — Even if the permit granted to petitioner's deceased husband by the Bureau of Forestry to
possess the land and work it out for his benefit was against the law and as such could have not legal
effect, yet where he had acted thereon in good faith honestly believing that his possession of the land
was legal, and had entered into a contractual relation of landlord and tenant with the respondents in
good faith, the contract had produced as a necessary consequence the relation of landlord and tenant;
therefore, his widow should be given the preference to apply for the land for homestead purposes.
3. ID.; DECISION RENDERED BY DIRECTOR OF LANDS AND APPROVED BY THE
SECRETARY OF AGRICULTURE AND NATURAL RESOURCES, CONCLUSIVE;
EXCEPTIONS. — The doctrine that "a decision rendered by the Director of Lands and approved by
the Secretary of Agriculture and Natural Resources, upon a question of fact is conclusive and not
subject to be reviewed by the courts, in the absence of a showing that such decision was rendered in
consequences of fraud, impositions, or mistake, other than error of judgment in estimating the value or
effect of evidence" does not apply to a decision of the Director of Lands which has been revoked by the
Secretary of Agriculture and Natural Resources. Even of there is unanimity in the decision, still the
doctrine would not apply if the conclusions drawn by the Secretary from the facts found are erroneous
or not warranted by law.
DECISION
BAUTISTA ANGELO, J p:
This is a petition for certiorari filed in the Court of First Instance of Cebu in which petitioner seeks to
nullify a decision rendered by the Secretary of Agriculture and Natural Resources in D.A.N.R. Case
No. 224 concerning lot No. 741 of the Carcar cadastre on the ground that he acted in excess of his
jurisdiction or with grave abuse of discretion.
It appears that petitioner and respondents filed separately with the Bureau of Lands an application
claiming as homestead lot No. 741 of the Carcar cadastre. After an investigation conducted in
accordance with the rules and regulations of said bureau, a decision was rendered in favor of petitioner
thereby giving course to her application and overruling the application and protests of respondents. In
due course, respondents appealed to the Secretary of Agriculture and Natural Resources, who reversed
the decision of the Director of Lands. And her motion for reconsideration having been denied,
petitioner interposed the present petition for certiorari.
Respondents in their answer allege that, under section 3 of the Public Land Law, the Secretary of
Agriculture and Natural Resources is the executive officer charged with the duty to carry out the
provisions of said law relative to the administration and disposition of the lands of the public domain in
the Philippines; that the decision which is now disputed by petitioner was rendered after a formal
investigation conducted in accordance with the rules and regulations of the Department of Agriculture
and Natural Resources and on the basis of the evidence adduced therein and, therefore, said Secretary
has not abused his discretion in rendering it; and that the decision of the Secretary of Agriculture and
Natural Resources on the matter is conclusive and not subject to review by the courts, in the absence of
a showing that it was rendered in consequence of fraud, imposition, or mistake other than an error of
judgment in estimating the value or effect of the evidence presented, citing in support of this contention
the case of Ortua vs. Singson Encarnacion, 59 Phil., 440.
The lower court, after the reception of the evidence, upheld the contention of respondents, and
dismissed the petition, whereupon petitioner took the case on appeal to the Court of Appeals. The case,
however, was certified to this court on the ground that the appeal involves purely questions of law.
The facts of this case as found by the Director of Lands are: By virtue of an application filed by
Maximo Alfafara, the Bureau of Forestry granted him a permit on February 1, 1923, by virtue of which
he was authorized to construct and maintain a fishpond within lot No. 741 of the Carcar cadastre. Said
permittee constructed fishpond dikes along the side of the land facing General Luna street and running
parallel to the river. Said dikes were destroyed by the flood which occurred in the same year. In 1926,
the permittee abandoned the idea of converting the land into a fishpond and, instead, he decided to
convert it into a ricefield. To this effect, the permittee entered into an agreement with respondents
whereby the latter would convert the land into a ricefield on condition that they would take for
themselves the harvests for the first three years and thereafter the crop would be divided share and
share alike between the permittee and the respondents. In 1930, the permittee ceded his rights and
interests in the land to his son, Catalino Alfafara, who continued improving the same by constructing
more rice paddies and planting nipa palms along its border. Having converted the land into a ricefield,
Catalino Alfafara filed a homestead application therefor in his name while at the same time continuing
the same arrangement with respondents as share croppers. Upon the death of Catalino Alfafara in 1945,
the respondents, after the harvest in 1946, began asserting their own right over the land and refused to
give the share corresponding to Catalino Alfafara to his widow, the herein petitioner.
The claim of respondents that they improved the land in their own right and not with permission of
petitioner's predecessors-in- interest, was not given credence by the Bureau of Lands, for its agents
found, not only from the evidence presented, but also from their ocular inspection, that the land has
been under the rightful possession of Maximo Alfafara since 1923, and that respondents were only able
to work thereon upon his permission on a share basis. By virtue of these findings of the Director of
Lands, the homestead application of petitioner was given due course.
On appeal however to the Secretary of Agriculture and Natural Resources, this official reversed the
decision of the Director of Lands invoking the ruling long observed by his department in connection
with disposition of public lands which are formerly within the forest zone or under the jurisdiction of
the Bureau of Forestry. He held that neither petitioner nor any of her predecessors-in- interest had
acquired any right under the homestead application filed by each inasmuch as the land covered by them
was still within the forest zone when applied for and that, for that reason, the Director of Lands had no
jurisdiction to dispose of said land under the provisions of the Public Land Law. He likewise held that,
inasmuch as the Alfafaras have not established any right to the land at the time they entered into the
contract with respondents to work on the land on a share basis, the relation of landlord and cropper
between them did not legally exist and as such did not produce any legal effect. Consequently, — he
held — the Alfafaras cannot be considered as landlords of respondents, and between an actual occupant
of an agricultural land which is released from the forest zone and certified as disposable under the
Public Land Law, and an applicant whose application expired prior to its certification, the actual
occupant is given preferential right thereto over the appellant.
The ruling above adverted to read as follows:
"It is the rule in this jurisdiction which has been followed consistently in the disposition of forest land
which have been declared agricultural lands that occupation of a forest land prior to the certification of
the Director of Forestry that the same is released from the forest zone and is disposable under the
provisions of the Public Land Law does not confer upon the occupant thereof the right of reference
thereto under the said law. In the same manner, this office does not give and does not recognize any
right of preference in favor of homestead applicants whose applications were filed prior to the
certification that the land covered thereby has already been released from the forest zone and is
disposable under the provisions of the Public Land Law. In other words, prior to the certification by the
Bureau of Forestry that a parcel of forest land is already released from the forest zone and is disposable
under the provisions of the Public Land Law, this Department does not recognize any right of
preference in favor of either the actual occupant thereof or any homestead applicant therefor. The
reason for this is that any permit or license issued by the Bureau of Forestry for a parcel of forest land
can not bind the Bureau of Lands to recognize any right in favor of the permittee under the provisions
of the Public Land Law; and any homestead application filed prior to the certification by the Director
of Forestry is ineffective and subject to rejection. From the time, however, that a parcel of forest land is
released from the forest zone and certified as disposable under the provisions of the Public Land Law,
the occupation of the actual occupant becomes effective and is recognized by the Public Land Law
under section 95 thereof. Also the homestead application filed prior to the certification by the Director
of Forestry will become effective from the date of the certification, if the same had not been rejected
prior to such certification. But, between the actual occupant of a parcel of agricultural land and an
applicant therefor whose application was filed prior to its certification as such by the Director of
Forestry, this office always recognizes the preferential right thereto of the actual occupant thereof. In a
long line of decisions in appealed cases, this office always maintains that agricultural lands already and
actually occupied and cultivated cannot be applied for under the homestead law except by the actual
occupant thereof." (Vicente Ruiz et al., vs. H. A. (New), Mariano Ba. Mancao, Isabela, City of
Zamboanga, decision dated April 13, 1949 and order dated July 22, 1949.)
The question now to be determined is: Has the Secretary of Agriculture and Natural Resources abused
his discretion in reversing the decision of the Director of Lands?
At the outset, it should be stated that the findings of fact made by the Director of Lands had been
substantially upheld by the Secretary of Agriculture and Natural Resources. They only differ on the
conclusions derived therefrom and on the effect upon them of the law regarding the disposition of
public lands which formerly were within the forest zone or under the jurisdiction of the Bureau of
Forestry.
Thus, the first question decided by the Secretary of Agriculture and Natural Resources is: Has
petitioner or any of her predecessors- in-interest acquired any right to the land under the provisions of
the Public Land Law? And the Secretary, following the ruling above stated, answered in the negative.
His reasoning follows: "Neither Clotilde Mejia Vda. de Alfafara nor any of her predecessors-in-interest
could acquire any right under the homestead application filed by each of them inasmuch as the land
covered thereby was still within the forest zone and that for that reason, the Director of Lands had no
jurisdiction to dispose of said land under the provisions of the Public Land Law." To this we agree, for
it appears that the land was released from the forest zone only on August 10, 1949, and the permit
granted to Maximo Alfafara to possess the land for purposes of homestead was in 1923. And with
regard to Catalino Alfafara, his son, his application was filed only in 1930.
The second question decided by the Secretary is: What is the legal effect of the contractual relation of
landlord and tenant existing between the Alfafaras and the respondents? The answer of the Secretary is:
"Considering that none of the Alfafaras has established any right whatsoever to the land in question at
the time the contractual relation began, this office is of the opinion and so holds that the relation of
landlord and cropper could not and did not produce any legal effect because the supposed landlords, the
Alfafaras, have no title or right to the land in question under the provisions of the Public Land Law. In
other words, this office cannot see how any of the Alfafaras could be considered landlord of the
claimants on the land in question when none of them has any right over said land under the Public Land
Law."
With this conclusion we disagree. Even in the supposition that the permit granted to Maximo Alfafara
by the Bureau of Forestry to possess the land and work it out for his benefit be against the law and as
such can have no legal effect, the fact however is that Maximo Alfafara has acted thereon in good faith
honestly believing that his possession of the land was legal and was given to him under and by virtue of
the authority of the law. Likewise, it cannot be reasonably disputed that when Maximo Alfafara entered
into a contract with the respondents for the conversion of the land into a ricefield with the
understanding that the respondents, as a reward for their service, would get for themselves all the
harvest for the first three years, and thereafter the harvests would be divided between them and
Maximo Alfafara share and share alike both Alfafara and respondents have acted in good faith in the
honest belief that what they were doing was legal and in pursuance of the permit granted to Alfafara
under the authority of the law. Having entered into that contractual relation in good faith no other
conclusion can be drawn than that such contract has produced as a necessary consequence the relation
of landlord and tenant so much so that the respondents worked the land only on the basis of such
understanding. And this relation continued not only when Maximo Alfafara assigned his right under the
permit to his son Catalino, but also when the latter died and his widow, the herein petitioner, took over
and continued possessing the land as successor-in-interest of her husband. And it was only in 1946,
after the death of Catalino Alfafara, that respondents got wise and taking advantage of the helplessness
of his widow, coveted the land and decided to assert their own right over it by filing their own
application for homestead with the Bureau of Lands. Such a conduct cannot be regarded as one done in
good faith and, in our opinion, cannot serve as basis for a grant of public land under the ruling invoked
by the Secretary of Agriculture and Natural Resources.
The possession therefore of the land by respondents should be considered as that of a tenant and in this
sense that possession cannot benefit them but their landlord, the widow, in contemplation of the rule.
As such, the widow should be given the preference to apply for the land for homestead purposes.
We are not unmindful of the doctrine laid down in the case of Ortua vs. Singson Encarnacion, 59 Phil.,
440, to the effect that "a decision rendered by the Director of Lands and approved by the Secretary of
Agriculture and Natural Resources, upon a question of fact is conclusive and not subject to be reviewed
by the courts, in the absence of a showing that such decision was rendered in consequence of fraud,
imposition or mistake, other than error of judgment in estimating the value or effect of evidence." But
we hold that this doctrine does not apply here because we are not concerned with a decision of the
Director of Lands which was approved by the Secretary of Agriculture and Natural Resources, but one
which has been revoked. The philosophy behind this ruling is that if the decision of the Director of
Lands on a question of fact is concurred in by the Secretary of Agriculture and Natural Resources, it
becomes conclusive upon the courts upon the theory that the subject has been thoroughly weighed and
discussed and it must be given faith and credit, but not so when there is a disagreement. 1 And even if
there is unanimity in the decision, still we believe that the doctrine would not apply if the conclusions
drawn by the Secretary from the facts found are erroneous or not warranted by law. These conclusions
can still be the subject of judicial review. These are questions of law that are reserved to the courts to
determine, as can be inferred from the following ruling laid down in the same case of Ortua:
"There is, however, another side to the case. It certainly was not intended by the legislative body to
remove from the jurisdiction of courts all right to review decisions of the Bureau of Lands, for to do so
would be to attempt something which could not be done legally. Giving force to all possible
intendments regarding the facts as found by the Director of Lands, yet so much of the decision of the
Director of Lands as relates to a question of law is in no sense conclusive upon the courts, but is subject
to review. In other words, any action of the Director of Lands which is based upon a misconstruction of
the law can be corrected by the courts." (Shirley vs. Cowan [1876], 91 U. S., 330; Moore vs. Robins
[1878], 96 U. S., 530; Marquez vs. Frisbie [1879], 101 U. S., 473; Black vs. Jackson [1900], 177 U. S.,
349; Johnson vs. Riddle, supra.)
Wherefore, the decision appealed from is reversed. The court sets aside the decision of the Secretary of
Agriculture and Natural Resources dated September 15, 1949 as well as his order dated January 3,
1950, reaffirming said decision. The court revives the decision of the Director of Lands dated March
18, 1948 and orders that it be given due course. No pronouncement as to costs.
Bengzon, Montemayor, Jugo, Labrador and Concepcion, JJ., concur.
Separate Opinions
PARAS, C.J., dissenting:
It is true that Maximo Alfafara was granted on February 1, 1923, a permit to construct and maintain a
fishpond within lot No. 741 of the Carcar cadastre, but it nevertheless appears that said permit was
cancelled in 1926 after said fishpond was destroyed by a typhoon. In said year, Maximo Alfafara
induced the respondents Benita Compana, et al., to convert the former fishpond into a riceland, the
agreement being that the crops for the first three years would be for said respondents and that thereafter
the crops would be divided equally between the former and the latter. According to the findings of the
Secretary of Agriculture and Natural Resources, not contradicted in any way by those of the Director of
Lands, Maximo Alfafara and his successors-in-interest never worked on the land or spent anything for
the improvements thereon. The question that arises is, after the land was declared available for
homestead purposes by certification of the Director of Forestry in 1949, or long after the permit of
Alfafara had been cancelled, whether the Alfafaras should be preferred to those who actually worked
on the land. After the cancellation of his permit, Maximo Alfafara ceased to have any right or authority
to continue holding the land. Yet, he was given for several years one half of the crops harvested by the
respondents who took over the land in good faith and could already occupy it in their own right. It may
fairly be considered that the original holder had impliedly parted with his rights, if any, for valuable
consideration. It is plainly unjust, under the circumstances, to deprive the respondents of their priority
to the portions of the land actually held by them as homesteads. It appears, however, that there were
occupants of the portions of the lot who did not apply for homesteads with the result that said portions
may be awarded to the Alfafaras if they are still entitled under the law.
I vote for the affirmance of the appealed decision.
Pablo, J., concurs.
Footnotes
1. This doctrine is based on section 4 of the Public Land Law. It provides that the decisions of the
Director of Lands "as to questions of fact shall be conclusive when approved by the Secretary of
Agriculture and Natural Resources)."
EN BANC
[G.R. No. 44291. August 15, 1936.]
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. AUGUSTO A. SANTOS,
defendant-appellee.
Solicitor-General Hilado for appellant.
Arsenio Santos for appellee.
SYLLABUS
1. FISHING IN ZONE PROHIBITED BY A REGULATION OF THE SECRETARY OF
AGRICULTURE AND COMMERCE; EXCESS OF REGULATORY POWERS CONFERRED BY
ACT NO. 4003 AND EXERCISE OF LEGISLATIVE POWER. — The condition clause of section 28
of Administrative Order No. 2, issued by the Secretary of Agriculture and Commerce, is null and void
and without effect, as constituting an excess of the regulatory power conferred upon him by section 4
of Act No. 4003 and an exercise of a legislative power which has not been and cannot be delegated to
him.
DECISION
VILLA-REAL, J p:
This case is before us by virtue of an appeal taken by the prosecuting attorney from the order of the
Court of First Instance of Cavite which reads as follows:
"ORDER
"When this case was called for trial for the arraignment, counsel for the accused appeared stating that
in view of the ruling laid down by this court in criminal case No. 6785 of this court, holding that the
penalty applicable is under section 83 of Act No. 4003 which falls within the original jurisdiction of the
justice of the peace court, he requests that the case be remanded to the justice of the peace court of
Cavite which conducted the preliminary investigation, so that the latter may try it, being within its
original jurisdiction.
"We agree that it falls within the jurisdiction of the corresponding justice of the peace court, but it
being alleged in the information that the infraction was committed within the waters of the Island of
Corregidor, the competent justice of the peace court is that of Corregidor, not Cavite.
"Wherefore, we decree the dismissal of this case, cancelling the bond filed by the accused, with costs
de oficio, without prejudice to the filing by the prosecuting attorney of a new information in the justice
of the peace court of Corregidor, if he so deems convenient. It is so ordered."
In support of his appeal the appellant assigns as the sole alleged error committed by the court a quo its
having dismissed the case on the ground that it does not fall within its original jurisdiction.
On June 18, 1930, the provincial fiscal of Cavite filed against the accused-appellee August A. Santos
an information which reads as follows:
"The undersigned Provincial Fiscal accuses Augusto A. Santos of violation of section 28 of Fish and
Game Administrative Order No. 2 and penalized by section 29 thereof committed as follows:
"That on or about April 29, 1935, within 1,500 yards north of Cavalry Point, Corregidor Island,
Province of Cavite, P. I., the said accused Augusto A. Santos, the registered owner of two fishing
motor boats Malabon II and Malabon III, did then and there willfully, unlawfully and criminally have
his said boats, manned and operated by his fishermen, fish, loiter and anchor without permission from
the Secretary of Agriculture and Commerce within three (3) kilometers from the shore line of the Island
of Corregidor over which the naval and military authorities of the United States exercise jurisdiction.
"Contrary to law.
"Cavite, Cavite, June 18, 1935."
Section 28 of Administrative Order No. 2 relative to fish and game, issued by the Secretary of
Agriculture and Commerce, provides as follows:
"28. Prohibited fishing areas. — No boats licensed in accordance with the provisions of Act No.
4003 and this order to catch, collect, gather, take, or remove fish and other sea products from
Philippine waters shall be allowed to fish, loiter, or anchor within 3 kilometers of the sore line of
islands and reservations over which jurisdiction is exercised by naval or military authorities of the
United States, particularly Corregidor, Pulo Caballo, La Monja, El Fraile, and Carabao, and all other
islands and detached rocks lying between Mariveles Reservation on the north side of the entrance to
Manila Bay and Calumpan Point Reservation on the south side of said entrance: Provided, That boats
not subject to license under Act No. 4003 and this order may fish within the areas mentioned above
only upon receiving written permission therefor, which permission may be granted by the Secretary of
Agriculture and Commerce upon recommendation of the military or naval authorities concerned.
"A violation of this paragraph may be proceeded against under section 45 of the Federal Penal Code."
The above quoted provisions of Administrative Order No. 2 were issued by the then Secretary of
Agriculture and Natural Resources, now Secretary of Agriculture and Commerce, by virtue of the
authority vested in him by section 4 of Act No. 4003 which reads as follows:
"SEC. 4. Instructions, orders, rules and regulations. — The Secretary of Agriculture and Natural
Resources shall from time to time issue such instructions, orders, rules and regulations consistent with
this Act, as may be necessary and proper to carry into effect the provisions thereof and for the conduct
of proceedings arising under such provisions."
The herein accused and appellee Augusto A. Santos is charged with having ordered his fishermen to
manage and operate the motor launches Malabon II and Malabon III registered in his name and to fish,
loiter and anchor within three kilometers of the shore line of the Island of Corregidor over which
jurisdiction is exercised by naval and military authorities of the United States, without permission from
the Secretary of Agriculture and Commerce.
These acts constitute a violation of the conditional clause of section 28 above quoted, which reads as
follows:
"Provided, That boats not subject to license under Act No. 4003 and this order may fish within the
areas mentioned above (within 3 kilometers of the shore line of islands and reservations over which
jurisdiction is exercised by naval and military authorities of the United States, particularly Corregidor)
only upon receiving written permission therefor, which permission may be granted by the Secretary of
Agriculture and Commerce upon recommendation of the military or naval authorities concerned."
(Within parenthesis ours.)
Act No. 4003 contains no similar provision prohibiting boats not subject to license from fishing within
three kilometers of the shore line of islands and reservations over which jurisdiction is exercised by
naval and military authorities of the United States, without permission from the Secretary of
Agriculture and Commerce upon recommendation of the military and naval authorities concerned.
Inasmuch as the only authority granted to the Secretary of Agriculture and Commerce, by section 4 of
Act No. 4003, is to issue from time to time such instructions, orders, rules and regulations consistent
with said Act, as may be necessary and proper to carry into effect the provisions thereof and for the
conduct of proceedings arising under such provisions; and inasmuch as said Act No. 4003, as stated,
contains no provisions similar to those contained in the above quoted conditional clause of section 28
of Administrative Order No. 2, the conditional clause in question supplies a defect of the law,
extending it. This is equivalent to legislating on the matter, a power which has not been and cannot be
delegated to him, it being exclusively reserved to the then Philippine Legislature by the Jones Law, and
now to the National Assembly by the Constitution of the Philippines. Such act constitutes not only an
excess of the regulatory power conferred upon the Secretary of Agriculture and Commerce, but also an
exercise of a legislative power which he does not have, and therefore said conditional clause is null and
void and without effect (12 Corpus Juris, 845; Rubi vs. Provincial Board of Mindoro, 39 Phil., 660; U.
S. vs. Ang Tang Ho, 43 Phil., 1; U. S. vs. Barrias, 11 Phil., 327).
For the foregoing considerations, we are of the opinion and so hold that the conditional clause of
section 28 of Administrative Order No. 2, issued by the Secretary of Agriculture and Commerce, is null
and void and without effect, as constituting an excess of the regulatory power conferred upon him by
section 4 of Act No. 4003 and an exercise of a legislative power which has not been and cannot be
delegated to him.
Wherefore, inasmuch as the facts with the commission of which Augusto A. Santos is charged do not
constitute a crime or a violation of some criminal law within the jurisdiction of the civil courts, the
information filed against him is dismissed, with the costs de oficio. So ordered.
Avanceña, C.J., Abad Santos, Imperial, Diaz, Recto and Laurel, JJ., concur.
EN BANC
[G.R. No. L-8987. May 23, 1957.]
JAPANESE WAR NOTES CLAIMANTS ASSOCIATION OF THE PHILIPPINES, INC., petitioner,
vs. SECURITIES AND EXCHANGE COMMISSION, respondent.
Felix B. Mintu for petitioner.
Solicitor General Ambrosio Padilla and Solicitor Jorge R. Coquia for respondent.
SYLLABUS
1. PRIVATE CORPORATIONS; JAPANESE WAR NOTES CLAIMANTS ASSOCIATION;
EXERCISE OF POWERS NOT GRANTED IN THE ARTICLES OF INCORPORATION, EFFECT
OF. — Although the articles of incorporation give petitioner the privilege to work for the redemption
of the Japanese war notes of its members alone, it can not offer its services to the public for a valuable
consideration, because there is nothing definite and tangible about the redemption of the war notes and
its success is speculative. Thus, when petitioner engaged in the business of registering war notes for
deposit upon payment of fees, and of accepting and collecting fees for reparation claims for civilian
casualties and other injuries, it acted beyond the powers embodied in its articles of incorporation.
DECISION
LABRADOR, J p:
On August 25, 1954 the Securities and Exchange Commissioner issued an order requiring petitioner
herein and its President, Mr. Alfredo Abcede, to show cause why it should not be proceeded against for
making misrepresentations to the public about the need of registering and depositing Japanese war
notes, with a view to their probable redemption as contemplated in Senate Bill No. 163 and in Senate
Concurrent Resolution No. 14, for otherwise they would be valueless. At the investigation that was
conducted in connection with the above order, the petitioner tried to show that there were no
misrepresentations made by them in their publications and that the mistake made by them (that
President Magsaysay would soon make representations to the United States Government to have the
war notes redeemed) was made in good faith as it was later retracted and rectified. They also stated that
they longed and hoped that the war notes would be redeemed; that they are sincere and honest in their
activities; and that they are entitled to their beliefs. After the investigation, in which it was disclosed
that the petitioner claimed the right to continue in the above-mentioned activities, the Commissioner
found that according to its articles the petitioner has the privilege to work for the redemption of the war
notes of its members alone, but that it can not offer its services to the public for a valuable
consideration, because there is nothing definite and tangible about the redemption of the war notes and
its success is speculative; that any authority given to offer services can easily degenerate into a racket;
that under its articles of incorporation the petitioner is a civic and non-stock corporation and should not
engage in business for profit; that it has received war notes for deposit, upon payment of fees, without
authority in its articles to do so; that it had previously been ordered to desist from collecting fees for
those registering the war notes, but notwithstanding this prohibition it has done so in the guise of
service fees. Hence the Commissioner ordered:
"(1) That the Association, and all/any of its officers, directors, employees, representatives, or agents
stop immediately the registration of Japanese War Notes, receiving the same for deposit, and charging
fees therefor. It is not, however, prohibited from admitting members, with the corresponding rights and
obligations as such.
"(2) That the Association and all/any of its officers, directors, employees, representatives, or agents,
desist forthwith from accepting and collecting fees for reparation claims for civilian casualties and
other injuries, as it is not authorized so to do under its articles of incorporation." (Order of the
Securities and Exchange Commission dated February 28, 1955.)
The case at bar is for a review of the above order. It is contended that the Commissioner erred (1) in
finding that petitioner made misrepresentations to the public so as to induce holders of war notes to
register them with petitioner, (2) in ordering the petitioner to stop the registration of Japanese war
notes, receiving same for deposit and charging fees therefore, and (3) in ordering petitioner to desist
from accepting and collecting fees for reparation claims for civilian casualties and injuries.
We are not permitted to examine the correctness of the first contention as above set forth as the same
involves questions of fact; only questions of law may be raised in this case for review (section 2, Rule
43 of the Rules of Court).
In support of the second contention it is claimed that the order was beside the issue investigated. While
it may be true that the issue which started the investigation has been the misrepresentations made to the
public by the petitioner herein, the order is based on the findings of fact made in the course of the
investigation and the prohibition stated in the order aims at the eradication of the source of the evil of
misrepresentation that was the subject of the investigation. It can not be said, therefore, that the
resultant order is not germane or related to the subject-matter of the investigation.
It is also argued that the registration of war notes and the collection of fees therefor is not prohibited by
the corporation law and the authority of the petitioner to engage therein is implied from its articles of
incorporation, the purposes of which are:
"(1) To consecrate and sanctify in a strong and militant organization in the furtherance of the
financial conditions of its members toward the attainment of their claims;
"(2) To take a position which is only secondary and complimentary to that of our constituted
government in campaigning for the welfare of our people, especially when it is to demand redemption
of currency from foreign country;
"(3) To work for, and to make due representations with the United States and Japanese
Governments, for the redemption and, or, for the future payments of the Japanese War Notes (mickey
mouse money);
"(4) To instill the ties of comradeship through this and noble gesture of goodwill between our people
and country with the people, and countries of the United States and Japan;
"(5) To do any and all acts and things which are naturally incidental on arising out of the purpose or
any others." (Petitioner's brief, pp. 57-58.)
We do not find any merit in the contention. The articles authorize collection of fees from members; but
they do not authorize the corporation to engage in the business of registering and accepting war notes
for deposit and collecting fees from such services. This was the ruling of the Commissioner and this we
find to be correct.
Neither do we find any merit in the third contention that the association has authority to accept and
collect fees for reparation claims for civilian casualties and other injuries. This is beyond any of the
powers of the association as embodied in its articles and have absolutely no relation to the avowed
purpose of the association to work for the redemption of war notes.
The order of the Securities and Exchange Commissioner was evidently promulgated under the
authority of section 1 (b) of Republic Act No. 1143 which reads:
"(b) To penalize any violation of or non-compliance with any terms of conditions of any certificate,
license, or permit issued by the Commission or of any order, decision, ruling or regulation thereof, by a
fine of not exceeding two hundred pesos per day for every day during which such violation or default
continues: and the Commission is hereby authorized and empowered to impose and collect such fine
after due notice and hearing."
The order sought to be reviewed is hereby affirmed, with costs against the petitioner. So ordered.
Bengzon, Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ.,
concur.
Reyes, A., J., concurs in the result.
FIRST DIVISION
[G.R. No. L-14280. May 30, 1960.]
JUAN YSMAEL & COMPANY, INC., petitioner, vs. THE COURT OF INDUSTRIAL RELATIONS,
THE HONORABLE JOSE S. BAUTISTA, ARSENIO I. MARTINEZ, BALTAZAR M.
VILLANUEVA, and EMILIANO C. TABIGNE, JUDGES OF THE COURT OF INDUSTRIAL
RELATIONS, and YSMAEL STEEL SALESMEN'S UNION, respondents.
Roxas & Sarmiento for petitioner.
Pascual Y. Reyes for respondent CIR.
Luis B. Mauricio for respondent Union.
Cipriano Cid as Amicus Curiae.
SYLLABUS
LABOR LAWS; CERTIFICATION AS EXCLUSIVE BARGAINING REPRESENTATIVE;
COMMISSION AGENTS AND SALES REPRESENTATIVES IN CASE AT BAR DEEMED
EMPLOYEES. — The members of the petitioning Union are commission agents or sales
representatives, whose form of selection and engagement is different from that of the employees of the
company, for unlike the latter, the commission agents are not required to undergo physical
examination, to submit a police clearance, and are not provided with identification cards. They are paid
neither wages nor salaries, but are granted commissions, the amount of which depends on their sales.
Held: The aforementioned manner of selection and engagement does not prove absence of employer-
employee relationship. Most business enterprises have employees of different classes, necessarily
requiring different methods of selection and contracts of services of various types, without detracting
from the existence of said relationship. On the other hand, the facts on record show that the members of
the petitioning Union are employees of the company within the purview of the terms "employer" and
"employee" as defined in the Industrial Peace Act. Hence, the Union can be certified as the sole and
exclusive bargaining representative of the salesman of the company.
DECISION
CONCEPCION, J p:
An appeal, taken by Juan Ysmael & Co., Inc., hereafter referred to as the Company, from an order of
the Presiding Judge of the Court of Industrial Relations, which was affirmed by the Court sitting in
banc, certifying the Ysmael Steel Salesmen's Union, hereafter referred to as the petitioning Union, as
the sole and exclusive bargaining representative of all the salesmen of the Company, with all the rights
and obligations imposed by law.
On November 27, 1957, the petitioning Union, a legitimate labor organization duly registered with the
Department of Labor, filed a petition praying for the aforesaid certification, upon the ground that it is a
labor organization composed of all the salesmen working for the Ysmael Steel Manufacturing Co.,
which is operated by the Company, as a subsidiary thereof, both of which are employers of the
aforementioned salesmen; that there are in the Company two (2) other labor unions, namely, the
Ysmael Steel Labor Organization (PAFLU), the membership of which is composed mainly of manual
factory workers (non- supervisors), and the Ysmael Steel Employees Union, the membership of which
is composed of supervisors, non-supervisors who are technical employees, office non-technical
employees and clerical factory workers, and that the members of petitioning Union are not included in
or represented by any of said two (2) unions in their collective bargaining agreement with the
Company, for the economic factors affecting the members of petitioning Union are different and they
constitute a separate and distinct union for an appropriate bargaining unit. The Company filed an
answer objecting to the petition upon several grounds, which were, in effect, overruled by the Court in
the order appealed from.
The Company assails the same as null and void for alleged want of a clear and distinct statement of the
law and facts on which it is based, in violation, it is claimed, of Article VIII, Section 12, of the
Constitution. The pertinent part of the order appealed from reads as follows:
"At the hearing of this case on February 11, March 12, 26 and May 5, 1958, the following facts appear
to have been established in evidence: That the petitioning Union is duly registered by the Department
of Labor and is, therefore, a legitimate labor organization within the meaning of Section 2(f) of the Act;
that the Company is a corporation engaged in the manufacture of steel equipment, machines, etc.,
owned and operated by the Juan Ysmael & Company, Inc.; that at the time of the instant petition for
certification was filed, there were twenty (20) salesmen or commission agents working for the
Company, but that as of March 26, 1958, only fourteen (14) of them were left; and that neither of the
two unions existing in the Company, namely the Ysmael Steel Labor Organization (PAFLU) and the
Ysmael Steel Employees' Union, represents the members of the petitioning Union in any of their
respective collective bargaining agreement with the Company.
"Furthermore, after a careful examination of the records, particularly the respective memoranda filed
by both of the petitioning Union and the Company, and after a mature consideration of all the proofs
submitted in evidence in this case by both parties, the Court believes and so holds that there exists an
employer-employee relationship between the members of the petitioning Union and the Company; that
all the salesmen working with the Company may constitute a distinct and separate appropriate unit for
bargaining purposes with the Company; and that the members of the petitioning Union constitute the
majority of the salesmen working for the Company. The certification of the petitioning Union,
therefore, as the sole and exclusive bargaining representative of all the salesmen working with the
Company is in order."
The foregoing findings constitute a substantial compliance with the constitutional mandate invoked by
the Company. In any event, this Court held in Talabon vs. Provincial Warden (78 Phil., 599; 44 Off.
Gaz. 4326) that failure to comply with said requirement of our fundamental law does not nullify or
affect the validity of the decision or order in question.
The main issue is whether the members of petitioning Union are employees of the Company, for
purposes of certification of the former as the sole and exclusive bargaining representative of all the
salesmen of the latter. The Company maintains the negative upon the ground that the members of
petitioning Union are mere commission agents or sales representatives, whose form of selection and
engagement is different from that of the employees of the Company, for unlike such employees,
commission agents are not required to undergo physical examination, to submit a police clearance, and
to punch the bundy clock, and are not provided with identification cards. It is further urged that
commission agents are paid neither wages nor salaries, but are granted commissions, the amount of
which depends on their sales, and that their conduct as agents is not subject to the control or
supervision of the Company, which, moreover, has no power of dismissal over them.
The aforementioned difference in the manner of "selection and engagement" does not prove, however,
the alleged absence of employer- employee relationship. Most business enterprises have employees of
different classes, necessarily requiring different methods of selection and contracts of services of
various types, without detracting from the existence of said relationship. Besides, the very evidence for
the Company shows that commission agents are dispensed from physical examination and from
punching the bundy clock because their duties are extraneous to the factory work and they have no
fixed hours to contact their customers.
Again, the records disclose the following facts, among others:
1. One who wishes to be a commission agent must file an application therefor. Then he is given a
two-month probationary period, within which technical men of the Company train him. On the basis of
his performance during said period, the Company, thereafter, decides whether or not he will be taken as
a regular commission agent.
2. His duties as such include the following: (a) One hundred per centum (100%) "loyalty to the
Company", and "disloyalty of any form or free-lancing for any other company during their tour of duty,
will be sufficient cause for cutting allowances and withdrawal of the authority to sell for the
Company." (b) He must check in at 8:00 a.m., to "report daily all visits made", and "any
misrepresentation with regard to coverage will be sufficient cause for cutting allowances." He was,
also, required, before, to check in at 4:00 p.m., but, subsequently, this requirement was eliminated. (c)
He "must list in his daily report all items offered to customers, plus results." (d) He "has to visit his
accounts at least twice every month", and "if he fails to visit an account within two (2) months, he shall
automatically lose any claim to his account."
3. The Company directs the details of the work of making sales, through a sales manager, under
whose authority commission agents are.
4. As the agents or salesmen report for work each morning, they are given transportation
allowances of P1.50 or P2.00 each. They have, also, a drawing allowance, the amount of which varies
depending upon past performances, deductible from future commissions.
5. The Company exercises the power of dismissal: (a) by cutting off these allowances, when the
agent makes a misrepresentation with regards to coverage or report on daily visits made, or is guilty of
disloyalty in any form or free-lancing for any other company during his tour of duty; (b) by
withdrawing the authority to sell in case of such disloyalty or free-lancing, or when an agent fails to
make any reasonably good sale within a reasonable period; and (c) by forcing him to resign for any
compelling reason, as the company has done in the case of commission agents Jose S. Esquivias,
Melecio Data and Felicidad Sinope.
6. The company has adopted the foregoing norms unilaterally — generally by the promulgation of
pertinent rules — without the intervention or consent of the agents, and without any objection on their
part. Both parties have thereby indicated that the Company has full authority to determine the manner
and conditions under which the agents shall perform their duties. In other words, the Company has
control over the conduct of its salesmen or agents. Thus, absence of any duty on their part to keep
regular office hours, submit a police clearance and punch the bundy clock, and of other additional
duties, is due, not to lack of power or authority to impose the same, but merely to a policy of the
management which deems it, for the time being, either unnecessary or inexpedient or both, owing to
the peculiar nature of the task of commission agents.
7. All sales of products of Ysmael Steel Manufacturing Company are seemingly effected through
the aforementioned salesmen or commission agents. There are no other persons, apart from the sales
manager and sales supervisor of the Company, charged with the duty to sell therefor said products.
8. The salesmen or agents in question are, according to the assistant general manager of the
Company, registered as members of the Social Security System, established by Republic Act No. 1161,
as amended by Republic Act No. 1792, sections 9 and 8(d) of which read:
xxx xxx xxx
"SEC. 9. — Compulsory coverage. — Coverage in the System shall be compulsory upon all employees
between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the
service of an employer who is a member of the System . . .."
"SEC. 8. — Terms defined. — For the purposes of this Act, the following shall, unless the context
indicates otherwise, have the following meanings:
"(d) Employee. — Any person who performs services for an 'employer' in which either or both
mental and physical efforts are used and who receives compensation for such services."
Pursuant to section 2, paragraphs (c) and (d), of Republic Act No. 875:
"An employer includes any person acting in the interest of an employer, directly or indirectly, but shall
not include any labor organization (otherwise than when acting as an employer) or anyone acting in the
capacity of officer or agent of such labor organization." (Sec. 2[c], Rep. Act No. 875.)
"The term 'employee' shall include any employee and shall not be limited to the employee of a
particular employer unless the Act explicitly states otherwise and shall include any individual whose
work has ceased as a consequence of, or in connection with, any current labor dispute or because of any
unfair labor practice and who has not obtained any other substantially equivalent and regular
employment." (Sec. 2[d], id.)
In the light of the foregoing, it is our considered opinion that the lower court did not err in holding that
the members of petitioning union are employees of the Company — within the purview of the terms
"employer" and "employee" as defined in the Industrial Peace Act — for purposes of certification of
said union as the bargaining representative of its salesmen or commission agents.
It is next argued by the Company that said members of petitioning Union do not constitute a majority
of its salesmen or commission agents. This pretense is, however, contrary to the above quoted findings
of fact of the lower court, which, admittedly, are borne out by Exhibit C, a list of the salesmen or
agents affiliated to petitioning Union. Hence, said findings may not be disturbed in this proceeding for
review by certiorari. (Rule 44, Sec. 2, Rules of Court; Sec. 14, Com. Act No. 103, Philippine Refining
Co. Workers' Union vs. Philippine Refining Co., Inc., 80 Phil., 531; 45 Off. Gaz., 159). Besides,
although the Company now says that said list, Exhibit C, is not correct, the fact is that, in its answer,
filed with the lower court, it merely averred that it is "not certain" that the members of petitioning
Union constitute a majority of the salesmen or commission agents of said Company. At any rate, the
record shows that the same had twenty (20) salesmen or commission agents when this case was
instituted; that, at the time of the hearing in the lower court, there were only fourteen (14) of them
working for the Company; and that, with the exception of one (1) of them, the remaining thirteen (13)
salesmen or commission agents are members of petitioning Union, and there is no evidence to the
contrary. The Company doubts the accuracy of the finding to this effect in the order appealed from
simply because only three (3) of these salesmen or agents appeared at the aforementioned hearing.
Apart from the fact they were not required to be present at said hearing, the reluctance of employees or
agents to do anything that may antagonize the employer, or may give occasion for antagonism, is
readily understandable.
Wherefore, the order appealed from is hereby affirmed, with costs against petitioner herein, Juan
Ysmael & Co., Inc. It is so ordered.
Parás, C. J., Bengzon, Bautista Angelo, Labrador, Barrera and Gutiérrez David, JJ., concur.
340 U.S. 504, 71 S.Ct. 470, 1951 A.M.C. 411, 95 L.Ed. 483

Briefs and Other Related Documents

Supreme Court of the United States
O'LEARY, Deputy Commissioner,
v.
BROWN-PACIFIC-MAXON, Inc., et al.

No. 267.

Argued Dec. 7, 1950.

Decided Feb. 26, 1951.

Action by the Brown-Pacific-Maxon, Inc., and another, against J. J. O'Leary, Deputy Commissioner,
Fourteenth Compensation District, etc., to enjoin the enforcement of an award of compensation for the
death of one John Valak under provisions of the Longshoremen's and Harbor Workers' Compensation
Act, s 1 et seq., 33 U.S.C.A. s 901 et seq. The United States Court of Appeals for the Ninth Circuit, 182
F.2d 772, reversed a judgment of the United States District Court for the Western District of
Washington, Northern Division, John C. Bowen, J., affirming the award, and the Deputy Commissioner
brought certiorari. The Supreme Court, Mr. Justice Frankfurter, held that where employer maintained a
recreation center especially for its employees near shoreline, along which ran a channel so dangerous
for swimmers that its use was forbidden and signs to that effect erected, drowning of employee while
swimming in forbidden channel in attempt to rescue unknown man was not necessarily excluded from
coverage of Longshoremen's Compensation Act as the kind of conduct that employees engage in as
frolics of their own.

Judgment of Court of Appeals reversed and judgment of District Court affirmed.

Mr. Justice Minton, Mr. Justice Jackson, and Mr. Justice Burton, dissented.

West Headnotes

[1] KeyCite Citing References for this Headnote

413 Workers' Compensation

413VIII Injuries for Which Compensation May Be Had
413VIII(C) Injuries Arising Out of and in Course of Employment in General
413k604 k. In General. Most Cited Cases

Workmen's compensation is not confined by common law conceptions of scope of employment.

[2] KeyCite Citing References for this Headnote

413 Workers' Compensation

413VIII Injuries for Which Compensation May Be Had
413VIII(C) Injuries Arising Out of and in Course of Employment in General
413k604 k. In General. Most Cited Cases

The test of recovery under Longshoremen's Compensation Act is not a causal relation between nature
of employment of injured person and the accident, nor is it necessary that employee be engaged at time
of injury in activity of benefit to employer, but all that is required is that the obligations or conditions
of employment create the zone of special danger out of which the injury arose. Longshoremen's and
Harbor Workers' Compensation Act, §§ 1 et seq., 2(2), 33 U.S.C.A. §§ 901 et seq., 902(2).

[3] KeyCite Citing References for this Headnote

413 Workers' Compensation

413VIII Injuries for Which Compensation May Be Had
413VIII(D) Particular Causes, Circumstances, and Conditions of Injury
413VIII(D)2 Acts Done Under Direction or Permission, or in Emergency
413k627 k. Acts in Emergencies. Most Cited Cases

Where employer maintained a recreational center especially for employees near shoreline, along which
ran a channel so dangerous for swimmers that its use was forbidden and signs to that effect erected,
drowning of employee while swimming in forbidden channel in attempt to rescue unknown man was
not necessarily excluded from coverage of Longshoremen's Compensation Act as the kind of conduct
employees engage in as frolics of their own. Longshoremen's and Harbor Workers' Compensation Act,,
§§ 1 et seq., 2(2), 33 U.S.C.A. §§ 901 et seq., 902(2).

[4] KeyCite Citing References for this Headnote

15A Administrative Law and Procedure

15AV Judicial Review of Administrative Decisions
15AV(E) Particular Questions, Review of
15Ak784 Fact Questions
15Ak791 k. Substantial Evidence. Most Cited Cases

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413k1939 Review of Decision of Department, Commission, Board, Officer, or Arbitrator
413k1939.4 Sufficiency of Evidence in Support
413k1939.4(4) k. Substantial Evidence. Most Cited Cases
(Formerly 413k1939)
Deputy Commissioner's findings of fact in proceedings for compensation under Longshoremen's
Compensation Act are to be accepted unless they are unsupported by substantial evidence on the record
considered as a whole, Longshoremen's and Harbor Workers' Compensation Act, § 1 et seq., 33
U.S.C.A. § 901 et seq.; Administrative Procedure Act, § 1 et seq., 5 U.S.C.A. § 1001 et seq.

[5] KeyCite Citing References for this Headnote

170B Federal Courts

170BVII Supreme Court
170BVII(B) Review of Decisions of Courts of Appeals
170Bk452 k. Certiorari in General. Most Cited Cases
(Formerly 106k383(1))

Where Supreme Court determines that a Court of Appeals has applied an incorrect principle of law in
examining records to assess sufficiency of evidence, wise judicial administration normally counsels
remand of the cause to the Court of Appeals with instructions to reconsider the record, but where the
record was slim and relevant standard was not difficult to apply and it appeared that it would be better
to have litigation terminate immediately, Supreme Court would itself examine record to assess
sufficiency of the evidence.

[6] KeyCite Citing References for this Headnote

413 Workers' Compensation

413XVI Proceedings to Secure Compensation
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413XVI(N)7 Accident or Injury and Consequences Thereof
413k1568 k. Drowning. Most Cited Cases

Evidence supported Deputy Commissioner's finding that employee's drowning while swimming in
forbidden channel, which ran alongside recreational center maintained by employer for its employees,
in an attempt to rescue an unknown man, was compensable as having arisen out of and in course of
employment. Longshoremen's and Harbor Workers' Compensation Act, §§ 1 et seq., 2(2), 21, 33
U.S.C.A. §§ 901 et seq., 902(2), 921; Administrative Procedure Act, § 1 et seq., 5 U.S.C.A. § 1001 et
seq., 42 U.S.C.A. § 1651.

**471 *505 Mr. Morton Hollander, Washington, D.C., for petitioner.

Mr. Edward S. Franklin, Seattle, Wash., for respondent.

Mr. Justice FRANKFURTER delivered the opinion of the Court.

In this case we are called upon to review an award of compensation under the Longshoremen's and
Harbor Workers' Compensation Act. Act of March 4, 1927, 44 Stat. 1424, as amended, 33 U.S.C. s 901
et seq., 33 U.S.C.A. s 901 et seq. The award was made on a claim arising from the accidental death of
an employee of Brown-Pacific-Maxon, Inc., a government contractor operating on the island of Guam.
Brown-Pacific maintained for its employees a recreation center near the shoreline, along which ran a
channel so dangerous for swimmers that its use was forbidden and signs to that effect erected. John
Valak, the employee, spent the afternoon at the center, and was waiting for his employer's bus to take
him from the area when he saw or heard two men, standing on the reefs beyond the channel, signaling
for help. Followed by nearly twenty others, he plunged in to effect a rescue. In attempting to swim the
channel to reach the two men he was drowned.

A claim was filed by his dependent mother, based on the Longshoremen's Act and on an Act of August
16, 1941, extending the compensation provisions to certain employment in overseas possessions. 55
Stat. 622, 56 Stat. 1035, as amended, 42 U.S.C. s 1651, 42 U.S.C.A. s 1651. In due course of the
statutory procedure, the Deputy Commissioner found as a ‘fact’ that ‘at the time of his drowning and
*506 death the deceased was using the recreational facilities sponsored and made available by the
employer for the use of its employees and such participation by the deceased was an incident of his
employment, and that his drowning and death arose out of and in the course of said employment * * *.’
Accordingly, he awarded a death benefit of $9.38 per week. Brown-Pacific and its insurance carrier
thereupon petitioned the District Court under s 21 of the Act to set aside the award. That court denied
the petition on the ground that ‘there is substantial evidence * * * to sustain the compensation order.’
On appeal, the Court of Appeals for the Ninth Circuit reversed. In concluded that ‘The lethal currents
were not a part of the recreational facilities supplied by the employer and the swimming in them for the
rescue of the unknown man was not recreation. It was an act entirely disconnected from any use for
which the recreational camp was provided and not in the course of Valak's employment.’ 182 F.2d 772,
773. We granted certiorari, 340 U.S. 849, 71 S.Ct. 81, because the case brought into question judicial
review of awards under the Longshoremen's Act in light of the Administrative Procedure Act.

[1] [2] [3] The Longshoremen's and Harbor Workers' Act authorizes payment of compensation for
‘accidental injury or death arising out of and in the course of employment’. s 2(2), 44 Stat. 1425, 33
U.S.C. s 902(2), 33 U.S.C.A. s 902(2). As we read its opinion the Court of Appeals entertained the
view that this standard precluded an award for injuries incurred in an attempt to rescue persons not
known to be in the employer's service, undertaken in forbidden waters outside the employer's premises.
We think this is too restricted an interpretation of the Act. Workmen's compensation is not confined by
commonlaw conceptions of scope of employment. Cardillo v. Liberty Mutual Ins. Co., 330 U.S. 469,
481, 67 S.Ct. 801, 808, 91 L.Ed. 1028; Matter of Waters v. William J. Taylor Co., 218 N.Y. 248, 251,
112 N.E. 727, 728, L.R.A.1917A, 347. The test of recovery*507 is not a **472 causal relation between
the nature of employment of the injured person and the accident. Thom v. Sinclair, (1917) A.C. 127,
142. Nor is it necessary that the employee be engaged at the time of the injury in activity of benefit to
his employer. All that is required is that the ‘obligations or conditions' of employment create the ‘zone
of special danger’ out of which the injury arose. Ibid. A reasonable rescue attempt, like pursuit in aid of
an officer making an arrest, may be ‘one of the risks of the employment, an incident of the service,
foreseeable, if not foreseen, and so covered by the statute.’ Matter of Babington v. Yellow Taxi Corp.,
250 N.Y. 14, 17, 164 N.E. 726, 727; Puttkammer v. Industrial Comm., 371 Ill. 497, 21 N.E.2d 575.
This is not to say that there are not cases ‘where an employee even with the laudable purpose of
helping another, might go so far from his employment and become so thoroughly disconnected from
the service of his employer that it would be entirely unreasonable to say that injuries suffered by him
arose out of and in the course of his employment.’ Matter of Waters v. William J. Taylor Co., 218 N.Y.
at page 252, 112 N.E. at page 728. We hold only that rescue attempts such as that before us are not
necessarily excluded from the coverage of the Act as the kind of conduct that employees engage in as
frolics of their own.
The Deputy Commissioner treated the question whether the particular rescue attempt described by the
evidence was one of the class covered by the Act as a question of ‘fact.’ Doing so only serves to
illustrate once more the variety of ascertainments covered by the blanket term ‘fact.’ Here of course it
does not connote a simple, external, physical event as to which there is conflicting testimony. The
conclusion concerns a combination of happenings and the inferences drawn from them. In part at least,
the inferences presuppose applicable standards for assessing the simple, external facts. Yet the
standards*508 are not so severable from the experience of industry nor of such a nature as to be
peculiarly appropriate for independent judicial ascertainment as ‘questions of law.’

[4] Both sides conceded that the scope of judicial review of such findings of fact is governed by the
Administrative Procedure Act. Act of June 11, 1946, 60 Stat. 237, 5 U.S.C. s 1001 et seq., 5 U.S.C.A. s
1001 et seq. The standard, therefore, is that discussed in Universal Camera Corp. v. National Labor
Relations Board, 340 U.S. 474, 71 S.Ct. 456. It is sufficiently described by saying that the findings are
to be accepted unless they are unsupported by substantial evidence on the record considered as a whole.
The District Court recognized this standard.

[5] When this Court determines that a Court of Appeals has applied an incorrect principle of law, wise
judicial administration normally counsels remand of the cause to the Court of Appeals with instructions
to reconsider the record. Compare Universal Camera Corp. v. National Labor Relations Board, supra.
In this instance, however, we have a slim record and the relevant standard is not difficult to apply; and
we think the litigation had better terminate now. Accordingly we have ourselves examined the record to
assess the sufficiency of the evidence.

[6] We are satisfied that the record supports the Deputy Commissioner's finding. The pertinent
evidence was presented by the written statements of four persons and the testimony of one witness. It
is, on the whole, consistent and credible. From it the Deputy Commissioner could rationally infer that
Valak acted reasonably in attempting the rescue, and that his death may fairly be attributable to the
risks of the employment. We do not mean that the evidence compelled this inference; we do not
suggest that had the Deputy Commissioner decided against the claimant, a court would have been
justified in *509 disturbing his conclusion. We hold only that on this record the decision of the District
Court that the award should not be set aside should be sustained.

Reversed.

**473 Mr. Justice MINTON, with whom Mr. Justice JACKSON and Mr. Justice BURTON join,
dissenting.

Liability accrues in the instant case only if the death arose out of and in the course of the employment.
This is a statutory provision common to all Workmen's Compensation Acts. There must be more than
death and the relationship of employee and employer. There must be some connection between the
death and the employment. Not in any common-law sense of causal connection but in the common-
sense, everyday, realistic view. The Deputy Commissioner knew that, so he found as a fact that ‘at the
time of his drowning and death the deceased was using the recreational facilities sponsored and made
available by the employer for the use of its employees and such participation by the deceased was an
incident of his employment * * *.’ This finding is false and has no scintilla of evidence or inference to
support it.

I am unable to understand how this Court can say this is a fact based upon evidence. It is undisputed
upon this record that the deceased, at the time he met his death, was outside the recreational area in the
performance of a voluntary act of attempted rescue of someone unknown to the record. There can be no
inference of liability here unless liability follows from the mere relationship of employer and
employee. The attempt to rescue was an isolated, voluntary act of bravery of the deceased in no manner
arising out of or in the course of his employment. The only relation his employment had with the
attempted rescue and the following death was that his employment put him on the Island of Guam.

*510 I suppose the way to avoid what we said today in Universal Camera Corp. v. National Labor
Relations Board, supra, is to find facts where there are no facts, on the whole record or any piece of it.
It sounds a bit hollow to me for the Court, as it does, to quote from the New York case of Matter of
Waters v. William J. Taylor Co., 218 N.Y. 248, 252, 112 N.E. 727, 728, L.R.A.1917A, 347, ‘where an
employee, even with the laudable purpose of helping another, might go so far from his employment and
become so thoroughly disconnected from the service of his employer that it would be entirely
unreasonable to say that injuries suffered by him arose out of and in the course of his employment.’
This would seem to indicate that we are leaving some place for voluntary acts of the employees outside
the course of their employment for which the employer may not be liable. There surely are such areas,
but this case does not recognize them. The employer is liable in this case because he is an employer.

I would affirm the judgment of the Court of Appeals.

U.S. 1951.
O'LEARY v. BROWN-PACIFIC-MAXON, INC.
340 U.S. 504, 71 S.Ct. 470, 1951 A.M.C. 411, 95 L.Ed. 483

Briefs and Other Related Documents (Back to top)

• 1950 WL 78628 (Appellate Brief) Brief of Respondents (Nov. 27, 1950)

• 1950 WL 78627 (Appellate Brief) Brief for the Petitioner (Nov. 17, 1950)
END OF DOCUMENT
380 U.S. 359, 85 S.Ct. 1012, 1966 A.M.C. 1, 13 L.Ed.2d 895

Supreme Court of the United States

O'KEEFFE, Deputy Commissioner,
v.
SMITH, HINCHMAN & GRYLLS ASSOCIATES, INC., et al.

No. 307.

March 29, 1965.

Action by an employer and its insurer to set aside and enjoin enforcement of an award of death benefits
made under the Longshoremen's and Harbor Workers' Compensation Act as extended by the Defense
Bases Act. The United States District Court for the Middle District of Florida, 222 F.Supp. 4, affirmed
the compensation award and granted the Deputy Commissioner's motion for summary judgment, and
an appeal was taken. The United States Court of Appeals for the Fifth Circuit, 327 F.2d 1003, reversed
and set aside the award, and the Commissioner petitioned for certiorari. The Supreme Court held that
determination of Deputy Commissioner that drowning of decedent employed at defense base in South
Korea while boating on Saturday outing at lake 30 miles from jobsite arose out of and in the course of
his employment was not irrational or without substantial evidence on the record as a whole.

Reversed.

Mr. Justice Harlan, Mr. Justice Clark and Mr. Justice White dissented.

West Headnotes

[1] KeyCite Citing References for this Headnote

413 Workers' Compensation

413XVI Proceedings to Secure Compensation
413XVI(T) Review by Court
413XVI(T)12 Scope and Extent of Review in General
413k1910 k. In General. Most Cited Cases

Longshoremen's and Harbor Workers' Compensation Act sections providing for workmen's
compensation, filing of claims, presumptions, and review, limit scope of judicial review of Deputy
Commissioner's determination that a particular injury arose out of and in the course of the employment.
Longshoremen's and Harbor Workers' Compensation Act, §§ 1 et seq., 2(2), 19(a), 20(a), 21(b), 33
U.S.C.A. §§ 901 et seq., 902(2), 919(a), 920(a), 921(b); Defense Bases Act, § 1 et seq., 42 U.S.C.A. §
1651 et seq.

[2] KeyCite Citing References for this Headnote

413 Workers' Compensation

413XVI Proceedings to Secure Compensation
413XVI(T) Review by Court
413XVI(T)12A Questions of Law or Fact, Findings, and Verdict
413k1939 Review of Decision of Department, Commission, Board, Officer, or Arbitrator
413k1939.7 k. Inferences or Conclusions from Facts Proved. Most Cited Cases
(Formerly 413k1939)

Inferences drawn by the Deputy Commissioner in a proceeding on a claim under the Longshoremen's
and Harbor Workers' Compensation Act are to be accepted unless they are irrational or unsupported by
substantial evidence on the record as a whole. Longshoremen's and Harbor Workers' Compensation
Act, § 1 et seq., 33 U.S.C.A. § 901 et seq.

[3] KeyCite Citing References for this Headnote

413 Workers' Compensation

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413VIII(C) Injuries Arising Out of and in Course of Employment in General
413k607 Arising Out of Employment in General
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Cited Cases

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413VIII Injuries for Which Compensation May Be Had
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413k665 k. In General. Most Cited Cases

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413VIII Injuries for Which Compensation May Be Had
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413VIII(D)17 Place of Injury with Reference to Plant or Premises of Employer
413k710 k. In General. Most Cited Cases

The standard to be applied by the Deputy Commissioner in ruling on aclaim under the Longshoremen's
and Harbor Workers' Compensation Act does not require a causal relation between the nature of
employment and the accident, nor is it necessary that the employee be engaged at the time of the injury
in activity of benefit to his employer, but all that is required is that the obligations or conditions of
employment create a zone of special danger out of which the injury arose. Longshoremen's and Harbor
Workers' Compensation Act, § 1 et seq., 33 U.S.C.A. § 901 et seq.

[4] KeyCite Citing References for this Headnote

413 Workers' Compensation
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413VIII(D)11 Acts for Individual Purposes or Benefit of Employee
413k666 k. Deviation from Employer's Business in General. Most Cited Cases

Denial of benefits under the Longshoremen's and Harbor Workers' Compensation Act should occur
only where an employee has become so thoroughly disconnected from the service of employer that it
would be entirely unreasonable to say that injury suffered by him arose out of and in the course of his
employment, and such standard is in accord with the humanitarian nature of the act as exemplified by
statutory presumption of inclusion. Longshoremen's and Harbor Workers' Compensation Act, § 20(a),
33 U.S.C.A. § 920(a).

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Determination of Deputy Commissioner that drowning of decedent employed at defense base in South
Korea while boating on Saturday outing at lake 30 miles from jobsite arose out of and in the course of
his employment was not irrational or without substantial evidence on the record as a whole.
Longshoremen's and Harbor Workers' Compensation Act, §§ 1 et seq., 2(2), 19(a), 20(a), 21(b), 33
U.S.C.A. §§ 901 et seq., 902(2), 919(a), 920(a), 921(b); Defense Bases Act, § 1 et seq., 42 U.S.C.A. §
1651 et seq.

**1013 *359 Solicitor General Cox, Assistant Attorney General Douglas and Morton Hollander, for
petitioner.

George W. Ericksen, for respondents.

PER CURIAM.

Robert C. Ecker drowned during a Saturday outing while boating on a South Korean lake. At the time
of his death he was employed at a defense base in South Korea by the respondent, Smith, Hinchman &
Grylls Associates, a government contractor.
*360 The decedent had been hired in the United States under an oral contract the terms of which
provided that he was to be transported to South Korea at his employer's expense, remain there for two
years, and then, at his employer's expense, be transported back to the United States. The employer paid
his rent and provided him with a per diem expense allowance for each day of the year, including
weekends and holidays, to cover ‘the necessary living expenditures in the Korean economy.’ He
worked on a ‘365 day per year basis * * * subject to call to the job site at any time.’ He ‘quite often’
worked on Saturdays and Sundays and at other times outside the normal work day. The employer
considered all its employees to be ‘in the course of regular occupation from the time they leave the
United States until their return.’ The employer expected the decedent and its other employees to seek
recreation away from the job site on weekends and holidays.

Based upon the above stipulated facts, the Deputy Commissioner of the Bureau of Employees'
Compensation, United States Department of Labor, petitioner herein, determined ‘that the accident and
the subsequent death of the decedent arose out of and in the course of employment.’ 222 F.Supp. 4, 6.
He therefore awarded death benefits to the decedent's widow and a minor child in accordance with the
terms of the Longshoremen's and Harbor Workers' Compensation Act, 44 Stat. 1424, as amended, 33
U.S.C. s 901 et seq. (1958 ed.), as extended by the Defense Base Act, 55 Stat. 622, as amended, 42
U.S.C. s 1651 et seq. (1958 ed.). The employer and its insurance carrier, respondents herein, then
brought this action in the United States District Court for the Middle District of Florida to set aside and
enjoin the enforcement of this compensation award. The District Court affirmed the compensation
award and granted the **1014 Deputy Commissioner's motion for summary judgment. 222 F.Supp. 4.
*361 A panel of the Court of Appeals for the Fifth Circuit summarily reversed and set aside the award.
327 F.2d 1003. But compare the later decision of another panel of the Fifth Circuit in O'Keeffe v. Pan
American World Airways, Inc., 338 F.2d 319.

[1] The petition for writ of certiorari is granted and the judgment of the Court of Appeals is reversed.
Section 2(2) of the Act, 33 U.S.C. s 902(2) (1958 ed.), provides workmen's compensation for any
‘accidental injury or death arising out of and in the course of employment.’ Section 19(a), 33 U.S.C. s
919(a) (1958 ed.), provides for the filing of a ‘claim for compensation’ and specifies that ‘the deputy
commissioner shall have full power and authority to hear and determine all questions in respect of such
claim.’ Section 20(a), 33 U.S.C. s 920(a) (1958 ed.), provides that ‘(i)n any proceeding for the
enforcement of a claim for compensation under this chapter it shall be presumed, in the absence of
substantial evidence to the contrary * * * (t)hat the claim comes within the provisions of this chapter.’
Finally, s 21(b), 33 U.S.C. s 921(b) (1958 ed.), provides that the Deputy Commissioner's compensation
order may be suspended and set aside by a reviewing court only ‘(i)f not in accordance with law.’

In cases decided both before and after the passage of the Administrative Procedure Act, 60 Stat. 237, as
amended, 5 U.S.C. s 1001, et seq. (1958 ed.), the Court has held that the foregoing statutory provisions
limit the scope of judicial review of the Deputy Commissioner's determination that a ‘particular injury
arose out of and in the course of employment.’ Cardillo v. Liberty Mutual Ins. Co., 330 U.S. 469, 477-
478, 67 S.Ct. 801, 806, 91 L.Ed. 1028; O'Leary v. Brown-Pacific-Maxon, Inc., 340 U.S. 504, 507-508,
71 S.Ct. 470, 95 L.Ed. 622.

‘It matters not that the basic facts from which the Deputy Commissioner draws this inference are
undisputed rather than controverted. * * * It is likewise*362 immaterial that the facts permit the
drawing of diverse inferences. The Deputy Commissioner alone is charged with the duty of initially
selecting the inference which seems most reasonable and his choice, if otherwise sustainable, may not
be disturbed by a reviewing court. * * * Moreover, the fact that the inference of the type here made by
the Deputy Commissioner involves an application of a broad statutory term or phrase to a specific set
of facts gives rise to no greater scope of judicial review. * * *’ Cardillo v. Liberty Mutual Ins. Co.,
supra, 330 U.S. at 478, 67 S.Ct. at 807.

[2] The rule of judicial review has therefore emerged that the inferences drawn by the Deputy
Commissioner are to be accepted unless they are irrational or ‘unsupported by substantial evidence on
the record * * * as a whole.’ O'Leary v. Brown-Pacific-Maxon, Inc., supra, 340 U.S. at 508, 71 S.Ct. at
472.

[3] [4] The Brown-Pacific-Maxon case held that the standard to be applied by the Deputy
Commissioner does not require ‘a causal relation between the nature of employment of the injured
person and the accident. Thom v. Sinclair, (1917) A.C. 127, 142. Nor is it necessary that the employee
be engaged at the time of the injury in activity of benefit to his employer. All that is required is that the
‘obligations or conditions' of employment create the ‘zone of special danger’ out of which the injury
arose.' Id., 340 U.S. at 507, 71 S.Ct., at 472. And, borrowing from language in Matter of Waters v.
Taylor Co., 218 N.Y. 248, 252, 112 N.E. 727, 728, L.R.A.1917A, 347, the Court in Brown-Pacific-
Maxon drew the line only at cases where an employee had become ‘so thoroughly disconnected**1015
from the service of his employer that it would be entirely unreasonable to say that injuries suffered by
him arose out of and in the course of his employment.’ 340 U.S., at 507, 71 S.Ct., at 472. This standard
is in accord with the humanitarian nature of the Act as exemplified by the statutory command that ‘(i)n
any proceeding for the enforcement of a claim for compensation under this chapter*363 it shall be
presumed, in the absence of substantial evidence to the contrary * * * (t)hat the claim comes within the
provisions of this chapter.’ s 20(a), 33 U.S.C. s 920(a).

In this case, the Deputy Commissioner, applying the Brown-Pacific-Maxon standard to the undisputed
facts, concluded ‘that the accident and the subsequent death of the decedent arose out of and in the
course of employment.’ 222 F.Supp. 4, 6. The District Court, likewise applying the Brown-Pacific-
Maxon standard, held ‘that the Deputy Commissioner was correct in his finding that the conditions of
the deceased's employment created a zone where the deceased Ecker had to seek recreation under
exacting and unconventional conditions and that therefore the accident and death of the decedent arose
out of and in the course of employment.’ 222 F.Supp., at 9.

[5] We agree that the District Court correctly affirmed the finding of the Deputy Commissioner. While
this Court may not have reached the same conclusion as the Deputy Commissioner, it cannot be said
that his holding that the decedent's death, in a zone of danger, arose out of and in the course of his
employment is irrational or without substantial evidence on the record as a whole. The decedent was
hired to work in the exacting and unconventional conditions of Korea. His transportation over and back
was to be at the employer's expense, and while there he was considered to be working on a 365-day-
per-year basis, subject to call at the job site at any time, and quite often he worked Saturdays and
Sundays and at other times outside the working day. The employer considered decedent and all other
employees at this hazardous overseas base to be ‘in the course of regular occupation from the time they
leave the United States until their return.’ Finally, the employer provided neither housing nor
recreational activities for its employees, but expected them to live, while necessarily in the country to
perform its work, *364 under the exacting and dangerous conditions of Korea. The employer paid
decedent's rent and provided him with a per diem expense allowance for each day of the year, including
weekends and holidays, to cover the necessary living expenses in the Korean economy. The accident
here occurred on an outing for a short period of time on a lake located only 30 miles from the
employer's job site. In the words of the District Court, ‘It was reasonable to conclude that recreational
activities contributed to a higher efficiency of the employer's work and that when conducted in the
restricted area of employment, on a work day, so to speak, and in a manner not prohibited by the
employer, such activity was an incident of the employment.’ 222 F.Supp. 4, 9.

The dissent, while giving lip service to the Brown-Pacific-Maxon standards, would reverse the
determination of the Deputy Commissioner and District Court here, as well as the Deputy
Commissioner and the Courts of Appeals in other cases, that the several accidents involved were within
the ‘zone of special danger.’ As Brown-Pacific-Maxon made clear, it is just this type of determination
which the statute leaves to the Deputy Commissioner subject only to limited judicial review. Indeed,
this type of determination, depending as it does on an analysis of the many factors involved in the area
of the employment, would seem to be one peculiarly for the Deputy Commissioner.

The District Court therefore correctly upheld the determination of the Deputy Commissioner and the
Court of Appeals erred in summarily reversing its judgment. Cf. **1016 O'Keeffe v. Pan American
World Airways, Inc., 338 F.2d 319 (C.A.5th Cir. 1964); Pan-American World Airways, Inc. v.
O'Hearne, 335 F.2d 70 (C.A.4th Cir. 1964); Self v. Hanson, 305 F.2d 699 (C.A.9th Cir. 1962); Hastorf-
Nettles, Inc. v. Pillsbury, 203 F.2d 641 (C.A.9th Cir. 1953).

*365 Since we believe that the Deputy Commissioner and District Court properly applied the Brown-
Pacific-Maxon standard, and since we deem it necessary to preserve the integrity of the administrative
process established by Congress to effectuate the statutory scheme, the judgment of the Court of
Appeals is reversed.

Reversed.

Mr. Justice HARLAN, whom Mr. Justice CLARK and Mr. Justice WHITE join, dissenting.

Ecker was employed in Seoul, Korea, as an assistant administrative officer for Smith, Hinchman &
Grylls Associates, Inc., an engineering management concern working under contracts with the United
States and Korean Governments. His duties were restricted to Seoul where he was responsible for
personnel in the stenographic and clerical departments. He was subject to call at the job site at any
time, but the usual work week was 44 hours, and employees were accustomed to travel far from the job
site on weekends and holidays for recreational purposes. Ecker did not live at the job site; he was given
an allowance to live on the economy in Seoul. On his Memorial Day weekend he went to a lake 30
miles east of Seoul where a friend of his (not a co-employee) had a house. Ecker intended to spend the
holiday there with his friend and another visitor. Their Saturday afternoon project was to fill in the
beach in front of the house with sand, but none was readily available. In order to obtain it the three
crossed the lake in a small aluminum boat to a sandy part of the shore. There they filled the boat with a
load of sand, intending to transport it back to the house. The return trip, however, put Archimedes'
Principle to the test; in the middle of the lake the boat capsized and sank. Two of the three men
drowned, including Ecker.

*366 The Longshoremen's and Harbor Workers' Compensation Act,FN1 as extended by the Defense
Bases Act,FN2 provides workmen's compensation for any

FN1. 44 Stat. 1424, as amended, 33 U.S.C. s 901 et seq. (1958 ed.).

FN2. 55 Stat. 622, as amended, 42 U.S.C. s 1651 et seq. (1958 ed.).
‘accidental injury or death arising out of and in the course of employment, and such occupational
disease or infection as arises naturally out of such employment or as naturally or unavoidably results
from such accidental injury, and includes an injury caused by the willful act of a third person directed
against an employee because of his employment.’ 33 U.S.C. s 902(2).

The Court holds, per curiam, that Ecker died in the course of his employment. I see no meaningful
interpretation of the statute which will support this result except a rule that any decision made by a
Deputy Commissioner must be upheld (compare Rogers v. Missouri Pac. R. Co., 352 U.S. 500, 77
S.Ct. 443, 1 L.Ed.2d 493). That interpretation, although meaningful, is unsupportable.

O'Leary v. Brown-Pacific-Maxon, Inc., 340 U.S. 504, 71 S.Ct. 470, 95 L.Ed. 622, relied upon by the
Court, did not establish such a rule. The Court there upheld a compensation award arising from the
accidental death of an employee of a government contractor on the island of Guam. The employer
maintained for its employees a recreation center near the shoreline along which ran a very dangerous
channel. After spending the afternoon at the employer's recreation center, and while waiting for the
employer's bus, the employee heard cries for help from two men in trouble in the channel. He drowned
in his attempt to rescue them. Mr. Justice Frankfurter, writing for the **1017 Court, stated the standard
of coverage as:

‘All that is required is that the ‘obligations or conditions' of employment create the ‘zone of special
*367 danger’ out of which the injury arose.' 340 U.S., at 507, 71 S.Ct., at 472.

That language was intended to mean only that where the employer had placed a facility for employees
in an especially dangerous location and thus had created a danger of accidents, a ‘reasonable rescue
attempt’ could be ‘one of the risks of the employment.’ This was made crystal clear by the caveat: ‘We
hold only that rescue attempts such as that before us are not necessarily excluded from the coverage of
the Act as the kind of conduct that employees engage in as frolics of their own.’ Ibid.

He went on to state that the standard of review to be applied to the Deputy Commissioner's finding that
the employee died in the course of his employment was the same as that set out in Universal Camera
Corp. v. National Labor Relations Board, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456, for review of
Labor Board decisions. Mr. Justice Frankfurter wrote both Universal Camera and Brown-Pacific-
Maxon, and delivered the opinions on the same day. Reliance upon Universal Camera in Brown-
Pacific-Maxon shows beyond doubt that the Court was not establishing a rule that any compensation
award by a Deputy Commissioner would be automatically upheld, for it was the whole purpose of
Universal Camera to effectuate congressional intent that the courts expand their scope of review over
administrative decisions. That opinion defined judicial responsibility for examining the whole record in
Labor Board cases, and not just those parts of the record which tended to support the Board. It remains
today as the leading judicial guide for administrative review, and the most prominent directive to lower
courts not to underestimate their responsibilities in this regard. I think it untenable to read a case which
purports to apply the Universal Camera standard of review as embodying a philosophy of judicial
abdication.

*368 I read Brown-Pacific-Maxon to mean that some questions of application of ‘arising out of and in
the course of employment’ to the facts of a case will be left to the discretion of the administrator, and
review of his decision treated as review of a finding of fact. The cases in which this limited review of
the administrator's decision is appropriate are those in which one application of the statute to the
external facts of the case effectuates the judicially recognizable purpose of the statute as well as
another. Dominion over the broad or clear purposes of the statute thus remains firmly in the courts'
hands, while within the confines of such statutory purposes, administrators are left discretion to provide
the intimate particularizations of statutory application.FN3 Brown-Pacific-Maxon is illustrative. The
employee drowned in a particularly treacherous channel with which his job brought him into proximity.
The danger was not great that circumstance would force him to swim in the channel, but the danger
existed and was peculiar to the locality to which his job brought him; and it was out of this special
danger that the employee's injury arose. This, taken together with the other elements of job connection
which the administrator thought relevant, rendered an award in the case consistent with the broad
purposes of the compensation statute. Yet had the Deputy Commissioner come out the other way, I
think that his decision would have been equally supportable. Although it was true that the injury was
related to an especially dangerous channel with which the employee's job brought him into proximity,
the administrator could have ruled that the danger, although special, was so remote that the **1018
connection between the job and the injury was not sufficient to justify compensation. Either result
would have been *369 consistent with the statutory purpose of compensating all job-connected injuries
on the actual job site and, additionally, those injuries off the job site which result from the ‘special’
dangers of the employment. In the sense that both results would have been supportable, the review of
the choice actually made by the Deputy Commissioner was treated as review of a finding of fact.

FN3. See generally, Jaffe, Judicial Review: Question of Law, 69 Harv.L.Rev. 239 (1955).
In the case before us, the Deputy Commissioner's ruling is not consistent with the statutory purpose.
The injury did not take place on the actual job site, and it did not arise out of any special danger created
by the job. In no sense can it be said that Ecker's job created any ‘special’ danger of his drowning in a
lake, or more particularly, of his loading a small boat with sand and capsizing it. Nothing indicates that
the lake was rougher, the boat tippier, or the sand heavier than their counterparts in the United States. If
there were ‘exacting and unconventional conditions' in Korea it does not appear that the lake, boat, or
sand was one of them. There is nothing more than a ‘but for’ relationship between the accident and the
employment. To permit the award of compensation to stand reads the ‘job-connected’ emphasis right
out of the statute, an emphasis which is clearly there. Only injuries ‘arising out of’ the employment are
compensated. A disease or infection is covered if it arises ‘naturally out of such employment.’ Injuries
willfully inflicted by third persons upon an employee are covered only if inflicted ‘because of his
employment.’ A ‘but for’ relationship between the injury and the employment should not in itself be
sufficient to bring about coverage.

Whether the injury is compensable should depend to some degree on the cause of the injury as well as
the time of day, location, and momentary activity of the employee at the time of the accident. I would
distinguish between *370 a case in which Ecker smashed his hand in a filing cabinet while at the office
and one in which he tripped over a pebble while off on a weekend hike. In the first case Ecker's injury
would have arisen out of and in the course of his employment, whereas the statute would not apply to
the second case unless the injury were traceable to some special danger peculiar to the employment,
which was clearly not the case. Thus, if while off on that same weekend hike Ecker stepped on a mine
left over from the Korean conflict, a different result could follow.

This view of the statute makes far more sense to me than the view adopted by the Court as indicated by
the result in this case and its approving citation of such cases as Self v. Hanson, 9 Cir., 305 F.2d 699,
and Pan American World Airways, Inc. v. O'Hearne, 4 Cir., 335 F.2d 70, cert. denied 380 U.S. 950, 85
S.Ct. 1080. It is difficult to determine just what such cases stand for. In Self v. Hanson, for instance,
Miss Williams was in the company of a gentleman in a pick-up truck parked at the end of a breakwater
on Guam Island at 11 o'clock in the evening. The gentleman said that he wanted to show her a ship in
the harbor. Apparently they had been looking at it for over half an hour when the driver of another
vehicle on the breakwater lost control and ran into the pick-up truck, causing Miss Williams spinal
injuries. The Ninth Circuit upheld the Deputy Commissioner's ruling that she was injured in the course
of her employment as a secretary on a Guam defense project.

To permit compensation for such injuries is to impose absolute liability upon the employer for any and
all injuries, whatever their nature, whatever their cause, just so long as the Deputy Commissioner
makes an award and the job location is one to which the reviewing judge would not choose to go if he
had his choice of vacation spots. Before setting its stamp of approval on such an interpretation of the
statute, the Court **1019 at the very least should *371 hear argument and receive briefs on the merits.
The Solicitor General has pointed out that ‘there are several thousands of injury cases reported
annually’ under this Act. FN4 He urged that this question be definitively resolved by this Court.
Because of the importance placed by all parties upon resolution of the proper application of the Act to
these cases, and because I do not believe Brown-Pacific-Maxon, supra, dictates the Court's result, I
respectfully dissent from its decision to treat O'Keeffe v. Smith, Hinchman & Grylls Associates, Inc.,
summarily, from its decision on the merits in that case, and from its denial of certiorari in Pan-
American World Airways, Inc. v. O'Hearne, 380 U.S. 950, 85 S.Ct. 1080, and Pan American World
Airways, Inc. v. O'Keeffe, 380 U.S. 951, 85 S.Ct. 1083.

FN4. Petition for certiorari in No. 307, p. 11.

Mr. Justice DOUGLAS, dubitante.

The problems under this Act should rest mainly with the Courts of Appeals. FN* What we said in
Universal Camera Corp. v. National Labor Relations Board, 340 U.S. 474, 490, 71 S.Ct. 456, 466, 95
L.Ed. 456, of review by Courts of Appeals of decisions of the National Labor Relations Board, should
be applicable here:

FN* These problems are unlike those under the Federal Employers' Liability Act where suits can be
brought both in state and in federal courts (45 U.S.C. s 56) and where the law, poorly received by the
judiciary, has been severely eroded. See Wilkerson v. McCarthy, 336 U.S. 53, 68 et seq., 69 S.Ct. 413,
420, 93 L.Ed. 497 (concurring opinion).
‘Reviewing courts must be influenced by a feeling that they are not to abdicate the conventional
judicial function. Congress has imposed on them responsibility for assuring that the Board keeps within
reasonable grounds. That responsibility is not less real because it is limited to enforcing the
requirement that evidence appear substantial when viewed, on the record as a whole, by courts invested
with the authority and enjoying the prestige of the *372 Courts of Appeals. The Board's findings are
entitled to respect; but they must nonetheless be set aside when the record before a Court of Appeals
clearly precludes the Board's decision from being justified by a fair estimate of the worth of the
testimony of witnesses or its informed judgment on matters within its special competence or both.’

Applying that test I would not be inclined to reverse a Court of Appeals that disagreed with a Deputy
Commissioner over findings as exotic as we have here.

U.S.Fla. 1965.
O'Keeffe v. Smith, Hinchman and Grylls Associates, Inc.,
380 U.S. 359, 85 S.Ct. 1012, 1966 A.M.C. 1, 13 L.Ed.2d 895

END OF DOCUMENT
EN BANC
[G.R. No. L-23256. October 31, 1969.]
JOSE MA. GONZALES, petitioner, vs. VICTORY LABOR UNION (VICLU), JULIAN BELTRAN,
SEVERINO APAWAN, PONCIANO SAYAN, and QUIRICO MENDEZ, respondents.
Erasmo M. Diola for petitioner.
Loreto G. Campos and Alberto F. Montefalcon for respondents.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; INDUSTRIAL PEACE ACT; APPEAL FROM
COURT OF APPEALS TO SUPREME COURT; SUBSTANTIAL EVIDENCE RULE; INSTANCE
WHEN SUPREME COURT MAY GO OVER THE RECORDS OF THE CASE. — While under the
substantial evidence rule the findings of fact of the Court of Industrial Relations are not disturbed on
appeal as long as they are supported by such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion, in a case where said decision was rendered by an almost evenly
divided court and the division was precisely on the facts as borne out by the evidence, the Supreme
Court fells called upon to go over the record and, in order to determine the substantiality of the
evidence, consider it not only in its quantitative but also in its qualitative aspects. For to be substantial,
evidence must first of all be credible.
2. ID.; ID.; ID.; ID.; ID.; BARE TESTIMONY OF COMPLAINANTS INSUFFICIENT TO
PROVE UNFAIR LABOR PRACTICE CHARGE IN INSTANT CASE. — Where the only evidence
that petitioner dismissed respondents for their union activities is said respondent's testimony but there
is other evidence which cannot be lightly dismissed such as (1) the membership slip signed by
respondents indicating Nov. 15, 1951 as their date of affiliation with the union which entry is
inconsistent with the entry in the reliable log book kept by the captain of the vessel stating that on the
whole day of November 15, said boat with complainants was out fishing in the sea; (2) the inclusion in
the complaint for unfair labor practice of a non-member of the union; (3) the lack of notice to petitioner
that respondents were members of the union; and (4) the dismissal not only of the respondents but also
of the captain of the vessel for complicity in the pilferage of the catch of the vessel, such bare
testimony of respondents is insufficient to establish the charge of unfair labor practice under the
standard fixed by law and enunciated in the decisions of this Court.
DECISION
MAKALINTAL, J p:
This case is before us on review by certiorari of the decision of the Court of Industrial Relations dated
May 8, 1963, and of its resolution of July 19, 1963, in Case No. 303-ULP-Cebu, Victory Labor Union
(VICLU), et al. vs. Jose M. Gonzales.
Herein petitioner Gonzalez was engaged in trawl fishing, and among his employees were Julian
Beltran, Severino Apawan, Ponciano Sayan, Quirico Mendez and Virgilio Baes — all of them working
in petitioner's fishing boat, the M/L Emiliana. On March 31, 1962 the Acting Prosecutor of the Court of
Industrial Relations filed a complaint against petitioner, charging him with unfair labor practice in
dismissing said employees without just cause but by reason of their membership in VICLU and thereby
interfering and coercing them in the exercise of their right to self-organization.
Gonzales admitted in his answer that the complainants, except Virgilio Baes, were his employees, but
denied that he dismissed them for their union affiliation, and alleged that their dismissal was for cause,
they having been found to have connived with each other in pilfering the catch of the fishing boat and
selling the same to the public for their personal benefit. Petitioner further denied that he had
knowledge, prior to the filing of the complaint, of the complainants' membership in the labor union.
After trial, the court below, in a decision penned by Presiding Judge Jose S. Bautista, held herein
petitioner guilty of unfair labor practice, ordered him to cease and desist from the acts complained of
and directed the reinstatement of the complainants with back wages from February 7, 1962, which was
the date of their dismissal. Petitioner filed a motion for reconsideration before the Court en banc, but
the motion was denied in a minute resolution signed by Presiding Judge Bautista and concurred in by
Associate Judges Arsenio I. Martinez and Baltazar M. Villanueva. An extended dissent, however, was
filed by Associate Judge Emiliano C. Tabigne, with the concurrence of Associate Judge Amando C.
Bugayong. In this case we are again faced with the application of the substantial evidence rule, 1 under
which the findings of fact of the Court of Industrial Relations are not disturbed on appeal as long as
they are supported by "such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion." 2
There is one circumstance which, at the very outset, has detained us from accepting the findings of fact
in the decision appealed from as conclusive, namely, that the said decision was rendered by an almost
evenly divided court and that the division was precisely on the facts as borne out by the evidence. In
such a situation this Court feels called upon to go over the record and, in order to determine the
substantiality of the evidence, consider it not only in its quantitative but also in its qualitative aspects.
For to be substantial, evidence must first at all be credible.
The question then is whether or not the conclusion of the bare majority of the Court below, that the
complainants there, now respondents, were dismissed by petitioner for their union affiliation, meets the
test thus established. The only evidence on this point is the testimony of respondents Julian Beltran,
Severino Apawan and Quirico Mendez, as well as the testimony of the union president, Attorney
Loreto G. Campos. The first three more or less uniformly declared that they became members of
VICLU on November 15, 1951 by signing the corresponding membership slip (Exh. A); that they had
not violated any rule or committed any irregularity in the performance of their duties; and that on
February 7, 1962 they were called by the management and told that they were being dismissed by
reason of their union membership. Upon its face and considered in isolation, such evidence could
conceivably meet the test of substantiality. But there is other evidence which cannot be lightly
dismissed without arbitrarily closing the door to a judicious discharge of the power of review, within
the limits set down by the rule.
1. First of all, there is the membership slip signed by complainants Julian Beltran, Severino
Apawan, Ponciano Sayan and Quirico Mendez when they allegedly affiliated to the Victory Labor
Union. The slip is likewise signed by the union president, Attorney Loreto G. Campos, and bears the
handwritten date in ink, "Nov. 15, 1951." Attorney Campos categorically affirmed on the witness stand
the correctness of the date thus written, and said that the actual signing was done in the morning of that
day. Yet the log book of the M/L Emiliana shows that the whole day of November 15, 1961 the boat
was out fishing in the sea off Bohol. Between the entries in a log book, which is required by law to be
kept by every master or captain of a registrable vessel, and a membership slip such as that signed by
respondents, the first is undoubtedly more reliable.
2. The complaint for unfair labor practice named Virgilio Baes as one of the five complainants, all
members of VICLU. According to Attorney Campos, when examined at the trial, Baes was not a
member of the union at all, had not signed any membership paper, and was included in the complaint
only through inadvertence. His inclusion certainly does not speak well of Attorney Campos' credibility
as witness, particularly in the light of his other testimony that before he prepared the complaint, as
president and lawyer of the union, he investigated the complainants one by one, and that there was a
preliminary hearing of the case by the prosecutor of the Court.
3. Petitioner was never officially notified that respondents were members of the Victory Labor
Union. No demand for check-off deductions from their wages was ever served upon him. In fact,
respondents themselves said that from November 15, 1961, up to the time of their dismissal from
employment on February 7, 1962, they did not pay any monthly union dues. And although all the crew
members of the M/L Emiliana were supposedly affiliated to VICLU, no attempt whatsoever was made
by the latter to secure a collective bargaining agreement or at least a certification election.
4. A significant fact is that it was not only respondents who were dismissed by petitioner but also
the captain of the vessel himself, Ernesto Baroc, who was not a member of the union and whose
dismissal was for complicity in the pilferage of the catch of the M/L Emiliana.
The foregoing circumstances, objective as they are, lend strong support to the testimony of petitioner
Gonzales and of his witness Felipe Jubay, to the effect that they had received evidence, consisting of
reports from different sources, that whenever the boat arrived at Cebu after a fishing trip respondents
would sell fish at very cheap prices; that Gonzales investigated them one by one and was convinced of
their guilt; that he was not yet through with the investigation, but they failed to return after February 7,
1962; and that he did not know they were members of any labor union.
Besides the foregoing evidence for herein petitioner the two dissenting members of the court below
also considered certain significant contradictions in the testimony of respondents. We quote from their
opinion:
"Regarding their dismissal, we find that there was sufficient justification for the action taken by the
employer. It appears that these employees were found to have sabotaged the interest of their employer.
They pilfered the fish caught by them and sold them to private parties and pocketed the proceeds
thereof. This circumstance is a clear indication of sabotage and pilferage pure and simple. And the
dismissal of this instant case should, therefore, be in order.
It is claimed that there were acts of discrimination on the part of the employer when these employees
were dismissed. We hold the contrary view. Let us take for instance the so-called interview of the four
employees by the employer on February 7, 1962. One witness (Boltron) testified that the four of them
were called together to the office of the management and told them that they were dismissed because
management did not like their membership to their union. The other witness testified that such incident
happened aboard the boat M/L Emiliana (Witness Mendez). In another instance, Witness Apawan said
that he was called alone to the office of respondent employer and nobody was with them at the time he
was told of his dismissal. These contradictory statements clearly indicate that the employer has no
knowledge of their membership at the time except when the complaint was filed and notified by the
filing of the same and their dismissal was not, therefore, motivated by any discriminatory act on the
part of the employer. As stated above, we find that there was justification of their dismissal because of
the pilferage committed by them in disposing a portion of the catch to private parties to the loss of their
employer. When an employee has committed an act inimical to the employer's interest, his dismissal is
just cause and may be permitted by this Court."
We conclude, in view of all the considerations above set forth, that the bare testimony of respondents,
complainants below, is insufficient to establish the charge of unfair labor practice under the standard
fixed by law and enunciated in the decisions of this Court.
The judgment appealed from is set aside, and the complaint is dismissed, with costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Castro, Teehankee and Barredo, JJ., concur.
Fernando, J., concurs in the result.
Footnotes
1. Sec. 6, R. A. No. 875.
2. Ang Tibay vs. CIR, 69 Phil. 635; Santiago Rice Mill vs. Santiago Labor Union, G.R. No. L-
18040, August 31, 1962; Kaisahan Ng Mga Manggagawa sa La Campana vs. Tantongco, G.R. NO. L-
18338, October 31, 1962.
SECOND DIVISION
[G.R. No. L-42337. October 9, 1978.]
ROSITA S. SUARNABA, petitioner, vs. WORKMEN'S COMPENSATION COMMISSION and
CLAVECILLA RADIO SYSTEM, respondents.
Felix D. Bacabac for petitioner.
Ramon S. Villa for private respondent.
Artemio C. Facundo for respondent WCC.
SYNOPSIS
Upon review, the respondent Commission sustained the compensability of petitioner's claim for death
benefits and reimbursement of medical expenses, but barred her from recovering any benefits on a
finding that the evidence adduced by her to prove that she is the widow of the deceased, consisting of
the parish certificate attesting to the fact that they were married cannot be considered as an authentic
document to prove their filiation but only as proof of the solemnization of their marriage sacrament.
The Supreme Court held that in insisting that the legal relationship between petitioner and the deceased
employee should be established by a conclusive evidence of marriage the Commission violated the
fundamental precept enshrined in the rule of the Commission that substantial evidence, and nothing
more, is required to support a claim for workmen's compensation, especially considering that in the
instant case, preponderant evidence was adduced showing that deceased employee and petitioner have
deported themselves as husband and wife — thereby giving rise to the presumption of a lawful
marriage.
Decision of the Workmen's Compensation Commission is set aside, and the referee's decision
reinstated, with the modification that the attorney's fees awarded was increased.
SYLLABUS
1. WORKMEN'S COMPENSATION; CLAIMANT'S STATUS; ADMISSION IN EMPLOYERS
REPORT. — Where the Employers Report of Accident and sickness stated that the claimant is the wife
and one of the dependents of the deceased employee, the claimant's status as the legal wife of the latter
may be considered duly established without the need for further proof since the Employers Report
serves as an answer.
2. ID.; EVIDENCE; PROOF OF MARRIAGE. — Where it appears that the "Employers Report of
Accident and Sickness" stated that claimant is the wife and one of the dependents of the deceased
employee; that claimant filed the "Notice and Claim for Compensation and Death Benefits" as the wife
of the deceased employee; that the Certificate of Death" mentions claimant as the surviving spouse;
that during the hearing an affidavit was submitted to the effect that claimant was living with the
deceased and that she used to collect his salary from the employer; and that the Commission itself held
that the Parish Certificate was "a proof of the solemnization of their marriage sacrament," all these,
along with the presumption that "a man and a woman deporting themselves as husband and wife have
entered into a lawful contract of marriage, clearly show that claimant is the legal wife of the deceased
employee, and therefore, her claim to compensation benefits as legal wife and dependent of said
deceased should be approved.
3. ID.; ID.; ID.; CONCLUSIVE EVIDENCE NOT REQUIRED. — It is error for the Workmen's
Compensation Commission to insist that the legal relationship between claimant and the deceased
employee should be established by a conclusive evidence, and to deny the claim for compensation by a
widow who, through no fault of her own, cannot produce the primary evidence of marriage or secure
witnesses to the marriage. This is clearly violative of the fundamental precept enshrined in the rules of
the Workmen's Compensation Commission and the consistent pronouncement of the Supreme Court in
a long line of cases that substantial evidence, and nothing more, is required to support a claim for
workmen's compensation. Such violation is even more regrettable where preponderant evidence was
adduced showing that deceased employee and petitioner have deported themselves as husband and wife
— thereby giving rise to the presumption of a lawful marriage — and where no other person claimed to
be the wife of the deceased employee.
4. WORKMEN'S COMPENSATION COMMISSION; NATURE AND SCOPE OF POWER. —
The Commission as a quasi-judicial body is invested with broad powers to hear and decide claims for
compensation under the Workmen's Compensation Act. Under the rules, the hearing, investigation and
determination of any question or controversy in workmen's compensation cases shall be without regard
to technicalities, legal forms and technical rules on evidence. Substantial evidence, whenever
necessary, shall be sufficient to support a decision, order or award.
5. WORKMEN'S COMPENSATION ACT; RATIONALE. — The Workmen's Compensation Act
is a social legislation intended to give relief to the workman and/or his dependents in the event that the
former should die or sustain an injury or sickness in the pursuit of his employment should be liberally
construed to attain its laudable objectives.
DECISION
SANTOS, J p:
This is a petition for review filed January 12, 1976 of the decision of the Workmen's Compensation
Commission in WCU Case No. 13763 dated December 5, 1975 disallowing the claim of petitioner for
death benefits and reimbursement of medical expenses on the ground that petitioner failed to submit
sufficient proof that she is the widow of the deceased, Ireneo Suarnaba, an employee of private
respondent, Clavecilla Radio System.
On March 3, 1976, this Court resolved inter alia — in order to expedite the resolution of this case in
view of its nature — to treat the petition for review as a special civil action and to require both parties
to submit simultaneous memoranda, 1 On March 18, 1976, respondent Workmen's Compensation
Commission, after leave secured, filed its comment. 2 Petitioner through counsel filed her
memorandum on April 30, 1976. 3 On June 23, 1976, respondent Commission manifested that it
adopts as its memorandum its comment on the petition for review. 4 On July 26, 1976, the respondent,
Workmen's Compensation Commission, was required pursuant to Rule 43, Section 8, New Rules of
Court to elevate to this Court the whole records of WCU Case No. 13763 "Rosita S. Suarnaba vs.
Workmen's Compensation Commission, et al." 5 And on August 6, 1976, the Court resolved to
consider this case submitted for decision. 6
It appears that petitioner Rosita Suganob Suarnaba, who filed her claim as widow of the deceased
Ireneo Suarnaba, employee of private respondent, Clavecilla Radio System, was awarded by the
Regional Office No. 6 of the Department of Labor in Iloilo City per Acting Referee-Ricardo Jeruta, Jr.
the sum of P4,986.01 representing death benefits and reimbursement of medical expenses. Upon
review, the Commission sustained the compensability of the claim but found the evidence submitted by
the petitioner to prove that she was the widow of Ireneo Suarnaba as insufficient and barred her from
recovering any benefits. The Commission held thus —
xxx xxx xxx
We sustained the referee below in holding the compensability of the instant claim. However, let us
have a close look at the qualification of the herein claimant as a dependent. A perusal of the records of
this case show that claimant Rosita S. Suarnaba has not fully satisfied the requirement of the Act as to
qualify her as a legal dependent of the deceased Ireneo Suarnaba. The records is bereft of such
evidence to sustain the findings that she is the legal wife of the decedent. The certification issued by the
Assistant Parish Priest of the Parish of Sta. Barbara, Iloilo City attesting to the fact that they were
married cannot be considered authentic document to prove filiation between the deceased and the
herein claimant but only a proof of the solemnization of their marriage sacrament. Much to our desire
to help the herein claimant, yet we cannot allow compensation benefits in this instant claim. (Emphasis
supplied.)
xxx xxx xxx
The Commission instead sentenced private respondent, Clavecilla Radio System, to pay the sum of
P1,000.00 to the Workmen's Compensation Commission Fund in accordance with Section 8 (b) of the
Workmen's Compensation Act. cdrep
Petitioner's counsel, in his spirited and well-considered arguments in support of this petition to set aside
the foregoing findings and conclusions of the Commission, argues — that marriage may be proved by
parol evidence; that respondent Clavecilla Radio System did not submit any affidavit or any evidence
pursuant to the order of the Hearing Officer on September 13, 1974; that petitioner submitted her
affidavit to the effect that she and the late Ireneo Suarnaba were married in the Catholic Church of Sta.
Barbara, Iloilo City on May 19, 1931 as shown by the Marriage Registry of Sta. Barbara Parish,
attested by Fr. Samandra per Certificate of Marriage 7 dated May 24, 1974 which was made an integral
part of her affidavit because she lost her Marriage Contract during the Japanese Occupation and can no
longer retrieve the same; that petitioner submitted Eulogio Dequito, pursuant to the order of the
Hearing Referee of September 13, 1974, as her witness who executed an affidavit to the effect that he
knows personally the petitioner as the wife of Ireneo Suarnaba and that petitioner has been collecting
his (Ireneo's salary during his lifetime from the office of respondent Clavecilla Radio System; that,
finally, the legal presumption is that a man and woman living together as husband and wife have
entered into a lawful marriage. 8
This petition is well-taken and is invested with merit; respondent Commission's decision under review
should be set aside as contrary to the evidence on record and, therefore, was issued with grave abuse of
its discretion.
1. The Commission held in favor of compensability but found that ".. the records is (sic) bereft of
such evidence to sustain the findings that she is the legal wife of the deceased" employee of the private
respondent, Clavecilla Radio System. But a cursory examination of the records which were elevated to
this Court shows that private respondent through its General Manager, Manuel C. Padua, stated in the
"Employers Report of Accident and Sickness" that petitioner Rosita Suarnaba is the wife and one of the
dependents of the deceased Ireneo Suarnaba. 9 In view of this admission by private respondent
employer of claimant's, herein petitioner's status as the legal wife of its deceased employee, the same
may be considered as duly established without the need for further proof, since the Employer's Report
serves as Answer. 10 But apart from this admission, it appears that petitioner filed a Notice and Claim
for Compensation and Death Benefits on June 14, 1969, as the wife of the deceased employee, 11 and
that the Certificate of Death mentions petitioner Rosita Suganob as the surviving spouse of Ireneo
Suarnaba. 12 Additionally, the records of the proceedings before the hearing officer show that during
the hearing of the case, the affidavit of Eulogio Dequito was submitted to the effect that petitioner was
living with the deceased employee and that she used to collect his salary from private respondent. 13
Finally, the Parish Certificate, as respondent Commission itself held, was " . . . a proof of the
solemnization of their marriage sacrament". All the foregoing, along with the presumption that "a man
and a woman deporting themselves as husband and wife have entered into a lawful contract of
marriage" 14 clearly show that the petitioner is the legal wife of the deceased employee and, therefore,
her claim to compensation benefits as legal wife and dependent of Ireneo Suarnaba should have been
approved. LibLex
2. Prescinding from the foregoing, it thus appears that respondent Commission with a little
exercise of common sense and circumspection should have realized that petitioner, who filed the claim
for benefits as a result of the death of Ireneo Suarnaba, was his legal wife and dependent. The
Commission as a quasi-judicial body is invested with broad powers to hear and decide claims for
compensation under the Workmen's Compensation Act. 15 Under its Rules — "The hearing,
investigation and determination of any question or controversy in workmen's compensation cases shall
be without regard to technicalities, legal forms and technical rules on evidence. Substantial evidence,
whenever necessary, shall be sufficient to support a decision, order or award." 16 Respondent
Commission disregarded this rule by negligently failing to consider the several pieces of evidence
extant in the record of this case which clearly establish the marital status of petitioner and the deceased
employee. Instead, it chose to enmesh itself in a web of technicality over a single piece of evidence, the
Parish Certificate of Marriage. For while it conceded that said certificate is a "proof of the
solemnization of the sacrament of marriage", it nevertheless, considered the same as insufficient to
prove that petitioner is the legal wife of the deceased employee and insisted that the proof required is
the "original of the marriage contract or the marriage certificate duly issued by the Local Civil
Registrar of the place where the marriage was solemnized," and in the absence thereof, "an affidavit of
the claimant and at least three witnesses to the marriage and cohabitation." 17 Respondent Commission
was, in effect, insisting that the legal relationship between petitioner and the deceased employee should
be established by a conclusive evidence of marriage. It was thus bent on denying any claim for
compensation filed by a widow who, through no fault of her own, cannot produce the primary evidence
of marriage or secure three witnesses to the marriage. This is clearly violative of the fundamental
precept enshrined in the aforequoted rule of the Workmen's Compensation Commission and Our
consistent pronouncement in a long line of cases 18 that substantial evidence, and nothing more, is
required to support a claim for workmen's compensation. Such violation is even more regrettable when
viewed against the factual backdrop of the instant case where, as heretofore stated, preponderant
evidence was adduced showing that the deceased employee and the petitioner have deported
themselves as husband and wife — thereby giving rise to the presumption of a lawful marriage, and
where, as in this case, no other person claimed to be the wife of the deceased employee. LLpr
3. Finally, to sustain respondent Commission's stand is to lose sight of the fact that the Workmen's
Compensation Act — as a social legislation intended to give relief to the workman and/or his
dependents in the event that the former should die or sustain an injury or sickness in the pursuit of his
employment — should be liberally construed to attain its laudable objectives.
IN VIEW OF ALL THE FOREGOING, this petition is GRANTED. The decision of the Workmen's
Compensation Commission is hereby SET ASIDE. The decision of the acting referee is hereby
REINSTATED with the modification that the attorney's fees awarded is increased to FOUR
HUNDRED NINETY EIGHT PESOS AND SIXTY CENTAVOS (P498.60).
SO ORDERED.
Barredo (Actg. Chairman), Aquino, Antonio, and Concepcion, Jr., JJ., concur.
Footnotes
1. Rollo, p. 18.
2. Id., p. 27.
3. Id., p. 46.
4. Id., p. 56.
5. Id., p.60.
6. Id., p. 61.
7. The parish certification reads as follows —
This is to certify that in the Marriage Registry of this parish for marriages performed
during the years 1927 to 1931, the following entry may be found:
On the 18th day of May 1931, IRENEO SUARNABA, single, 19 years of age, native
and resident of Santa Barbara, Iloilo, son of Nicolas Suarnaba and Consolacion Sarcon, contracted
marriage with Rosita Suganob, 17 years of age, single, native and resident of Santa Barbara, Iloilo, and
daughter of Suganob and Rafaelo Provido. Witnesses for the marriage ceremony were Eduardo Oranjo
and Rosario Umadhay, both of Sta. Barbara, Iloilo, with Fr. Gabriel M. Reyes, parish priest, as
officiating minister.
8. Rollo. pp. 3-4; Record. p. 41.
9. R03-WC Form No. 3 (February 1957) Item No. 40; Record p. 251.
10. Rule 7, Sec. 1, Rules of the WCC, 1969 Revision.
11. BWC Form No. 2; WCC Case No. 13763; Record p. 259.
12. Record p. 255.
13. Rollo, p. 3, Annexes "B" and "E"; Record p. 41.
14. Sec. 5 (bb), Rule 131, Revised Rules of Court of the Philippines.
15. Sec. 7-A, Workmen's Compensation Act.
16. Rules, WCC, Rule 10, Sec. 1.
17. Comment, p. 4, Rollo, p. 30.
18. Iloilo Chinese Commercial School v. Fabrigas, L-16600, December 27, 1961, 3 SCRA 713;
Plywood Industries, Inc. v. WCC, L-18165; May 30, 1962, 5 SCRA 276; Rebodos v. WCC, L-18737,
Nov. 29, 1962, 6 SCRA 717; Batangas Transportation Co. v. Perez, L-19522, Aug. 31, 1964, 11 SCRA
793; Manila Railroad Co. v. Manalang, L-20845, Nov. 29, 1965, 15 SCRA 409; Rio y Compañia v.
WCC, L-21467, Aug. 30, 1967, 20 SCRA 1196; Victorias Milling Co., Inc. v. WCC, L-25640, March
21, 1978, 22 SCRA 1215; Manila Railroad Co. v. Rivera, L-23021, May 29, 1968, 23 SCRA 922;
Seven-Up Bottling Co. of the Phil. v. Rimerata, L-24349, Dec. 24, 1968, 26 SCRA 449; Victorias
Milling Co., Inc. v. WCC, L-25665, May 22, 1969, 28 SCRA 285; Northwest Orient Airlines, Inc. v.
Mateu, L-25274, July 29, 1969, 28 SCRA 877; Operators Inc. v. Cacatian, L-26173, Oct. 31, 1969, 30
SCRA 218; Falcon v. Mathay Sr., L-30303, Aug., 31, 1970, 34 SCRA 765; Jordan v. J. De Dios
Enterprises, Inc., L-28895, Sept. 30, 1970, 35 SCRA 165; Pangasinan Trans. Co., Inc. v. WCC, 63
SCRA 349; Bacatan v. WCC, 67 SCRA 410; Vda. de Olib. v. City of Manila, 68 SCRA 380.
SECOND DIVISION
[G.R. No. L-23623. June 30, 1977.]
ACTING COMMISSIONER OF CUSTOMS, petitioner, vs. MANILA ELECTRIC COMPANY and
COURT OF TAX APPEALS, respondents.
Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete and Solicitor
Alejandro B. Afurong for petitioner.
Ross, Selph, Salcedo, Del Rosario, Bito & Misa for private respondent.
DECISION
FERNANDO, J p:
The reversal by respondent Court of Tax Appeals of a determination by the then Acting Commissioner
of Customs, the late Norberto Romualdez, Jr., that private respondent Manila Electric Company was
not exempt from the payment of the special import tax under Republic Act No. 1394 1 for shipment to
it of insulating oil, respondent Court entertaining the contrary view, 2 led to this petition for review.
The contention pressed in support of the petition is that as a tax exemption is to be construed strictly,
the decision of the respondent Court, which assumed that insulating oil can be considered as insulators
must be reversed and set aside. The appealed decision of respondent Court in the light of applicable
authorities supplies the best refutation of such contention. It must be sustained. aisa dc
The appealed decision 3 set forth that petitioner Manila Electric Co., nor private respondent, in
appealing from a determination by the then Acting Commissioner of Customs, now petitioner, "claims
that it is exempt from the special import tax not only by virtue of Section 6 of Republic Act No. 1394,
which exempts from said tax equipment and spare parts for use in industries; but also under Paragraph
9, Part Two, of its franchise, which expressly exempts is insulators from all taxes of whatever kind and
nature." 4 It then made reference to the franchise of private respondent Manila Electric Co.: "Par. 9.
The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including
poles, wires, transformers, and insulators), machinery and personal property as other persons are or
may be hereafter required by law to pay. In consideration of Part Two of the franchise herein granted,
to wit, the right to build and maintain in the City of Manila and its suburbs a plant for the conveying
and furnishing of electric current for light, heat, and power, and to charge for the same, the grantee
shall pay to the City of Manila two and one-half per centum of the gross earnings received from the
business under this franchise in the city and its suburbs: . . . and shall be in lieu of all taxes and
assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted." 5 It noted that the above "exempts it from all
taxes of whatever nature, and by whatever authority, with respect to its insulators in consideration for
the payment of the percentage tax on its gross earnings." 6
The question then, according to such decision of respondent Court is: "Does the insulating oil in
question come within the meaning of the term 'insulator'?" 7 Then it went on: "Insulating oils are
mineral oils of high di-electrics strength and high flash point employed in circuit breakers, switches,
transformers and other electric apparatus. An oil with a flash point of 285ºF and fire point of 310ºF is
considered safe. A clean, well-refined oil will have a minimum di-electric of 22,00 volts, but the
presence of a slow as 0.01% water will reduce the di-electric strength drastically. The insulating oils,
therefore, cannot be stored for long periods because of the danger of absorbing moisture. Impurities
such as acids or alkalies also detract from the strength of the oil. Since insulating oils are used for
cooling as well as for insulating, the viscosity should be low enough for free circulation, and they
should not gum. (Materials Handbook by George J. Brady, 8th Edition 1956, pp. 421-423.) . . . ." 8 ;
The last portion of the appealed decision explained why the determination of the Acting Commissioner
of Customs must be reversed: "There is no question that insulating oils of the type imported by
petitioner are 'used for cooling as well as for insulating,' and when used in oil circuit breakers, they are
'required to maintain insulation between the contacts inside the tank and the tank itself.' . . . The
decision appealed from not being in accordance with law, the same is hereby reversed. Respondent is
ordered to refund to petitioner the sum of P995.00 within thirty days from the date this decision
becomes final, without pronouncement as to costs." 9 It was therein made clear that private respondent
was not liable for the payment of the special import tax under Republic Act No. 1394. cdasia
As noted at the outset, the decision speaks for itself. It cannot be stigmatized as suffering from any flaw
that would call for its reversal.
1. It is to be admitted, as contended by petitioner, that this Court is committed to the principle that
an exemption from taxation must be justified by words too clear to be misread. As set forth in
Commissioner of Internal Revenue v. Guerrero: 10 "From 1906, in Catholic Church v. Hastings to
1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and
uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it
must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from
taxation, hence, an exempting provision should be construed strictissimi juris." 11 Such a ruling was
reaffirmed in subsequent decisions. 12 It does not mean, however, that petitioner should prevail, for as
was unequivocally set forth in the leading case of Republic Flour Mills v. Commissioner of Internal
Revenue, 13 this Court speaking through Justice J.B.L. Reyes. "It is true that in the construction of tax
statutes tax exemptions (and deductions are of this nature) are not favored in the law, and are construed
strictissimi juris against the taxpayer. However, it is equally a recognized principle that where the
provision of the law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. In this case,
we find the provision of Section 186-A — 'whenever a tax free product is utilized, . . . — all
encompassing to comprehend tax-free raw materials, even if imported. Where the law provided no
qualification for the granting of the privilege, the court is not at liberty to supply any." 14 That is what
was done by respondent Court of Tax Appeals. It showed fealty to this equally well-settled doctrine. It
construed the statutory provision as it is written. It is precluded, in the language of the Republic Flour
Mills opinion, considering that the law is clear and ambiguous, to look further for any legislative intent,
as "the law must be taken as it is, devoid of judicial addition or subtraction." 15 If there is an extended
discussion of this point, it is due solely to the emphasis placed on the matter by petitioner.
2. Moreover, the decision of respondent Court under review finds support in Balbas v. Domingo.
16 Thus: "No other conclusion is possible in view of the well-settled principle that this Court is bound
by the finding of facts of the Court of Tax Appeals, only questions of law being open to it for
determination. As stated in another decision, 'only errors of law, and not rulings on the weight of
evidence, are reviewable by this Court.' The facts then as above ascertained cannot be disturbed. In our
latest decision, there is a categorical assertion that where the question is one of fact, it is no longer
reviewable." 17 Such a doctrine is not of limited application. It is a recognition of the wide discretion
enjoyed by the Court of Tax Appeals in construing tax statutes. So it was categorically held in
Alhambra Cigar and Cigarette Manufacturing Co. v. Commissioner of Internal Revenue: 18 "Nor as a
matter of principle is it advisable for this Court to set aside the conclusion reached by an agency such
as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertize on the subject,
unless, as did not happen here, there has been an abuse or improvident exercise of its authority." 19
That same approach was reflected in Reyes v. Commissioner of Internal Revenue, 20 Chu Hoi Horn v.
Court of Tax Appeals, 21 Vi Ve Chemical Products v. Commissioner of Customs, 22 and Nasiad v.
Court of Tax Appeals. 23 The Vi Ve decision has some relevance. There the stand of the state that the
Court of Tax Appeals could rightfully determine that "'priopionic glycine' is the same as glutamic acid"
24 was considered as well within the authority of respondent Court. It would be an affront to the sense
of fairness and of justice if in another case, respondent Court, in the exercise of its discretionary
authority, after determining that insulating oil comes within the term insulator, is not be upheld. cdtai
WHEREFORE, the petition for review is dismissed. No costs.
Barredo, Antonio and Concepcion Jr., JJ ., concur.
Aquino, J ., in the result.
Footnotes
1. Cf. Sec. 9 of Rep. Act No. 1394 (1955).
2. The decision was penned by the then Judge Roman Umali.
3. Annex C, Petition.
4. Ibid, 1.
5. Ibid, 1-2.
6. Ibid, 2.
7. Ibid.
8. Ibid, 2-3.
9. Ibid, 3-4. While references was made to the franchise of private respondent, the decision was
likewise made to rest on the language of Republic Act No. 1394.
10. L-20812, September 22, 1967, 21 SCRA 180.
11. Ibid, 183-184. Catholic Church v. Hastings in reported in 5 Phil. 701 (1906) and Esso Standard
Eastern, Inc. v. Acting Commissioner of Customs, L-21841, October 28, 1966, in 18 SCRA 488. The
opinion also cited Government v. Monte de Piedad, 35 Phil. 42 (1916); Asiatic Petroleum Co. vs.
Llanes, 49 Phil. 466 (1926); House v. Posadas, 53 Phil. 338 (1929) Phil. Tel. and Tel. Co. vs. Collector,
58 Phil. 639 (1933); Greenfiled v. Meer, 77 Phil. 394 (1946); Collector of Internal Revenue v. Manila
Jockey Club, 98 Phil. 670 (1956); Phil. Guaranty Co., Inc. v. Commissioner, L-22074, September 6,
1965, 15 SCRA 1; and Abad v. Court of Tax Appeals, L-20834, October 19, 1966, 18 SCRA 374.
12. Cf. Commissioner of Internal Revenue v. Visayan Electric Co., L-22611, May 27, 1968, 23
SCRA 715; E. Rodriguez v. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 1119,
Asturias Sugar Central v. Commissioner of Customs, L-19337, Sept. 30, 1969, 29 SCRA 617;
Philippine Iron Mines v. Commissioner of Customs v. Philippine Acetylene Co., L-22443, May 29,
1971, 39 SCRA 70; Davao Light and Power Co. v. Commissioner of Customs, L-28739, March 29,
1972, 44 SCRA 122; Wonder Mechanical Engineering Corp. v. Court of Tax Appeals, L-22805, June
30, 1975, 64 SCRA 555; Commissioner of Internal Revenue v. P. J. Kiener Co., L-24754, July 18,
1975, 65 SCRA 142; Manila Electric Co. v. Vera, L-29987, Oct. 22, 1975, 67 SCRA 351.
13. L-25602, February 18, 1970 31 SCRA 520.
14. Ibid, 527.
15. Ibid.
16. L-19804, October 23, 1968, 21 SCRA 444.
17. Ibid, 448. The opinion cited Sanchez v. Commissioner of Customs, 102 Phil. 37 (1957); Castro
v. Collector of Internal Revenue, 114 Phil. 1032 (1962); Commissioner of Internal Revenue v. Priscila
Estate, Inc., L-18282, May 29, 1964, 11 SCRA 130; Philippine Guaranty Co., Inc. v. Commissioner of
Internal Revenue, L-22074, Sept. 6, 1965, 15 SCRA 1; and Republic v. Razon, L-17462, May 29,
1967, 20 SCRA 234.
18. L-23226, November 28, 1967, 21 SCRA 1111.
19. Ibid, 1118-1119.
20. L-24020, July 29, 1968, 24 SCRA 198.
21. L-22046, October 29, 1968, 25 SCRA 809.
22. L-28693, September 30, 1974, 60 SCRA 52.
23. L-29318, November 29, 1974, 61 SCRA 238.
24. 60 SCRA 52, 59.
EN BANC
[G.R. No. 70054. December 11, 1991.]
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. THE MONETARY
BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P.
VALENZUELA, ARNULFO B. AURELLANO AND RAMON V. TIAOQUI, respondents.
[G.R. No. 68878. December 11, 1991.]
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. INTERMEDIATE
APPELLATE COURT AND CELESTINA S. PAHIMUNTUNG, assisted by her husband,
respondents.
[G.R. Nos. 77255-58. December 11, 1991.]
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT
CORPORATION, petitioners, vs. THE COURT OF APPEALS, The Executive Judge of the Regional
Trial Court of Cavite, Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
HERNANDEZ AND GATMAITAN, respondents.
[G.R. No. 78766. December 11, 1991.]
EL GRANDE CORPORATION, petitioner, vs. THE COURT OF APPEALS, THE EXECUTIVE
JUDGE OF The Regional Trial Court and Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO
FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP,
SALAZAR, FELICIANO AND HERNANDEZ, respondents.
[G.R. No. 78767. December 11, 1991.]
METROPOLIS DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS,
CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P.
VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.
[G.R. No. 78894. December 11, 1991.]
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. COURT OF APPEALS,
THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P.
VALENZUELA, ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents.
[G.R. No. 81303. December 11, 1991.]
PILAR DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, HON. MANUEL
M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial Court of Makati,
CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA, respondents.
[G.R. No. 81304. December 11, 1991.]
BF HOMES DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS,
CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.
[G.R. No. 90473. December 11, 1991.]
EL GRANDE DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS, THE
EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and Ex-Officio
Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN,
respondents.
Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.
DECISION
MEDIALDEA, J p:
This refers to nine (9) consolidated cases concerning the legality of the closure and receivership of
petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for brevity) pursuant to the
order of respondent Monetary Board. Six (6) of these cases, namely, G.R. Nos. 68878, 77255-58,
78766, 81303, 81304 and 90473 involve the common issue of whether or not the liquidator appointed
by the respondent Central Bank (CB for brevity) has the authority to prosecute as well as to defend
suits, and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the
receivership and liquidation of the latter is pending resolution in G.R. No. 70054. Corollary to this
issue is whether the CB can be sued to fulfill financial commitments of a closed bank pursuant to
Section 29 of the Central Bank Act. On the other hand, the other three (3) cases, namely, G.R. Nos.
70054, which is the main case, 78767 and 78894 all seek to annul and set aside M.B. Resolution No. 75
issued by respondents Monetary Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as follows:
G.R. No. 68878
This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision
promulgated by this Court on April 8, 1986, granting the petition for review on certiorari and reversing
the questioned decision of respondent appellate court, which annulled the writ of possession issued by
the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has no more personality to continue prosecuting
the instant case considering that petitioner bank was placed under receivership since January 25, 1985
by the Central Bank pursuant to the resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar
Development Corporation (Pilar Development for brevity) are corporations engaged in the business of
developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory
note dated January 7, 1982 payable in three years from date. The loan was secured by real estate
mortgage in its various properties in Cavite. Likewise, Pilar Development obtained loans from Banco
Filipino between 1982 and 1983 in the principal amounts of P6,000,000, P7,370,000 and P5,300,000
with maturity dates on December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To
secure the loan, Pilar Development mortgaged to Banco Filipino various properties in Dasmariñas,
Cavite. LLpr
On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and
unable to do business without loss to its creditors and depositors. It placed Banco Filipino under
receivership of Carlota Valenzuela, Deputy Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation
and designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed
the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the
validity of the resolutions issued by the Monetary Board authorizing the receivership and liquidation of
Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary
restraining order, effective during the same period of 30 days, enjoining the respondents from
executing further acts of liquidation of the bank; that acts such as receiving collectibles and receivables
or paying off creditors' claims and other transactions pertaining to normal operations of a bank are not
enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip,
Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator, applied
for extra-judicial foreclosure of the mortgage over Top Management's properties. Thus, the Ex-Officio
Sheriff of the Regional Trial Court of Cavite issued a notice of extra-judicial foreclosure sale of the
properties on December 16, 1985.
On December 9, 1985, Top Management filed a petition for injunction and prohibition with the
respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial
Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding with
foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et
al. filed separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the
extra-judicial foreclosure of mortgage over its properties.
Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with
prayer for the issuance of a writ of preliminary injunction docketed as CA-G.R. SP Nos. 08962-64
seeking to enjoin the same respondents from enforcing the foreclosure sale of its properties. CA-G.R.
SP Nos. 07892 and 08962-64 were consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision dismissing the aforementioned
petitions.
Hence, this petition was filed by the petitioners Top Management and Pilar Development alleging that
Carlota Valenzuela, who was appointed by the Monetary Board as liquidator of Banco Filipino, has no
authority to proceed with the foreclosure sale of petitioners' properties or the ground that the resolution
of the issue on the validity of the closure and liquidation of Banco Filipino is still pending with this
Court in G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the business of
developing residential subdivisions. It was extended by respondent Banco Filipino a credit
accommodation to finance its housing program. Hence, petitioner was granted a loan in the amount of
P8,034,130.00 secured by real estate mortgages on its various estates located in Cavite. cdphil
On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it under
receivership and designated Deputy Governor Carlota Valenzuela as receiver. On March 22, 19869 the
Monetary Board confirmed Banco Filipino's insolvency and designated the receiver Carlota Valenzuela
as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its liquidator,
Carlota Valenzuela, initiated the foreclosure with the Clerk of Court and Ex-officio sheriff of RTC
Cavite. Subsequently, on March 31, 1986, the ex-officio sheriff issued the notice of extra-judicial sale
of the mortgaged properties of El Grande scheduled or April 30, 1986.
In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the
Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with the foreclosure of
its mortgaged properties on the ground that this Court in G.R. No. 70054 issued a resolution dated
August 29, 1985, which restrained Carlota Valenzuela from acting as liquidator and allowed Banco
Filipino to resume banking operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.
Hence this petition for review on certiorari was filed alleging that the respondent court erred when it
held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from
exercising acts in liquidation of Banco Filipino Savings & Mortgage Bank, she was not legally
precluded from foreclosing the mortgage over the properties of the petitioner through counsel retained
by her for the purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for brevity) filed
an action against Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance,
docketed as Civil Case No. 12191. It appears that the former management of Banco Filipino appointed
Quisumbing & Associates as counsel for Banco Filipino. On June 12, 1986 the said law firm filed an
answer for Banco Filipino which confessed judgment against Banco Filipino.
On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota
Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the
complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the
answer filed by Quisumbing & Associates for defendant Banco Filipino be expunged from the records.
Despite opposition from Quisumbing & Associates, the trial court granted the motion to expunge in an
order dated March 17, 1987. Petitioner Pilar Development moved to reconsider the order but the
motion was denied.
Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and
mandamus to annul the order of the trial court. The Court of Appeals rendered a decision dismissing
the petition. A petition was filed with this Court but was denied in a resolution dated March 22, 1988.
Hence, this instant motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with the
trial court to compel the Central Bank to restore petitioner's financing facility with Banco Filipino.
The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental
complaint impleaded as defendant Carlota Valenzuela as receiver of Banco Filipino Savings and
Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed a motion
to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on the
grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the Intermediate
Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that Banco Filipino has
been ordered closed and placed under receivership pending liquidation, and thus, the continuation of
the facility sued for by the plaintiff has become legally impossible and the suit has become moot. LLjur
The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4, 1987,
the respondent appellate court dismissed the appeal and affirmed the order of the trial court.
Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it
found that the private respondents should not be the ones to respond to the cause of action asserted by
the petitioner and the petitioner did not have any cause of action against the respondents Central Bank
and Carlota Valenzuela.
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from Banco
Filipino in the amount of P8,034,130.00, secured by a mortgage over its five parcels of land located in
Cavite which were covered by Transfer Certificate of Title Nos. T-82187, T-109027, T-132897, T-
148377, and T-79371 of the Registry of Deeds of Cavite.
When Banco Filipino was ordered closed and placed under receivership in 1985, the appointed
liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-officio sheriff of the
Regional Trial Court of Cavite for the extrajudicial foreclosure of the mortgage constituted over
petitioner's properties. on March 24, 1986, the ex-officio sheriff issued a notice of extrajudicial
foreclosure sale of the properties of petitioner.
Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of
preliminary injunction to enjoin the respondents from foreclosing the mortgage and to nullify the notice
of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition.
Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B. Resolution
No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has eighty-nine (89)
operating branches, forty-six (46) of which are in Manila, with more than three (3) million depositors.
As of July 31, 1984, the list of stockholders showed the major stockholders to be Metropolis
Development Corporation, Apex Mortgage and Loans Corporation, Filipino Business Consultants, Tiu
Family Group, LBH Inc. and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No. 839
dated June 29, 1984. This was augmented with a P3 billion credit line under M.B. Resolution No. 934
dated July 27, 1984.
On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under
conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on
August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro report.
Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by Ramon
Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central Bank,
regarding the major findings of examination on the financial condition of petitioner BF as of July 31,
1984. The report, which shall be referred to herein as the Tiaoqui Report contained the following
conclusion and recommendation:
"The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency and
illiquidity and further confirms the above conclusion of the Conservator.
"All the foregoing provides sufficient justification for forbidding the bank from engaging in banking.
"Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective
the beginning of office January 1985, pursuant to Sec. 29 of RA. No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings
& Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise
all the powers necessary for these purposes including but not limited to bringing suits and foreclosing
mortgages in the name of the bank.
3. The Board of Directors and the principal officers from Senior Vice Presidents, as listed in the
attached Annex 'A' be included in the watch list of the Supervision and Examination Sector until such
time that they shall have cleared themselves.
4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report on
the findings on Banco Filipino for investigation and possible prosecution of directors, officers, and
employees for activities which led to its insolvent position." (pp. 61-62, Rollo). LLpr
On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which ordered the
closure of BF and which further provides:
"After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and
Mortgage Bank that the continuance in business of the bank would involve probable loss to its
depositors and creditors, and after discussing and finding to be true the statements of the Special
Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II as
recited in his memorandum dated January 23, 1985, that the Banco Filipino Savings & Mortgage Bank
is insolvent and that its continuance in business would involve probable loss to its depositors and
creditors, and in pursuance of Sec. 29 of R.A. 265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the
Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who is hereby directly
vested with jurisdiction and authority to immediately take charge of the bank's assets and liabilities,
and as expeditiously as possible collect and gather all the assets and administer the same for the benefit
of its creditors, exercising all the powers necessary for these purposes including but not limited to,
bringing suits and foreclosing mortgages in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V.
Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector Department
II, as Deputy Receivers who are likewise hereby directly vested with jurisdiction and authority to do all
things necessary or proper to carry out the functions entrusted to them by the Receiver and otherwise to
assist the Receiver in carrying out the functions vested in the Receiver by law or Monetary Board
Resolutions;
4. To direct and authorize Management to do all other things and carry out all other measures
necessary or proper to implement this Resolution and to safeguard the interests of depositors, creditors
and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings
and Mortgage Bank." (pp. 10-11, Rollo, Vol. I).
On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No. 9675 with the
Regional Trial Court of Makati to set aside the action of the Monetary Board placing BF under
receivership.
On February 28, 1985, petitioner filed with this Court the instant petition for certiorari and mandamus
under Rule 65 of the Rules of Court seeking to annul the resolution of January 25, 1985 as made
without or in excess of jurisdiction or with grave abuse of discretion, to order respondents to furnish
petitioner with the reports of examination which led to its closure and to afford petitioner BF a hearing
prior to any resolution that may be issued under Section 29 of R.A. 265, also known as Central Bank
Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui as
Deputy Receivers of Banco Filipino submitted their report on the receivership of BF to the Monetary
Board, in compliance with the mandate of Sec. 29 of R.A. 265 which provides that the Monetary Board
shall determine within sixty (60) days from date of receivership of a bank whether such bank may be
reorganized/permitted to resume business or ordered to be liquidated. The report contained the
following recommendation:
"In view of the foregoing and considering that the condition of the banking institution continues to be
one of insolvency, i.e., its realizable assets are insufficient to meet all its liabilities and that the bank
cannot resume business with safety to its depositors, other creditors and the general public, it is
recommended that:
1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3, Sec. 29 of RA
No. 265, as amended;
2. The Legal Department, through the Solicitor General, be authorized to file in the proper court a
petition for assistance in the liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank; and
4. Management be instructed to inform the stockholders of Banco Filipino Savings & Mortgage
Bank of the Monetary Board's decision to liquidate the Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion before this Court praying that a restraining order or a writ of
preliminary injunction be issued to enjoin respondents from causing the dismantling of BF signs in its
main office and 89 branches. This Court issued a resolution on August 8, 1985 ordering the issuance of
the aforesaid temporary restraining order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved to direct the respondents Monetary Board
and Central Bank to hold hearings at which the petitioner should be heard, and to terminate such
hearings and submit its resolution within thirty (30) days. This Court further resolved to issue a
temporary restraining order enjoining the respondents from executing further acts of liquidation of a
bank. Acts such as receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were not enjoined. The Central Bank was also
ordered to designate a comptroller for the petitioner BF. This Court also ordered the consolidation of
Civil Cases Nos. 8108, 9676 and 10183 in Branch 136 of the Regional Trial Court of Makati. llcd
However, on September 12, 1985, this Court in the meantime suspended the hearing it ordered in its
resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution ordering Branch 136 of the Regional Trial Court
of Makati then presided over by Judge Ricardo Francisco to conduct the hearing contemplated in the
resolution of August 29, 1985 in the most expeditious manner and to submit its resolution to this Court.
In the Court's resolution of February 19, 1987, the Court stated that the hearing contemplated in the
resolution of August 29, 1985, which is to ascertain whether substantial administrative due process had
been observed by the respondent Monetary Board, may be expedited by Judge Manuel Cosico who
now presides the court vacated by Judge Ricardo Francisco, who was elevated to the Court of Appeals,
there being no legal impediment or justifiable reason to bar the former from conducting such hearing.
Hence, this Court directed Judge Manuel Cosico to expedite the hearing and submit his report to this
Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the
recommendation that the resolutions of respondents Monetary Board and Central Bank authorizing the
closure and liquidation of petitioner BF be upheld.
On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which respondents filed
their comment on December 16, 1988. Petitioner filed their reply to respondent's comment of January
11, 1989. After having deliberated on the grounds raised in the pleadings, this Court in its resolution
dated August 3, 1989 declared that its intention as expressed in its resolution of August 29, 1985 had
not been faithfully adhered to by the herein petitioner and respondents. The aforementioned resolution
had ordered a hearing on the reports that led respondents to order petitioner's closure and its alleged
preplanned liquidation. This Court noted that during the referral hearing however, a different scheme
was followed. Respondents merely submitted to the commissioner their findings on the examinations
conducted on petitioner, affidavits of the private respondents relative to the findings, their reports to the
Monetary Board and several other documents in support of their position while petitioner had merely
submitted objections to the findings of respondents, counter-affidavits of its officers and also
documents to prove its claims. Although the records disclose that both parties had not waived cross-
examination of their deponents, no such cross-examination has been conducted. The reception of
evidence in the form of affidavits was followed throughout, until the commissioner submitted his report
and recommendations to the Court. This Court also held that the documents pertinent to the resolution
of the instant petition are the Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui
Report and the supporting documents which were made as the bases by the reporters of their
conclusions contained in their respective reports. This Court also Resolved in its resolution to re-open
the referral hearing that was terminated after Judge Cosico had submitted his report and
recommendation with the end in view of allowing petitioner to complete its presentation of evidence
and also for respondents to adduce additional evidence, if so minded, and for both parties to conduct
the required cross-examination of witnesses/deponents, to be done within a period of three months. To
obviate all doubts on Judge Cosico's impartiality, this Court designated a new hearing commissioner in
the person of former Judge Consuelo Santiago of the Regional Trial Court, Makati, Branch 149 (now
Associate Justice of the Court of Appeals).
Three motions for intervention were filed in this case as follows: First, in G.R. No. 70054 filed by
Eduardo Rodriguez and Fortunato M. Dizon, stockholders of petitioner bank for and on behalf of other
stockholders of petitioner; second, in G.R. No. 78894, filed by the same stockholders, and, third, again
in G.R. No. 70054 by BF Depositors' Association and others similarly situated. This Court, on March
1, 1990, denied the aforesaid motions for intervention.
On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the Court of Appeals
submitted her report and recommendation (to be hereinafter called, "Santiago Report") on the following
issues stated therein as follows:
"1) Had the Monetary Board observed the procedural requirements laid down in Sec. 29 of R.A.
265, as amended to justify the closure of the Banco Filipino Savings and Mortgage Bank?
"2) On the date of BF's closure (January 25, 1985) was its condition one of insolvency or would its
continuance in business involve probable loss to its depositors or creditors?"
The commissioner after evaluation of the evidence presented, found and recommended the following:
"1. That the TEODORO and TIAOQUI reports did not establish, in accordance with Sec. 29 of the
R.A. 265, as amended, BF's insolvency as of July 31, 1984 or that its continuance in business thereafter
would involve probable loss to its depositors or creditors. On the contrary, the evidence indicates that
BF was solvent on July 31, 1984 and that on January 25, 1985, the day it was closed, its insolvency was
not clearly established;
"2. That consequently, BF's closure on January 25, 1985, not having satisfied the requirements
prescribed under Sec. 29 of RA 265, as amended, was null and void. prcd
"3. That accordingly, by way of correction, BF should be allowed to re-open subject to such laws,
rules and regulations that apply to its situation.".
Respondents thereafter filed a motion for leave to file objections to the Santiago Report. In the same
motion, respondents requested that the report and recommendation be set for oral argument before the
Court. On February 7, 1991, this Court denied the request for oral argument of the parties.
On February 25, 1991, respondents filed their objections to the Santiago Report. On March 5, 1991,
respondents submitted a motion for oral argument alleging that this Court is confronted with two
conflicting reports on the same subject, one upholding on all points the Monetary Board's closure of
petitioner, (Cosico Report dated February 19, 1988) and the other (Santiago Report dated January 25,
1991) holding that petitioner's closure was null and void because petitioner's insolvency was not clearly
established before its closure; and that such a hearing on oral argument will therefore allow the parties
to directly confront the issues before this Court.
On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On March 20, 1991,
it filed its reply to respondents' objections to the Santiago Report.
On June 18, 1991, a hearing was held where both parties were heard on oral argument before this
Court. The parties, having submitted their respective memoranda, the case is now submitted for
decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as Civil Case No.
9675 to annul the resolution of the Monetary Board dated January 25, 1985, which ordered the closure
of the bank and placed it under receivership.
On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the complaint on
the ground that the receivers had not authorized anyone to file the action. In a supplemental motion to
dismiss, the Central Bank cited the resolution of this Court dated October 15, 1985 in G.R No. 65723
entitled, "Central Bank et al. v. Intermediate Appellate Court" whereby We held that a complaint
questioning the validity of the receivership established by the Central Bank becomes moot and
academic upon the initiation of liquidation proceedings.
While the motion to dismiss was pending resolution, petitioner herein Metropolis Development
Corporation (Metropolis for brevity) filed a motion to intervene in the aforestated civil case on the
ground that as a stockholder and creditor of Banco Filipino, it has an interest in the subject of the
action.
On July 19, 1985, the trial court denied the motion to dismiss and also denied the motion for
reconsideration of the order later filed by Central Bank. On June 5, 1985, the trial court allowed the
motion for intervention.
Hence, the Central Bank and the receivers of Banco Filipino filed a petition for certiorari with the
respondent appellate court alleging that the trial court committed grave abuse of discretion in not
dismissing Civil Case No. 9675.
On March 17, 1986, the respondent appellate court rendered a decision annulling and setting aside the
questioned orders of the trial court, and ordering the dismissal of the complaint filed by Banco Filipino
with the trial court as well as the complaint in intervention of petitioner Metropolis Development
Corporation.
Hence this petition was filed by Metropolis Development Corporation questioning the decision of the
respondent appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was filed with the trial court in the name of Banco Filipino to annul
the resolution of the Monetary Board dated January 25, 1985 which ordered the closure of Banco
Filipino and placed it under receivership. The receivers appointed by the Monetary Board were Carlota
Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the complaint on
the ground that the receiver had not authorized anyone to file the action.
On March 22, 1985, the Monetary Board placed the bank under liquidation and designated Valenzuela
as liquidator and Aurellano and Tiaoqui as deputy liquidators. cdphil
The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter filed a
petition for certiorari with the respondent appellate court to set aside the order of the trial court denying
the motion to dismiss. On March 17, 1986, the respondent appellate court granted the petition and
dismissed the complaint of Banco Filipino with the trial court.
Thus, this petition for certiorari was filed with the petitioner contending that a bank which has been
closed and placed under receivership by the Central Bank under Section 29 of RA 265 could file suit in
court in its name to contest such acts of the Central Bank, without the authorization of the CB-
appointed receiver.
After deliberating on the pleadings in the following cases:
1. In G.R. No. 68878, the respondent's motion for reconsideration;
2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-rejoinder;
3. In G.R. No. 78766, the petition, comment, reply and rejoinder;
4. In G.R. No. 81303, the petitioner's motion for reconsideration;
5. In G.R. No. 81304, the petition, comment and reply;
6. Finally, in G.R. No. 90473, the petition, comment and reply,.
We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the petitions in G.R. Nos.
77255-58, 78766, 81304 and 90473 devoid of merit.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that
when a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the bank's assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the same for the benefit of its
creditors, and represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the
Monetary Board shall later determine and confirm that the banking institution is insolvent or cannot
resume business with safety to depositors, creditors and the general public, it shall, if public interest
requires, order its liquidation and appoint a liquidator who shall take over and continue the functions of
the receiver previously appointed by Monetary Board. The liquidator may, in the name of the bank and
with the assistance of counsel as he may retain, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of such institution or defend any action
filed against the institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in
G.R. No. 70054, the pendency of the case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the administration of the bank. In fact when We adopted a
resolution on August 25, 1985 and issued a restraining order to respondents Monetary Board and
Central Bank, We enjoined merely further acts of liquidation. Such acts of liquidation, as explained in
Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking
institution to money or the sale, assignment or disposition of the same to creditors and other parties for
the purpose of paying the debts of such institution. We did not prohibit however acts such as receiving
collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal
operations of a bank. There is no doubt that the prosecution of suits for collection and the foreclosure
of mortgages against debtors of the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. Neither did Our order in the same resolution
dated August 25, 1985 for the designation by the Central Bank of a comptroller for Banco Filipino alter
the powers and functions of the liquidator insofar as the management of the assets of the bank is
concerned. The mere duty of the comptroller is to supervise accounts and finances undertaken by the
liquidator and to determine the propriety of the latter's expenditures incurred in behalf of the bank.
Notwithstanding this, the liquidator is still empowered under the law to continue the functions of the
receiver in preserving and keeping intact the assets of the bank in substitution of its former
management, and to prevent the dissipation of its assets to the detriment of the creditors of the bank.
These powers and functions of the liquidator in directing the operations of the bank in place of the
former management or former officials of the bank include the retaining of counsel of his choice in
actions and proceedings for purposes of administration. prLL
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or through counsel
has the authority to bring actions for foreclosure of mortgages executed by debtors in favor of the bank.
In G.R. No. 81303, the liquidator is likewise authorized to resist or defend suits instituted against the
bank by debtors and creditors of the bank and by other private persons. Similarly, in G.R. No. 81304,
due to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial transactions
entered into by Banco Filipino when the operations of the latter were suspended by reason of its
closure. The Central Bank possesses those powers and functions only as provided for in Sec. 29 of the
Central Bank Act.
While We recognize the actual closure of Banco Filipino and the consequent legal effects thereof on its
operations, We cannot uphold the legality of its closure and thus, find the petitions in G.R. Nos. 70054,
78767 and 78894 impressed with merit. We hold that the closure and receivership of petitioner bank,
which was ordered by respondent Monetary Board on January 25, 1985, is null and void.
It is a well-recognized principle that administrative and discretionary functions may not be interfered
with by the courts. In general, courts have no supervising power over the proceedings and actions of
the administrative departments of the government. This is generally true with respect to acts involving
the exercise of judgment or discretion, and findings of fact. But when there is a grave abuse of
discretion which is equivalent to a capricious and whimsical exercise of judgment or where the power
is exercised in an arbitrary or despotic manner, then there is a justification for the courts to set aside the
administrative determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L-
26990, August 31, 1970, 34 SCRA 751).
The jurisdiction of this Court is called upon, once again, through these petitions, to undertake the
delicate task of ascertaining whether or not an administrative agency of the government, like the
Central Bank of the Philippines and the Monetary Board, has committed grave abuse of discretion or
has acted without or in excess of jurisdiction in issuing the assailed order. Coupled with this task is the
duty of this Court not only to strike down acts which violate constitutional protections or to nullify
administrative decisions contrary to legal mandates but also to prevent acts in excess of authority or
jurisdiction, as well as to correct manifest abuses of discretion committed by the officer or tribunal
involved.
The law applicable in the determination of these issues is Section 29 of Republic Act No. 265, as
amended, also known as the Central Bank Act, which provides:
"SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the condition of any
bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that
the condition of the same is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do business in the Philippines and
designate an official of the Central Bank or a person of recognized competence in banking or finance,
as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect
and gather all the assets and administer the same for the benefits of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes including, but not limited to, bringing
and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing
quasi-banking functions.
"The Monetary Board shall thereupon determine within sixty days whether the institution may be
reorganized or otherwise placed in such a condition so that it may be permitted to resume business with
safety to its depositors and creditors and the general public and shall prescribe the conditions under
which such resumption of business shall take place as well as the time for fulfillment of such
conditions. In such case, the expenses and fees in the collection and administration of the assets of the
institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of
such institution.
"If the Monetary Board shall determine and confirm within the said period that the bank or non-bank
financial intermediary performing quasi-banking functions is insolvent or cannot resume business with
safety to its depositors, creditors, and the general public, it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and approve a liquidation plan which may, when
warranted, involve disposition of any or all assets in consideration for the assumption of equivalent
liabilities. The liquidator designated as hereunder provided shall, by the Solicitor General, file a
petition in the regional trial court reciting the proceedings which have been taken and praying the
assistance of the court in the liquidation of such institutions. The court shall have jurisdiction in the
same proceedings to assist in the adjudication of the disputed claims against the bank or non-bank
financial intermediary performing quasi-banking functions and in the enforcement of individual
liabilities of the stockholders and do all that is necessary to preserve the assets of such institutions and
to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall
designate an official of the Central bank or a person of recognized competence in banking or finance as
liquidator who shall take over and continue the functions of the receiver previously appointed by the
Monetary Board under this Section. The liquidator shall, with all convenient speed, convert the assets
of the banking institutions or non-bank financial intermediary performing quasi-banking functions to
money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of
paying the debts of such institution and he may, in the name of the bank or non-bank financial
intermediary performing quasi-banking functions and with the assistance of counsel as he may retain,
institute such actions as may be necessary in the appropriate court to collect and recover accounts and
assets of such institution or defend any action filed against the institution: Provided, However, That
after having reasonably established all claims against the institution, the liquidator may, with the
approval of the court, effect partial payments of such claims for assets of the institution in accordance
with their legal priority.
"The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver or liquidator and shall from the moment of such receivership or liquidation, be
exempt from any order of garnishment, levy, attachment, or execution. LLpr
"The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under
this Section, Section 28-A, and the second paragraph of Section 34 of this Act shall be final and
executory, and can be set abide by a court only if there is convincing proof, after hearing, that the
action is plainly arbitrary and made in bad faith: Provided, That the same is raised in an appropriate
pleading filed by the stockholders of record representing the majority of the capital stock within ten
(10) days from the date the receiver taxes charge of the assets and liabilities of the bank or non-bank
financial intermediary performing quasi-banking functions or, in case of conservator ship or
liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank or
non-bank financial intermediary of the order of its placement under conservator ship or liquidation. No
restraining order or injunction shall be issued by any court enjoining the Central Bank from
implementing its actions under this Section and the second paragraph of Section 34 of this Act in the
absence of any convincing proof that the action of the Monetary Board is plainly arbitrary and made in
bad faith and the petitioner or plaintiff files a bond, executed in favor of the Central Bank, in an amount
to be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be
dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank
cashier's check, in an amount twice the amount of the bond of the petitioner or plaintiff conditioned
that it will pay the damages which the petitioner or plaintiff may suffer by the refusal or the dissolution
of the injunction. The provisions of Rule 58 of the New Rules of Court insofar as they are applicable
and not inconsistent with the provisions of this Section shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this Section.
"xxx xxx xxx."
Based on the aforequoted provision, the Monetary Board may order the cessation of operations of a
bank in the Philippines and place it under receivership upon a finding of insolvency or when its
continuance in business would involve probable loss to its depositors or creditors. If the Monetary
Board shall determine and confirm within sixty (60) days that the bank is insolvent or can no longer
resume business with safety to its depositors, creditors and the general public, it shall, if public interest
will be served, order its liquidation.
Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894 is whether or not
the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and thereafter
concluding that petitioner bank is insolvent, and in ordering its closure on January 25, 1985.
As We have stated in Our resolution dated August 3, 1989, the documents pertinent to the resolution of
these petitions are the Teodoro Report, Tiaoqui Report, and the Valenzuela, Aurellano and Tiaoqui
Report and the supporting documents made as bases by the supporters of their conclusions contained in
their respective reports. We will focus Our study and discussion however on the Tiaoqui Report and the
Valenzuela, Aurellano and Tiaoqui Report. The former recommended the closure and receivership of
petitioner bank while the latter report made the recommendation to eventually place the petitioner bank
under liquidation. This Court shall likewise take into consideration the findings contained in the reports
of the two commissioners who were appointed by this Court to hold the referral hearings, namely the
report by Judge Manuel Cosico submitted February 20, 1988 and the report submitted by Justice
Consuelo Santiago on January 28, 1991.
There is no question that under Section 29 of the Central Bank Act, the following are the mandatory
requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden
to do business in the Philippines: Firstly, an examination shall be conducted by the head of the
appropriate supervising or examining department or his examiners or agents into the condition of the
bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of
insolvency, or that its continuance in business would involve probable loss to its depositors or
creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the
facts; and lastly, the Monetary Board shall find the statements of the department head to be true.
Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985, revealed that the
finding of insolvency of petitioner was based on the partial list of exceptions and findings on the
regular examination of the bank as of July 31, 1984 conducted by the Supervision and Examination
Sector II of the Central Bank (p. 1, Tiaoqui Report).
On December 17, 1984, this list of exceptions and findings was submitted to the petitioner bank (p. 6,
Tiaoqui Report). This was attached to the letter dated December 17, 1984, of examiner-in-charge
Dionisio Domingo of SES Department II of the Central Bank to Teodoro Arcenas, president of
petitioner bank, which disclosed that the examination of the petitioner bank as to its financial condition
as of July 31, 1984 was not yet completed or finished on December 17, 1984 when the Central Bank
submitted the partial list of findings of examination to the petitioner bank. The letter reads:
"In connection with the regular examination of your institution as of July 31, 1984, we are submitting
herewith a partial list of our exceptions/findings for your comments.
"Please be informed that we have not yet officially terminated our examination (tentatively scheduled
last December 7, 1984) and that we are still awaiting for the unsubmitted replies to our previous
letters/requests. Moreover, other findings/observations are still being summarized including the
classification of loans and other risk assets. These shall be submitted to you in due time" (p. 810, Rollo,
Vol. III; emphasis ours)
It is worthy to note that a conference was held on January 21, 1985 at the Central Bank between the
officials of the latter and of petitioner bank. What transpired and what was agreed upon during the
conference was explained in the Tiaoqui report. LexLib
". . . The discussion centered on the substantial exposure of the bank to the various entities which
would have a relationship with the bank; the manner by which some bank funds were made indirectly
available to several entities within the group; and the unhealthy financial status of these firms in which
the bank was additionally exposed through new funds or refinancing accommodation including accrued
interest.
"Queried in the impact of these clean loans, on the bank solvency, Mr. Dizon (BF Executive Vice
President) intimated that, collectively, these corporations have large undeveloped real estate properties
in the suburbs which can be made answerable for the unsecured loans as well as the Central Bank's
credit accommodations. A formal reply of the bank would still be forthcoming." (pp. 58-59, Rollo, Vol.
I; emphasis ours)
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latter's financial status was one of insolvency or illiquidity. He arrived at the
said conclusion from the following facts: that as of July 31, 1984, total capital accounts consisting of
paid-in capital and other capital accounts such as surplus, surplus reserves and undivided profits
aggregated P351.8 million; that capital adjustments, however, wiped out the capital accounts and
placed the bank with a capital deficiency amounting to P334.956 million; that the biggest adjustment
which contributed to the deficit is the provision for estimated losses on accounts classified as doubtful
and loss which was computed at P600.4 million pursuant to the examination. This provision is also
known as valuation reserves which was set up or deducted against the capital accounts of the bank in
arriving at the latter's financial condition.
Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as to the
setting up of recommended valuation reserves from the assets of petitioner bank. He stated:
"The recommended valuation reserves as bases for determining the financial status of the bank would
need to be discussed with the bank, consistent with standard examination procedure, for which the bank
would in turn reply. Also, the examination has not been officially terminated. (p. 7. Tiaoqui report; p.
59, Rollo, Vol. I).
In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testified that on January
21, 1985, he met with officers of petitioner bank to discuss the advanced findings and exceptions made
by Mr. Dionisio Domingo which covered 70%-80% of the bank's loan portfolio; that at that meeting,
Fortunato Dizon (BF's Executive Vice President) said that as regards the unsecured loans granted to
various corporations, said corporations had large undeveloped real estate properties which could be
answerable for the said unsecured loans and that a reply from BF was forthcoming; that he (Tiaoqui)
however prepared his report despite the absence of such reply; that he believed, as in fact it is stated in
his report, that despite the meeting on January 21, 1985, there was still a need to discuss the
recommended valuation reserves of petitioner bank and; that he however, did not wait anymore for a
discussion of the recommended valuation reserves and instead prepared his report two days after
January 21, 1985 (pp. 3313-3314, Rollo).
Records further show that the examination of petitioner bank was officially terminated only when
Central Bank Examiner-in-charge Dionisio Domingo submitted his final report of examination on
March 4, 1985.
It is evident from the foregoing circumstances that the examination contemplated in Sec. 29 of the CB
Act as a mandatory requirement was not completely and fully complied with. Despite the existence of
the partial list of findings in the examination of the bank, there were still highly significant items to be
weighed and determined such as the matter of valuation reserves, before these can be considered in the
financial condition of the bank. It would be a drastic move to conclude prematurely that a bank is
insolvent if the basis for such conclusion is lacking and insufficient, especially if doubt exists as to
whether such bases or findings faithfully represent the real financial status of the bank.
The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely four days
after a conference with the latter on the examiners' partial findings on its financial position is also
violative of what was provided in the CB Manual of Examination Procedures. Said manual provides
that only after the examination is concluded, should a pre-closing conference led by the examiner-in-
charge be held with the officers/representatives of the institution on the findings/exception, and a copy
of the summary of the findings/violations should be furnished the institution examined so that
corrective action may be taken by them as soon as possible (Manual of Examination Procedures,
General Instruction, p. 14). It is hard to understand how a period of four days after the conference could
be a reasonable opportunity for a bank to undertake a responsive and corrective action on the partial list
of findings of the examiner-in-charge.
We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer
the monetary, banking and credit system of the country and that its powers and functions shall be
exercised by the Monetary Board pursuant to Rep. Act No. 265, known as the Central Bank Act.
Consequently, the power and authority of the Monetary Board to close banks and liquidate them
thereafter when public interest so requires is an exercise of the police power of the state. Police power,
however, may not be done arbitrarily or unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of due process and equal
protection clauses of the Constitution (Central Bank v. Court of Appeals, Nos. L-50031-32, July 27,
1981, 106 SCRA 143).
In the instant case, the basic standards of substantial due process were not observed. Time and again,
We have held in several cases, that the procedure of administrative tribunals must satisfy the
fundamentals of fair play and that their judgment should express a well-supported conclusion.
In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this Court laid down
several cardinal primary rights which must be respected in a proceeding before an administrative body.
prLL
However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not require a previous
hearing before the Monetary Board implements the closure of a bank, since its action is subject to
judicial scrutiny as provided for under the same law (Rural Bank of Bato v. IAC, G.R. No. 65642,
October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June 20, 1988, 162 SCRA 288).
Notwithstanding the foregoing, administrative due process does not mean that the other important
principles may be dispensed with, namely: the decision of the administrative body must have
something to support itself and the evidence must be substantial. Substantial evidence is more than a
mere scintilla. It means such relevant evidence as a reasonable mind might except as adequate to
support a conclusion (Ang Tibay vs. CIR, supra). Hence, where the decision is merely based upon
pieces of documentary evidence that are not sufficiently substantial and probative for the purpose and
conclusion they are presented, the standard of fairness mandated in the due process clause is not met. In
the case at bar, the conclusion arrived at by the respondent Board that the petitioner bank is in an
illiquid financial position on January 23, 1985, as to justify its closure on January 25, 1985 cannot be
given weight and finality as the report itself admits the inadequacy of its basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265 before a bank may be closed is that the
examination should disclose that the condition of the bank is one of insolvency.
As to the concept of whether the bank is solvent or not, the respondents contend that under the Central
Bank Manual of Examination Procedures, Central Bank examiners must recommend valuation
reserves, when warranted, to be set up or deducted against the corresponding asset account to
determine the bank's true condition or net worth. In the case of loan accounts, to which practically all
the questioned valuation reserves refer, the manual provides that:
1. For doubtful loans, or loans the ultimate collection of which is doubtful and in which a
substantial loss is probable but not yet definitely ascertainable as to extent, valuation reserves of fifty
per cent (50%) of the accounts should be recommended to be set up.
2. For loans classified as loss, or loans regarded by the examiner as absolutely uncollectible or
worthless, valuation reserves of one hundred percent (100%) of the accounts should be recommended
to be set up (p. 8, Objections to Santiago report).
The foregoing criteria used by respondents in determining the financial condition of the bank is based
on Section 5 of RA 337, known as the General Banking Act which states:
"SECTION 5. The following terms shall be held to be synonymous and interchangeable:
xxx xxx xxx
f. 'Unimpaired Capital and Surplus,' 'Combined capital accounts,' and 'Net worth,' which terms
shall mean for the purposes of this Act, the total of the 'unimpaired paid-in capital, surplus, and
undivided profits net of such valuation reserves as may be required by the Central Bank."
There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board
to take charge and administer the monetary and banking system of the country and this authority
includes the power to examine and determine the financial condition of banks for purposes provided for
by law, such as for the purpose of closure on the ground of insolvency stated in Section 29 of the
Central Bank Act. But express grants of power to public officers should be subjected to a strict
interpretation, and will be construed as conferring those powers which are expressly imposed or
necessarily implied (Floyd Mechem, Treatise on the Law of Public Offices and Officers, p. 335).
In this case, there can be no clearer explanation of the concept of insolvency than what the law itself
states. Sec. 29 of the Central Bank Act provides that insolvency under the Act, shall be understood to
mean that "the realizable assets of a bank or a non-bank financial intermediary performing quasi-
banking functions as determined by the Central Bank are insufficient to meet its liabilities."
Hence, the contention of the Central Bank that a bank's true financial condition is synonymous with the
terms "unimpaired capital and surplus," "combined capital accounts" and net worth after deducting
valuation reserves from the capital, surplus and unretained earnings, citing Sec. 5 of RA 337 is
misplaced.
Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its liabilities. It is a
basic accounting principle that assets are composed of liabilities and capital. The term "assets" includes
capital and surplus (Exley v. Harris, 267 p. 970, 973, 126 Kan., 302). On the other hand, the term
"capital" includes common and preferred stock, surplus reserves, surplus and undivided profits.
(Manual of Examination Procedures, Report of Examination on Department of Commercial and
Savings Banks, p. 3-C). If valuation reserves would be deducted from these items, the result would
merely be the net worth or the unimpaired capital and surplus of the bank applying Sec. 5 of RA 337
but not the total financial condition of the bank.
Secondly, the statement of assets and liabilities is used in balance sheets. Banks use statements of
condition to reflect the amounts, nature and changes in the assets and liabilities. The Central Bank
Manual of Examination Procedures provides a format or checklist of a statement of condition to be
used by examiners as guide in the examination of banks. The format enumerates the items which will
compose the assets and liabilities of a bank. Assets include cash and those due from banks, loans,
discounts and advances, fixed assets and other property owned or acquired and other miscellaneous
assets. The amount of loans, discounts and advances to be stated in the statement of condition as
provided for in the manual is computed after deducting valuation reserves when deemed necessary. On
the other hand, liabilities are composed of demand deposits, time and savings deposits, cashier's,
manager's and certified checks, borrowings, due to head office, branches and agencies, other liabilities
and deferred credits (Manual of Examination Procedure, p. 9). The amounts stated in the balance sheets
or statements of condition including the computation of valuation reserves when justified, are based
however, on the assumption that the bank or company will continue in business indefinitely, and
therefore, the net worth shown in the statement is in no sense an indication of the amount that might be
realized if the bank or company were to be liquidated immediately (Prentice Hall Encyclopedic
Dictionary of Business Finance, p. 48). Further, based on respondents' submissions, the allowance for
probable losses on loans and discounts represents the amount set up against current operations to
provide for possible losses arising from non-collection of loans and advances, and this account is also
referred to as valuation reserve (p. 9, Objections to Santiago report). Clearly, the statement of condition
which contains a provision for recommended valuation reserves should not be used as the ultimate
basis to determine the solvency of an institution for the purpose of termination of its operations. cdrep
Respondents acknowledge that under the said CB manual, CB examiners must recommend valuation
reserves, when warranted, to be set up against the corresponding asset account (p. 8, Objections to
Santiago report). Tiaoqui himself, as author of the report recommending the closure of petitioner bank
admits that the valuation reserves should still be discussed with the petitioner bank in compliance with
standard examination procedure. Hence, for the Monetary Board to unilaterally deduct an uncertain
amount as valuation reserves from the assets of a bank and to conclude therefrom without sufficient
basis that the bank is insolvent, would be totally unjust and unfair.
The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining
whether the realizable assets of a bank are less than its liabilities. Hence, a bank is solvent if the fair
cash value of all its assets, realizable within a reasonable time by a reasonable prudent person, would
equal or exceed its total liabilities exclusive of stock liability; but if such fair cash value so realizable is
not sufficient to pay such liabilities within a reasonable time, the bank is insolvent. (Gillian v. State,
194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a bank occurs when the
actual cash market value of its assets is insufficient to pay its liabilities, not considering capital stock
and surplus which are not liabilities for such purpose (Exley v. Harris, 267 p. 970, 973, 126 Kan. 302;
Alexander v. Llewellyn, Mo. App., 70 S.W. 2n 115, 117).
In arriving at the computation of realizable assets of petitioner bank, respondents used its books which
undoubtedly are not reflective of the actual cash or fair market value of its assets. This is not the proper
procedure contemplated in Sec. 29 of the Central Bank Act. Even the CB Manual of Examination
Procedures does not confine examination of a bank solely with the determination of the books of the
bank. The latter is part of auditing which should not be confused with examination. Examination
appraises the soundness of the institution's assets, the quality and character of management and
determines the institution's compliance with laws, rules and regulations. Audit is a detailed inspection
of the institution's books, accounts, vouchers, ledgers, etc. to determine the recording of all assets and
liabilities. Hence, examination concerns itself with review and appraisal, while audit concerns itself
with verification (CB Manual of Examination Procedures, General Instructions, p. 5). This Court
however, is not in the position to determine how much cash or market value shall be assigned to each
of the assets and liabilities of the bank to determine their total realizable value. The proper
determination of these matters by using the actual cash value criteria belongs to the field of fact-finding
expertise of the Central Bank and the Monetary Board. Notwithstanding the fact that the figures arrived
at by the respondent Board as to assets and liabilities do not truly indicate their realizable value as they
were merely based on book value, We will however, take a look at the figures presented by the Tiaoqui
Report in concluding insolvency as of July 31, 1984 and at the figures presented by the CB authorized
deputy receiver and by the Valenzuela, Aurellano and Tiaoqui Report which recommended the
liquidation of the bank by reason of insolvency as of January 25, 1985.
The Tiaoqui report dated January 23, 1985, which was based on partial examination findings on the
bank's condition as of July 31, 1984, states that total liabilities of P5,282.1 million exceeds total assets
of P4,947.2 million after deducting from the assets valuation reserves of P612.2 million. Since, as We
have explained in our previous discussion that valuation reserves can not be legally deducted as there
was no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself, then an
adjustment of the figures will show that the liabilities of P5,282.1 million will not exceed the total
assets which will amount to P5,559.4 if the 612.2 million allotted to valuation reserves will not, be
deducted from the assets. There can be no basis therefore for both the conclusion of insolvency and for
the decision of the respondent Board to close petitioner bank and place it under receivership.
Concerning the financial position of the bank as of January 25, 1985, the date of the closure of the
bank, the consolidated statement of condition thereof as of the aforesaid date shown in the Valenzuela,
Aurellano and Tiaoqui report on the receivership of petitioner bank, dated March 19, 1985, indicates
that total liabilities of 4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise,
the consolidated statement of condition of petitioner bank as of January 25, 1985 prepared by the
Central Bank Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to
P4,981,522,996.22 even exceeds total liabilities amounting to P4,540,836,834.15. Based on the
foregoing, there was no valid reason for the Valenzuela, Aurellano and Tiaoqui report to finally
recommend the liquidation of petitioner bank instead of its rehabilitation.
We take note of the exhaustive study and findings of the Cosico report on the petitioner bank's having
engaged in unsafe, unsound and fraudulent banking practices by the granting of huge unsecured loans
to several subsidiaries and related companies. We do not see, however, that this has any material
bearing on the validity of the closure. Section 34 of the RA 265, Central Bank Act empowers the
Monetary Board to take action under Section 29 of the Central Bank Act when a bank "persists in
carrying on its business in an unlawful or unsafe manner." There was no showing whatsoever that the
bank had persisted in committing unlawful banking practices and that the respondent Board had
attempted to take effective action on the bank's alleged activities. During the period from July 27, 1984
up to January 25, 1985, when petitioner bank was under conservator ship no official of the bank was
ever prosecuted, suspended or removed for any participation in unsafe and unsound banking practices,
and neither was the entire management of the bank replaced or substituted. In fact, in her testimony
during the second referral hearing, Carlota Valenzuela, CB Deputy Governor, testified that the reason
for petitioner bank's closure was not unsound, unsafe and fraudulent banking practices but the alleged
insolvency position of the bank (TSN, August 3, 1990, p. 3315, Rollo, Vol. VIII).
Finally, another circumstance which point to the solvency of petitioner bank is the granting by the
Monetary Board in favor of the former a credit line in the amount of P3 billion along with the placing
of petitioner bank under conservator ship by virtue of M.B. Resolution No. 955 dated July 27, 1984.
This paved the way for the reopening of the bank on August 1, 1984 after a self-imposed bank holiday
on July 23, 1984. cdll
On emergency loans and advances, Section 90 of RA 265 provides two types of emergency loans that
can be granted by the Central Bank to a financially distressed bank:
"SECTION 90. . . . In periods of emergency or of imminent financial panic which directly
threaten monetary and banking stability, the Central Bank may grant banking institutions extraordinary
advances secured by any assets which are defined as acceptable security by a concurrent vote of at least
five members of the Monetary Board. While such advances are outstanding, the debtor institution may
not expand the total volume of its loans or investments without the prior authorization of the Monetary
Board."
"The Central Bank may, at its discretion, likewise grant advances to banking institutions, even during
normal periods, for the purpose of assisting a bank in a precarious financial condition or under serious
financial pressures brought about by unforeseen events, or events which, though foreseeable, could not
be prevented by the bank concerned. Provided, however, That the Monetary Board has ascertained that
the bank is not insolvent and has clearly realizable assets to secure the advances. Provided, further,
That a concurrent vote of at least five members of the Monetary Board is obtained." (Emphasis ours)
The first paragraph of the aforequoted provision contemplates a situation where the whole banking
community is confronted with financial and economic crisis giving rise to serious and widespread
confusion among the public, which may eventually threaten and gravely prejudice the stability of the
banking system. Here, the emergency or financial confusion involves the whole banking community
and not one bank or institution only. The second situation on the other hand, provides for a situation
where the Central Bank grants a loan to a bank with uncertain financial condition but not insolvent.
As alleged by the respondents, the following are the reasons of the Central Bank in approving the
resolution granting the P3 billion loan to petitioner bank and the latter's reopening after a brief self-
imposed banking holiday:
"WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on its
own initiative has worked serious hardships on its depositors and has affected confidence levels in the
banking system resulting in a feeling of apprehension among depositors and unnecessary deposit
withdrawals;
"WHEREAS, the Central Bank is charged with the function of administering the banking system;
"WHEREAS, the reopening of Banco Filipino would require additional credit resources from the
Central Bank as well as an independent management acceptable to the Central Bank;
"WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently exists;
". . ." (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to Santiago Report, p.
26; p. 3387, Rollo, Vol. IX; Emphasis ours).
A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the decision
to grant the emergency loan to petitioner bank was that the latter was suffering from financial distress
and severe bank "run" as a result of which it closed on July 23, 1984 and that the release of the said
amount is in accordance with the Central Bank's full support to meet Banco Filipino's depositors'
withdrawal requirements (Excerpts of minutes of meeting on MB Min. No. 35, p. 25, Rollo, Vol. IX).
Nothing therein shows that an extraordinary emergency situation exists affecting most banks, not only
as regards petitioner bank. This Court thereby finds that the grant of the said emergency loan was
intended from the beginning to fall under the second paragraph of Section 90 of the Central Bank Act,
which could not have occurred if the petitioner bank was not solvent. Where notwithstanding
knowledge of the irregularities and unsafe banking practices allegedly committed by the petitioner
bank, the Central Bank even granted financial support to the latter and placed it under conservator ship,
such actuation means that petitioner bank could still be saved from its financial distress by adequate aid
and management reform, which was required by Central Bank's duty to maintain the stability of the
banking system and the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352,
October 4, 1971, 41 SCRA 565).
In view of the foregoing premises, We believe that the closure of the petitioner bank was arbitrary and
committed with grave abuse of discretion. Granting in gratia argumenti that the closure was based on
justified grounds to protect the public, the fact that petitioner bank was suffering from serious financial
problems should not automatically lead to its liquidation. Section 29 of the Central Bank provides that
a closed bank may be reorganized or otherwise placed in such a condition that it may be permitted to
resume business with safety to its depositors, creditors and the general public.
We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as well as its
creditors including itself which had granted substantial financial assistance up to the time of the latter's
closure. But there are alternatives to permanent closure and liquidation to safeguard those interests as
well as those of the general public for the failure of Banco Filipino or any bank for that matter may be
viewed as an irreversible decline of the country's entire banking system and ultimately, it may reflect
on the Central Bank's own viability. For one thing, the Central Bank and the Monetary Board should
exercise strict supervision over Banco Filipino. They should take all the necessary steps not violative of
the laws that will fully secure the repayment of the total financial assistance that the Central Bank had
already granted or would grant in the future.
ACCORDINGLY, decision is hereby rendered as follows:
1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R. Nos.
77255-58, 78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of the
Central Bank and the Monetary Board dated January 25, 1985 is hereby ANNULLED AND SET
ASIDE. The Central Bank and the Monetary Board are ordered to reorganize petitioner Banco Filipino
Savings and Mortgage Bank and allow the latter to resume business in the Philippines under the
comptroller ship of both the Central Bank and the Monetary Board and under such conditions as may
be prescribed by the latter in connection with its reorganization until such time that petitioner bank can
continue in business with safety to its creditors, depositors and the general public.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.
Separate Opinions
MELENCIO-HERRERA, J ., dissenting:
I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R. No. 70054,
to annul Monetary Board Resolution No. 75 placing Banco Filipino (BF) under receivership.
Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of the passage
of said Resolution, there was a finding in the Teodoro report that, based on that Bank's illiquidity, to
have allowed it to continue in operation would have meant probable loss to depositors and creditors.
That is also a ground for placing the bank under receivership, as a first step, pursuant to Section 29 of
the Central Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to
have been arbitrary or made in bad faith. There was sufficient justification, considering its inability to
meet the heavy withdrawals by its depositors and to pay its liabilities as they fell due, to forbid the bank
from further engaging in banking.
The matter of reopening, reorganization or rehabilitation of BF is not within the competence of this
Court to ordain but is better addressed to the Monetary Board and the Central Bank considering the
latter's enormous infusion of capital into BF to the tune of approximately P3.5 Billion in total
accommodations, after a thorough assessment of whether or not BF is, indeed, possessed, as it stoutly
contends, of sufficient assets and capabilities with which to repay such huge indebtedness, and can
operate without loss to its many depositors and creditors.
GRIÑO-AQUINO, J ., dissenting in part.
Although these nine (9) Banco Filipino (BF) cases have been consolidated under one ponencia, all of
them except one, raise issues unrelated to the receivership and liquidation of said bank. In fact, two of
these cases (G.R. No. 68878 and 81303) have already been decided by this Court and are only awaiting
the resolution of the motions for reconsideration filed therein. Only G.R. No. 70054 "Banco Filipino
Savings and Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB),
et al.," is an original action for mandamus and certiorari filed in this Court by former officials of BF to
annul the Monetary Board Resolution No. 75 dated January 25, 1985 (ordering the closure of Banco
Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) on the ground that the
resolution was issued "without affording BF a hearing on the reports" on which the Monetary Board
based its decision to close the bank, hence, without "administrative due process." 1 The prayer of the
petition reads:
"WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued commanding
respondents immediately to furnish it copies of the reports of examination of BF employed by
respondent Monetary Board to support its Resolution of January 25, 1985 and thereafter to afford it a
hearing prior to any resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling
said Resolution of January 25, 1985 by writ of certiorari as made without or in excess of jurisdiction or
with grave abuse of discretion.
"So as to expedite proceedings, petitioner prays that the assessment of the damages respondents should
pay it be deferred and referred to commissioners.
"Petitioner prays for such other remedy as the Court may deem just and equitable in the premises.
"Quezon City for Manila, February 28, 1985." (p. 8, Rollo I.)
and the prayer of the Supplement to Petition reads:
"WHEREFORE, in addition to its prayer for mandamus and certiorari contained in its original petition,
petitioner respectfully prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265)
including its amendatory Presidential Decrees Nos. 72, 1771, 1827 and 1937 be annulled as
unconstitutional. prcd
"Quezon City for Manila, March 4, 1985." (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with third persons and certain "related"
corporations which had defaulted on their loans and sought to prohibit the extrajudicial foreclosure of
the mortgages on their properties by the receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang" involves the
repossession by BF of a house and lot which the buyer (Pahimutang) claimed to have completely paid
for on the installment plan. The appellate court's judgment for the buyer was reversed by this Court.
The buyer's motion for reconsideration is awaiting resolution by this Court;
2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar Development
Corporation vs. Court of Appeals, et al." (CA-G.R. SP No. 07892) and "Pilar Development Corporation
vs. Executive Judge, RTC, Cavite" (CA-G.R. SP Nos. 08962-64) is a consolidated petition for review
of the Court of Appeals' joint decision dismissing the petitions for prohibition in which the petitioners
seek to prevent the receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage
on Top Management's properties and the P18.67 million mortgage on Pilar Development properties.
The Court of Appeals dismissed the petitions on October 30, 1986 on the ground that "the functions of
the liquidator, as receiver under Section 29 (R.A. 265), include taking charge of the insolvent's assets
and administering the same for the benefit of its creditors and of bringing suits and foreclosing
mortgages in the name of the bank; "
3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal from the
Court of Appeals' decision in CA-G.R. SP No. 08809 dismissing El Grande's petition for prohibition to
prevent the foreclosure of BF's P8 million mortgage on El Grande's properties;
4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et al." is an
appeal of BF's old management (using the name of BF) from the decision of the Court of Appeals in
CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al." dismissing the
complaint of "BF" to annul the receivership, for no suit may be brought or defended in the name of the
bank except by its receiver;
5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals" (formerly AC-
G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.") is an appeal of the
intervenor (Metropolis) from the same Court of Appeals' decision subject of G.R. No. 78894, which
also dismissed Metropolis' complaint in intervention on the ground that a stockholder (Metropolis) may
not bring suit in the name of BF while the latter is under receivership, without the authority of the
receiver;
6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an appeal from
the decision dated October 22, 1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar
Development Corporation, et al. vs. Honorable Manuel Cosico, et al.," dismissing the petition for
certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by
Pilar Development Corporation against BF, for specific performance of certain developer contracts. An
answer filed by Norberto Quisumbing and Associates, as BF's supposed counsel, virtually confessed
judgment in favor of Pilar Development. On motion of the receiver, the answer was expunged and the
complaint was dismissed. On a petition for certiorari in this Court, we held that: "As liquidator of BF
by virtue of a valid appointment from the Central Bank, private respondent Carlota Valenzuela has the
authority to direct the operation of the bank in substitution of the former management, which authority
includes the retainer of counsel to represent it in bringing or resisting suits in connection with such
liquidation and, in the case at bar, to take the proper steps to prevent collusion, to the prejudice of the
legitimate creditors, between BF and the petitioners herein which appear to be owned and controlled by
the same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of that
decision is pending resolution. prcd
7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is an
appeal from the decision dated November 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565
affirming the trial court's order dismissing BF Homes' action to compel the Central Bank to restore the
financing facilities of BF, because the plaintiff (BF Homes) has no cause of action against the CB.
8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a
petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's
petition for prohibition to stop foreclosure proceedings against it by the receiver of BF.
As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special civil action
for certiorari and mandamus filed in this Court by the old management of BF, through their counsel,
N.J. Quisumbing & Associates, using the name of the bank and praying for the annulment of MB
Resolution No. 75 which ordered the closure of BF and placed it under receivership. It is a "forum-
shopping" case because it was filed here or February 28, 1985 three weeks after they had filed on
February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the Regional Trial
Court of Makati, Br. 143 (presided over by Judge Zoilo Aguinaldo) for the same purpose of securing a
declaration of the nullity of MB Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No. 9675 (to annul
the receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico) of the Makati Regional Trial Court
where Civil Case No. 8108 (to annul the conservator ship) and Civil Case No. 10183 (to annul the
liquidation) of BF were and are still pending. All these three (3) cases were archived on June 30, 1988
by Judge Cosico pending the resolution of G.R. No. 70054 by this Court.
Because of my previous participation, as a former member of the Court of Appeals, in the disposition
of AC-G.R. No. 02617 (now G.R. No. 68378) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and
78894), I am taking no part in G.R. Nos. 68878, 78767 and 78894. It may be mentioned in this
connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the Court of
Appeals rule on the constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act),
as amended, and the validity of MB Resolution No. 75, for those issues were not raised in the Court of
Appeals.
I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No. 81303, and
dismisses the petitions for review in G.R. Nos. 77255-58, 78766, 81304, and 90473.
I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting aside MB
Resolution No. 75 and ordering the respondents, Central Bank of the Philippines and the Monetary
Board —
"to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow the latter to resume
business in the Philippines under the comptroller ship of both the Central Bank and the Monetary
Board and under such conditions as may be prescribed by the latter until such time that petitioner bank
can continue in business with safety to its creditors, depositors and the general public."
for I believe that this Court has neither the authority nor the competence to determine whether or not,
and under what conditions, BF should be reorganized and reopened. That decision should be made by
the Central Bank and the Monetary Board, not by this Court. prLL
All that we may determine in this case is whether the actions of the Central Bank and the Monetary
Board in closing BF and placing it under receivership were "plainly arbitrary and made in bad faith."
Section 29 of Republic Act No. 265 provides:
"SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising and examining department or his examiners or agents into the condition of any
banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of
the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the
Board may, upon finding the statements of the department head to be true, forbid the institution to do
business in the Philippines and shall designate an official of the Central Bank as receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all
the assets and administer the same for the benefit of its creditors, exercising all the powers necessary
for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of
the banking institution.
"The Monetary Board shall thereupon determine within sixty days whether the institution may be
reorganized or otherwise placed in such a condition so that it may be permitted to resume business with
safety to its depositors and creditors and the general public and shall prescribe the conditions under
which such resumption of business shall take place as well as the time for fulfillment of such
conditions. In such case, the expenses and fees in the collection and administration of the assets of the
institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of
such banking institution.
"If the Monetary Board shall determine and confirm within the said period that the banking institution
is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it
shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and
approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court
of First Instance, reciting the proceedings which have been taken and praying the assistance of the
court in the liquidation of the banking institutions. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the
stockholders and do all that is necessary to preserve the assets of the banking institution and to
implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate
an official of the Central Bank as liquidator who shall take over the functions of the receiver previously
appointed by the Monetary Board under this section. The liquidator shall, with all convenient speed,
convert the assets of the banking institution to money or sell, assign or otherwise dispose of the same to
creditors and other parties for the purpose of paying the debts of such bank and he may, in the name of
the banking institution, institute such actions as may be necessary in the appropriate court to collect and
recover accounts and assets of the banking institution.
"The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under
this section and the second paragraph of Section 34 of this Act shall be final and executory, and can be
set aside by the court only if there is convincing proof that the action is plainly arbitrary and made in
bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank
from implementing its actions under this section and the second paragraph of Section 34 of this Act,
unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in
bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is
pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The
restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the
Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an
amount twice the amount of the bond of the petitioner or plaintiff, conditioned that it will pay the
damages which the petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction.
The provisions of Rule 58 of the new Rules of Court insofar as they are applicable and not inconsistent
with the provisions of this section shall govern the issuance and dissolution of the restraining order or
injunction contemplated in this section.
Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its
liabilities as they fall due in the usual and ordinary course of business, provided, however, that this
shall not include the inability to pay of an otherwise non-insolvent bank caused by extra-ordinary
demands induced by financial panic commonly evidenced by a run on the banks in the banking
community." LLjur
The determinative factor in the closure, receivership, and liquidation of a bank is the finding, upon
examination by the SES of the Central Bank, that its condition "is one of insolvency, or that its
continuance in business would involve probable loss to its depositors and creditors." (Sec. 29, R.A.
265.) It should be pointed out that insolvency is not the only statutory ground for the closure of a bank.
The other ground is when "its continuance in business would involve probable loss to its depositors and
creditors."
Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary course of
business, on and for some time before January 25, 1985 when the Monetary Board issued Resolution
No. 75 closing the bank and placing it under receivership? Would its continued operation involve
probable loss to its depositors and creditors?
The answer to both questions is yes. Both the conservator Gilberto Teodoro and the head of the SES
(Supervision and Examination Sector) Ramon V. Tiaoqui opined that BF's continuance in business
would cause probable loss to depositors and creditors. Tiaoqui further categorically found that BF was
insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela, Arnulfo B.
Aurellano and Ramon V. Tiaoqui, showed that since the end of November 1983 BF had already been
incurring "chronic reserve deficiencies" and experiencing severe liquidity problems. So much so, that it
had become "a substantial borrower in the call loans market" and in June 1984 it obtained a P30 million
emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergency loans (a total
of P119.7 millions) were extended by the Central Bank to BF that month (MB Res. No. 839 dated June
29, 1984). On July 12, 1984, BF's chairman, Anthony Aguirre, offered to "turn over the administration
of the affairs of the bank" to the Central Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of
Manifestation dated May 3, 1991). On July 23, 1984, unable to meet heavy deposit withdrawals, BF's
management motu proprio, without obtaining the conformity of the Central Bank, closed the bank and
declared a bank holiday. On July 27, 1984, the CB, responding to BF's pleas for additional financial
assistance, granted BF a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to enable it to reopen
and resume business on August 1, 1984. P2.3601 billions of the credit line were availed of by the end
of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations
granted to BF amounted to P3.4122 billions (p. 19, Cosico Report).
Presumably to assure that the financial assistance would be properly used, the MB appointed Basilio
Estanislao as conservator of the bank. A conservatorship team of 78 examiners and accountants was
assigned at the bank to keep track of its activities and ascertain its financial condition (p. 8, Tiaoqui
Report).
Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto Teodoro as
conservator in August, 1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro hired financial consultants Messrs. Tirso G. Santillan, Jr.
and Plorido P. Casuela to make an analysis of BF's financial condition. Teodoro also engaged the
accounting firm of Sycip, Gorres, Velayo and Company to make an asset evaluation. The Philippine
Appraisal Company (PAC) appraised BF's real estate properties, acquired assets, and collaterals held.
On January 9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui
also submitted his Report. Both reports showed that, in violation of Section 37 of the General Banking
Act (R.A. 337): 2
1. BF had been continually deficient in liquidity reserves (Teodoro Report). The bank had been
experiencing a severe drop in liquidity levels. The ratio of liquid assets to deposits and borrowings
plunged from about 20% at end-1983, to about 8.6% by end-May 1984, much below the statutory
requirements of 24% for demand deposits/deposit substitutes and 14% for savings and time deposits.
(p. 2, Tiaoqui Report.)
2. Deficiencies in average daily legal reserves rose from P63.0 million during the week of
November 21-25, 1983 to a high of P435.9 million during the week of June 11-15, 1984 (pp. 2-3,
Tiaoqui Report). Accumulated penalties on reserve deficiencies amounted to P37.4 million by July 31,
and rose to P48 million by the end of 1984. (Tiaoqui Report.)
3. Deposit levels, which were at P3,845 million at end-May 1984 (its last "normal" month),
dropped to P935 million at the end of November 1984 or a loss of P2,910 million. This represented an
average monthly loss of P485 million vs. an average monthly gain of P26 million during the first 5
months of 1984. (pp. 2-3, Tiaoqui Report.)
4. Deposits had declined at the rate of P20 million during the month of December 1984, but
expenses of about P17 million per month were required to maintain the bank's operations. (p. 5,
Teodoro Report.)
5. Based on the projected outlook, the Bank's average yield on assets of 16.3% p.a., was
insufficient to meet the average cost of funds of 19.5% p.a. and operating expenses of 4.8% p.a. (p. 5
Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term applications. (Teodoro
Report.) LLpr
7. BF overextended itself in lending to the real estate industry, committing as much as 52% of its
peso deposits to its affiliates or "related accounts" to which it continued lending even when it was
already suffering from liquidity stresses. (Teodoro Report.) This was done in violation of Section 38 of
the General Banking Act (R.A. 337). 3
8. During the period of marked decline in liquidity levels the loan portfolio grew by P417.3
million in the first five months of 1984 — and by another P105.1 million in the next two months. (pp.
2-3, Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2% of it channeled to
companies whose stockholders, directors and officers were related to the officers, directors, and some
stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking Act (R.A.
337). 4
10. Some of the loans were used to acquire preferred stocks of BF. Between September 17, 1983
and February 10, 1984, P49.9 million of preferred non-convertible stocks were issued. About 85% or
P42.4 million was paid out of the proceeds of loans to stockholders/borrowers with relationship to the
bank (Annex D). Around P18.8 million were issued in the name of an entity other than the purchaser of
the stocks. (Tiaoqui Report.)
11. Loans amounting to some P69.3 million were granted simply to pay-off old loans including
accrued interest, as an accommodation for the direct maturing loans of some firms and as a way of
paying-off loans of other borrower firms which have their own credit lines with the bank. These helped
to make otherwise delinquent loans appear "current" and deceptively "improved" the quality of the loan
portfolio. (Tiaoqui Report.)
12. Examination of the collaterals for the loan accounts of 63 major borrowers and 32 other selected
borrowers as of July 31, 1984, showed that:
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million were appraised by PAC to be
worth only P1,196 million, hence, deficient by P291 million.
(b) Other properties (collaterals) supposedly worth P711 million could not be evaluated by PAC
because the details submitted by the bank were insufficient;
(c) While P674 million in loans were supposedly guaranteed by the Home Financing Corporation
(HFC), the latter confirmed only P427 million. P247 million in loans were not guaranteed by HFC.
(Teodoro Report.)
(d) Per SGV's report, loans totalling P1.882 million including accrued interest, were secured by
collateral worth only P1.54 billion. Hence, BF's unsecured exposure amounted to P586.2 million. BF
Homes, Inc., a related company which has filed with the SEC a petition for suspension of payments,
owes P502 million to BF.
13. BF had been suffering heavy losses. —
a) For the eleven (11) months ended November 30, 1984, the estimated net loss was P372.6
Million;
b) For the twelve (12) months from November 1984, the projected net loss would be P390.7
Million and would continue unabated; (p. 2, Teodoro Report)
c) Around 71.7% of the total accommodations of P2.0677 billions to the related/linked entities
were adversely classified. Close to 33.7% or P697.1 millions were clean loans or against PNs
(promissory notes) of these entities. Of the latter, 52.6% were classified as loss." (p. 5, Tiaoqui Report.)
d) The bank's financial condition as of date of examination, after setting up the additional
valuation reserves of P612.2 millions and accumulated net loss of P48.2 millions, indicates one of
insolvency. Total liabilities of P5,282.1 million exceeds total assets of P4,947.2 million by 6.8%. Total
capital account of P334.9 million) is deficient by P322.7 million against the minimum capital required
of P657.6 million (Annex F). Capital to risk assets ratio is negative 10.33%.
e) Total loans and investment portfolio amounted to P3,914.3 millions (gross), of which P194.0
millions or 5.0% were past due and P1,657.1 millions or 42.3% were adversely classified (Substandard
— P1,011.4 millions; Doubtful — P274.6 millions and Loss — P371.1 millions). Accounts adversely
classified included unmatured loan of P1,482.0 million to entities related with each other and to the
bank, several of which showed distressed conditions." (p. 7, Tiaoqui Report.).
Teodoro's conclusion was that "the continuance of the bank in business would involve probable loss to
its depositors and creditors." He recommended "that the Monetary Board take a more effective and
responsible action to protect the depositors and creditors . . . in the light of the bank's worsening
condition." (p. 5, Teodoro Report.) LLpr
On January 23, 1985, Tiaoqui submitted his report to the Monetary Board. Like Teodoro, Tiaoqui
believed that the principal cause of the bank's failure was that in violation of the General Banking Law
and CB rules and regulations, BF's major stockholders, directors and officers, through their "related"
companies: (i.e. companies owned or controlled by them of their relatives) had been "borrowing" huge
chunks of the money of the depositors. His Conclusion and Recommendations were:
"The Conservator, in his report to the Monetary Board dated January 8, 1985, has stated that the
continuance of the bank in business would involve probable loss to its depositors and creditors. It has
recommended that a more effective action be taken to protect depositors and creditors.
"The examination findings as of July 31, 1984 as shown earlier, indicate one of insolvency and
illiquidity and further confirms the above conclusion of the Conservator.
"All the foregoing provides sufficient justification for forbidding the bank from further engaging in
banking.
"Foregoing considered, the following are recommended:
"1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective
the beginning of office on January, 1985, pursuant to Sec. 29 of R.A. No. 265, as amended;
"2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings
& Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise
all the powers necessary for these purposes including but not limited to bringing suits and foreclosing
mortgages in the name of the bank.
"3. The Board of directors and the principal officers from Senior Vice President, as listed in the
attached Annex 'A' be included in the watch list of the Supervision and Examination Sector until such
time that they shall have cleared themselves.
"4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report on
the findings on Banco Filipino for investigation and possible prosecution of directors, officers and
employees for activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.).
On January 25, 1985 or two days after the submission of Tiaoqui's Report, and three weeks after it
received Teodoro's Report, the Monetary Board, then composed of:
Chairman: Jose B. Fernandez, Jr.
CB Governor.
Members:
1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance
2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of Investment
3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director General of NEDA
4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37, Annual Report
1985).
issued Resolution No. 75 closing BF and placing it under receivership. The MB Resolution reads as
follows:
"After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and
Mortgage Bank that the continuance in business of the bank would involve probable loss to its
depositors and creditors, and after discussing and finding to be true the statements of the Special
Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II, as
recited in his memorandum dated January 23, 1985, that the Banco Filipino Savings and Mortgage
Bank is insolvent and that its continuance in business would involve probable loss to its depositors and
creditors, and in pursuance of Section 29 of R.A. No. 265, as amended, the Board decided: cdll
"1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the
Philippines;
"2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver who is hereby directly
vested with jurisdiction and authority to immediately take charge of the bank's assets and liabilities,
and as expeditiously as possible collect and gather all the assets and administer the same for the benefit
of its creditors, exercising all the powers necessary for these purposes including, but not limited to,
bringing suits and foreclosing mortgagee in the name of the bank;
"3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V.
Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector Department
II, as Deputy Receivers who are likewise hereby directly vested with jurisdiction and authority to do all
things necessary or proper to carry out the functions entrusted to them by the Receiver and otherwise to
assist the Receiver in carrying out the functions vested in the Receiver by law or Monetary Board
resolutions;
"4. To direct and authorize Management to do all other things and carry out all other measures
necessary or proper to implement this Resolution and to safeguard the interests of depositors/creditors
and the general public; and
"5. In consequence of the foregoing, to terminate the conservator ship over Banco Filipino Savings
and Mortgage Bank." (pp. 126-127, Rollo I.)
On March 19, 1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B. Aurellano
and Ramon V. Tiaoqui, submitted a report to the Monetary Board as required in Section 29, 2nd
paragraph of R.A 265 which provides that within sixty (60) days from date of the receivership, the
Monetary Board shall determine whether the bank may be reorganized and permitted to resume
business, or be liquidated. The receivers recommended that BF be placed under litigation. For, among
other things, they found that:
1. BF had been suffering a capital deficiency of P336.5 million as of July 31, 1984 (pp. 2 and 4,
Receivers' Report).
2. The bank's weekly reserve deficiencies averaged P146.67 million from November 25, 1983 up
to March 16, 1984, rising to a peak of P338.09 million until July 27, 1984. Its reserve deficiencies
against deposits and deposit substitutes began on the week ending June 15, 1984 up to December 7,
1984, with average daily reserve deficiencies of P2.98 million.
3. Estimated losses or "unbooked valuation reserves" for loans to entities with relationships to
certain stockholders/directors and officers of the bank amounted to P600.5 million. Combined with
other adjustments in the amount of P73.2 million, they will entirely wipe out the bank's entire capital
account and leave a capital deficiency of P336.5 million. The bank was already insolvent on July 31,
1984. The capital deficiency increased to P908.4 million as of January 25, 1985 on account of
unbooked penalties for deficiencies in legal reserves (P49.07 million), unbooked interest on
overdrawings, emergency advance of P569.49 million from Central Bank, and additional valuation
reserves of P124.5 million. (pp. 3-4, Receivers' Report.)
The Receivers further noted that —
"After BF was closed as of January 25, 1985, there were no collections from loans granted to firms
related to each other and to BF classified as 'doubtful' or 'loss,' there were no substantial improvements
on other loans classified 'doubtful' or 'loss;' there was no further increase in the value of assets owned
acquired supported by new appraisals and there was no infusion of additional capital such that the
estimated realizable assets of BF remained at P3,909.23, (millions) while the total liabilities amounted
to P5,159.44 (millions). Thus, BF remains insolvent with estimated deficiency to creditors of P1,250.21
(millions).
"Moreover, there were no efforts on the part of the stockholders of the bank to improve its financial
condition and the possibility of rehabilitation has become more remote." (p. 8, Receivers' Report.)
In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do not find that
the CB's Resolution No. 75 ordering BF to cease banking operations and placing it under receivership
was "plainly arbitrary and made in bad faith." The receivership was justified because BF was insolvent
and its continuance in business would cause loss to its depositors and creditors. Insolvency, as defined
in Rep. Act 265, means "the inability of a banking institution to pay its liabilities as they fall due in the
usual and ordinary course of business. Since June 1984, BF had been unable to meet the heavy cash
withdrawals of its depositors and pay its liabilities to its creditors, the biggest of them being the Central
Bank, hence, the Monetary Board correctly found its condition to be one of insolvency. prcd
All the discussion in the Santiago Report concerning the bank's assets and liabilities as determinants of
BF's solvency or insolvency is irrelevant and inconsequential, for under Section 29 of Rep. Act. 265, a
bank's insolvency is not determined by its excess of liabilities over assets, but by its "inability to pay its
liabilities as they fall due in the ordinary course of business" and it was abundantly shown that BF was
unable to pay its liabilities to depositors for over a six-month-period before it was placed under
receivership.
Even if assets and liabilities were to be factored into a formula for determining whether or not BF was
already insolvent on or before January 25, 1985, the result would be no different. The bank's assets as
of the end of 1984 amounted to P4.891 billions (not P6 billions) according to the Report signed and
submitted to the CB by BF's own president, and its total liabilities were P4.478 billions (p. 58, Cosico
Report). While Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report
did not make any provision for estimated valuation reserves amounting to P600.5 millions, (50% of
face value of doubtful loans and 100% of face value of loss accounts) which BF had granted to its
related/linked companies. The estimated valuation reserves of P600.5 millions plus BF's admitted
liabilities of P4.478 billions, put together, would wipe out BF's realizable assets of P4.891 billions and
confirm its insolvent condition to the tune of P187.538 millions.
BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves should not
be considered because the matter was not discussed by Tiaoqui with BF officials is not well taken for:
(1) The records of the defaulting debtors were in the possession of BF.
(2) The "adversely classified" loans were in fact included in the List of Exceptions and Findings (of
irregularities and violations of laws and CB rules and regulations) prepared by the SES, a copy of
which was furnished BF on December 17, 1984;
(3) A conference on the matter was held on January 21, 1985 with senior officials of BF headed by
EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally protest against the CB's estimate of
valuation reserves. The CB could not wait forever for BF to respond for the CB had to act with
reasonable promptness to protect the depositors and creditors of BF because the bank continued to
operate.
(4) Subsequent events proved correct the SES classification of the loan accounts as "doubtful" or
"loss" because as of January 25, 1985 none of the loans, except three, had been paid either partially or
in full, even if they had already matured (p. 53, Cosico Report).
The recommended provision for valuation reserves of P600.5 millions for "doubtful" and "loss"
accounts was a proper factor to consider in the capital adjustments of BF and was in accordance with
accounting rules. For, if the uncollectible loan accounts would be entered in the assets column as
"receivables," without a corresponding entry in the liabilities column for estimated losses or valuation
reserves arising from their uncollectability, the result would be a gravely distorted picture of the
financial condition of BF.
BF's strange argument that it was not insolvent for otherwise the CB would not have given it financial
assistance does not merit serious consideration for precisely BF needed financial assistance because it
was insolvent.
Tiaoqui's admission that the examination of BF had "not yet been officially terminated" when he
submitted his report on January 23, 1985 did not make the action of the Monetary Board of closing the
bank and appointing receivers for it, "plainly arbitrary and in bad faith." For what had been examined
by the SES was more than enough to warrant a finding that the bank was "insolvent and could not
continue in business without probable loss to its depositors or creditors," and what had not been
examined was negligible and would not have materially altered the result. In any event, the official
termination of the examination with the submission by the Chief Examiner of his report to the
Monetary Board in March 1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui
Report. LLphil
The responsibility of administering the Philippine monetary and banking systems is vested by law in
the Central Bank whose duty it is to use the powers granted to it under the law to achieve the objective,
among others, of maintaining monetary stability in the country (Sec. 2, Rep. Act 265). I do not think it
would be proper and advisable for this Court to interfere with the CB's exercise of its prerogative and
duty to discipline banks which have persistently engaged in illegal, unsafe, unsound and fraudulent
banking practices causing tremendous losses and unimaginable anxiety and prejudice to depositors and
creditors and generating widespread distrust and loss of confidence in the banking system. The damage
to the banking system and to the depositing public is bigger when the bank, like Banco Filipino, is big.
With 89 branches nationwide, 46 of them in Metro Manila alone, pumping the hard-earned savings of 3
million depositors into the bank, BF had no reason to go bankrupt if it were properly managed. The
Central Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even this
financial assistance was misused, for instead of satisfying the depositors' demands for the withdrawal
of their money, BF channeled and diverted a substantial portion of the funds into the coffers of its
related/linked companies. Up to this time, its officers, directors and major stockholders have neither
repaid the Central Bank's P3.5 billion financial assistance, nor put up adequate collaterals therefor, nor
submitted a credible plan for the rehabilitation of the bank. What authority has this Court to require the
Central Bank to reopen and rehabilitate the bank, and in effect risk more of the Government's money in
the moribund bank? I respectfully submit that decision is for the Central Bank, not for this Court, to
make.
WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054 for lack
of merit.
Footnotes
GRIÑO-AQUINO, J.:
1. p. 3, Petition.
2. Sec. 37. All savings and mortgage banks shall maintain on deposit with the Central Bank of the
Philippines such reserves against their deposit liabilities as the Monetary Board shall determine in
accordance with the pertinent provisions of the Central Bank Act.
3. Sec. 38. Whenever there is a call by depositors of a savings bank for repayment of their deposits
and the call so made shall result in reducing its legal reserves below the amount required by the
Monetary Board, such bank shall not make any new loans or investment of the funds of depositors or
earnings of such funds until the call of the depositors has been satisfied and its legal reserves have been
restored to the required minimum.
4. Sec. 83. No director or officer of any banking institution shall, either directly or indirectly, for
himself or as the representative or agent of others, borrow any of the deposits of funds of such bank . . .
SECOND DIVISION
[G.R. No. 111480. March 10, 1994.]
PHILIPPINE AIRLINES, INC., petitioner, vs. HON. SECRETARY OF LABOR NIEVES R.
CONFESOR and PHILIPPINE AIRLINES EMPLOYEES' ASSOCIATION, respondents.
DECISION
NOCON, J p:
This petition for certiorari filed by petitioner Philippine Airlines, Inc. (PAL) seeks to annul the Orders
dated June 30, 1993 and July 30, 1993 of respondent Secretary of Labor Nieves R. Confesor which
directed the inclusion of benefits worth at least P1.268 billion in its collective bargaining agreement
(CBA) with the respondent Philippine Airlines Employees' Association (PALEA). cdrep
The facts are as follows: On September 30, 1992, the non-representation aspects or economic package
of the 1989-1992 CBA between PAL and PALEA expired. That same day, PALEA expressed its desire
to renegotiate the CBA and submitted its proposals for an economic package that would cost PAL
P16.1 billion.
Negotiations soon began thereafter. PAL presented its proposed economic package amounting to P1
billion. This was rejected by PALEA. The parties continued their negotiations, but were unable to reach
an agreement. llcd
On May 3, 1993, PALEA declared a deadlock in the negotiations and filed on the following day a
notice of strike with the National Conciliation and Mediation Board (NCMB), which was docketed as
NCMB-NCR-NS-05-282-93.
At the time of the deadlock, the positions of the parties were as follows:
1. PAL — It proposed a P991,492,046.00 package, broken down as follows:
Wage increase:
Year 1 — P1,200.00
Year 2 — 650.00
Year 3 — 750.00
Under this wage structure, PAL would end up paying the following amounts:
Salary increase — P591,673,800.00
Retirement — 217,067,095.00
Seniority pay — 44,782,164.00
Benefits — 137,967,987.00
——————
TOTAL — P991,492,046.00
PAL also proposed several provisions to increase productivity, cut cost and generate revenue.
2. PALEA — It proposed the following economic package, broken down as follows:
Wage increase:
Year 1 — P2,000.00
Year 2 — 2,000.00
Year 3 — 2,000.00
plus updating of pay scales and separate pay scales for employees working directly with aircraft parts
and components.
In addition, PALEA proposed, among other things, the following items:
a. Additional one month salary each for Christmas bonus and 13th month pay;
b. Construction of PAL Labor Center to be shouldered by PAL at the cost of P20 million;
c. Improved retirement benefits;
d. Grocery and laundry allowance;
e. Productivity Bonus Incentive/Improvement of Service Recognition and Perfect Attendance; and
f. Seniority pay of P200.00 per year of service with recomputation starting January 1, 1993;
g. Additional vacation and sick leaves and commutation of the unused portion of the same to cash.
h. Travel benefit improvement —
1) additional five (5) positive space allocation for employees with at least 20 years of service.
2) upgrading of travel priorities.
3) service fees/reduced rates of trip passes based on rates lower than those offered by travel
agencies.
i. Additional Overtime, Night Differential and other premium pays.
j. Free Uniforms, for all employees.
m. Implementation of Supreme Court decision dated March 31, 1976 on exact computation of daily
rate salaries of monthly pay employees as follows:
Basic salary x 12
_____________ = Daily rate
250
n. The Union, however, included a proviso that the above priorities are without prejudice to the
provisions and proposals submitted by the Union to the Company dated September 20, 1992 including
non-economic proposals.
According to PAL, the estimated cost of the foregoing PALEA demands which are easily computable
amounts to P3.4 billion.
On May 21, 1993, PAL wrote respondent Secretary requesting that she assume jurisdiction over the
dispute in view of the importance of its business and to prevent PALEA from going on strike.
On May 31, 1993, respondent Secretary issued an order assuming jurisdiction over the labor dispute.
She enjoined any work stoppage and ordered the parties to desist from any act that would exacerbate
the situation. She also ordered the parties to submit their respective position papers within ten (10) days
to facilitate the resolution of the dispute. LLjur
The parties submitted their respective position papers as directed by respondent Secretary, with PAL
filing a reply to PALEA's position paper.
In the Order of June 30, 1993, respondent Secretary reviewed the positions of the parties on the main
deadlocked issues, based on their respective position papers, as follows:
UNION COMPANY
1. Wage Increase
First Year : P2,000.00 P1,200.00
Second Year : 2,000.00 500.00
Third Year : 2,000.00 700.00
———— ————
TOTAL : P6,000.00 P2,500.00
Plus updating of payscale and Not acceptable
separate payscale for
employees working directly
with aircraft parts and
components
2. Bonus Additional 1 month each for Not acceptable
Christmas bonus and 13th
month pay
3. Retirement 20 yrs. — 100% of basic salary For benefit to be fully
vested, length of
25 yrs. — 50% of basic salary service shall be
shortened from
25 to 20 years,
provided that
30 yrs. — 300% of basic salary employees who have
 completed at least 25
years of service may
be retired at the option
of the Company
4. Labor Center Company to contribute P20 Not acceptable
million in the construction of
PAL Labor Center
5. Dependents Medical Free medicine to out patients: Not acceptable
Plan (PDMP) if not available at the
pharmacy, cost of medicine
to be reimbursable to
employees concerned
Enrollment of employee's
parents regardless of age
Include dental services
No limit on the amount of
coverage for dreaded diseases
Improved or upgraded room
accommodations
Benefits to be extended to all
employees regardless of
former's age and status.
6. Vacation/Sick Leave Less than 20 yrs. of service Not acceptable
additional vacation and sick
leave of 5 days each
20 yrs. and above, additional
7 days each
Cash conversion and of unused
vacation leave and sick leave
at the end of the year.
7. Seniority pay P200.00 with recomputation 50.00 with
starting 01 January 1993 recomputation
starting 01 October
1994
8. Laundry/Grocery P2,000.00 Not acceptable
Allowance
9. Productivity Bonus One (1) month pay/six months;
Incentives Improvement of Perfect
Attendance Award
one (1) week pay for every 90
day period, if consistent
awardee for two (2) years to
be given trip pass to any
regional flights with his
immediate dependents,
positive space status, plus
free hotel accommodation
and per diem of five (5) days.
10. Travel benefits 5 positive spaces for retired Lower service for
 Improvements employees with at least 20 dependents
years of service
Provide positive space
conformed travel to
Upgrading of travel prioritiesemployees with at
least 15 years of
service, with one
Service fees/reduced rates of qualified dependent
trip passes to be based on
rates lower than those offered
by travel agencies or lowest Provided that:
fare rate offered by PAL Positive space booking
provision is removed;

and Unutilized
To be extended to all travel privileges
children of employees of qualified
dependents is made
transferrable.
11. Additional overtime, If the employee works for 14 Not acceptable
Night Differential, continuous hours, he shall be
Sunday Differential, given half-day off with pay
Holiday and other the following day; if the latter
Premium pays is his regular day-off or
holiday, it shall be enjoyed
the next regular working day
For 20 hours work, one day-off
with pay the following
day and additional one day
off if following day is his rest
day or holiday
12. Effectivity Retroactive to 01 October Prospective upon
1992 and effective for three signing of the CBA
years and effective for three
years 1
Respondent Secretary then ordered:
"Given all these premises, we find the following award just and equitable:
"1. Wage increase:
Year 1 — P1,400.00
Year 2 — 1,000.00
Year 3 — 1,200.00
————
TOTAL — P3,600.00
"Notably, while the above wage award already corresponds to a substantial increase in the existing
salaries of the Company's rank and file there still exists a need to upgrade and update the prevailing
payscale. This is especially true in the case of those employees working directly with aircraft parts and
components. The parties, therefor, more particularly the Company, are urged to continue discussing
and threshing out this matter. llcd
"2. Allowance : P400.00/month starting on the third year of
 effectivity of the CBA
"3. Seniority Pay : P50.00, with recomputation starting 01
January 1993
"4. Travel Benefits : Service fees to be based on lowest fare
rates offered by the Company
"5. Retirement : Benefits shall be fully vested upon
employee's completion of 20 years service.
"6. Effectivity : 01 October 1992 until 30 September 1995.
"Wherefore, the Philippine Airlines, Inc. and the Philippine Airlines Employees Association are hereby
ordered to execute a collective bargaining agreement incorporating the dispositions herein contained.
The agreement shall be retroactive from 01 October and shall remain effective for three years
thereafter. All other demands not passed upon herein are deemed denied, without prejudice to retention
of all existing benefits as well as to such improved terms and conditions as the parties may have agreed
upon in the meantime." 2
The parties filed separate motions for reconsideration of said Order. On July 30, 1993, respondent
Secretary issued the other questioned Order denying PALEA's motion for reconsideration while
granting in part that of PAL's. As a consequence, the wage increases now provided:
Year 1 — P1,200.00
Year 2 — 1,200.00
Year 3 — 1,200.00
————
TOTAL — 3,600.00 3
Respondent Secretary also ordered the inclusion of two provisions proposed by PAL to increase
efficiency, namely:
"1. For purposes of promotion, the seniority factor shall be reduced by 5% and the efficiency factor
shall be correspondingly increased by 5%; and
"2. For the same purpose, bidding for vacant positions shall be not be limited to specific sections,
but shall be opened to the entire department under which particular section is located." 4
Thereafter, PAL filed the instant petition raising the following grounds, to wit:
"I.
"THE HONORABLE SECRETARY OF LABOR, IN AWARDING A PACKAGE OF AT LEAST
P1.268 BILLION GAVE TO PALEA MORE THAN TWICE WHAT PALEA IS ENTITLED TO
ASSUMING THE VALIDITY OF THE RATIONALE FOR THE AWARD; IN SO DOING,
RESPONDENT SECRETARY IGNORED THE VERY PARAMETERS SHE HAD HERSELF SET
THUS GRAVELY ABUSING HER DISCRETION IN THE PROCESS AND COMMITTING AN
ERROR SO SERIOUS SHE HAS OUSTED HERSELF FROM HER JURISDICTION.
"II.
"THE HONORABLE SECRETARY OF LABOR GRAVELY ABUSED HER DISCRETION IN
AWARDING TO PALEA A PACKAGE THAT WOULD COST AT LEAST P1.268 BILLION; IN
SO DOING, SHE RELIED ON THE PROBABILITIES AND CONJECTURE, AND SHE IGNORED
AND MISAPPREHENDED PAL'S EVIDENCE SHOWING THAT SUCH AN AWARD WOULD
NOT BE AFFORDABLE AND WOULD THREATEN PAL'S VIABILITY.
"III.
"THE HONORABLE SECRETARY OF LABOR ACTED OUTSIDE OF HER JURISDICTION IN
INSISTING ON DISCUSSIONS ON THE PAYSCALE SINCE THIS ISSUE HAS BEEN SETTLED
IN A PREVIOUS FINAL DECISION.
"IV.
"THE HONORABLE SECRETARY OF LABOR ABUSED HER DISCRETION, AMOUNTING TO
LACK OF JURISDICTION, IN ORDERING THE RETROACTIVE OF THE CBA.
"V.
"THE HONORABLE SECRETARY OF LABOR COMMITTED SERIOUS ERROR IN NOT
AWARDING TO PAL OTHER FEATURES WHICH WOULD ENHANCE PAL'S PRODUCTIVITY
AND EFFICIENCY.
"VI.
"THE HONORABLE SECRETARY OF LABOR ERRED IN NOT LIMITING HER AWARD TO
THE P1 BILLION PACKAGE OFFERED BY PAL." 5
Initially, the Court did not grant PAL's prayer for a temporary restraining order (TRO). After several
motions for the issuance of a TRO by PAL, and considering the ramifications an execution of the
questioned orders may have on PAL, the Court granted a TRO on December 20, 1993. 6
In the meantime, respondent PALEA filed its Comment to the petition, while the Solicitor General filed
a Manifestation and Motion in lieu of Comment supporting PAL's petition. llcd
We treat Comment of PALEA as an answer and give due course to the petition.
PAL argues that respondent Secretary had gravely abused her discretion, amounting to lack of excess
of jurisdiction, in awarding P1.268 billion in benefits in favor of PALEA as the same was based on
probabilities and conjectures not supported by evidence. PAL points out that while respondent
Secretary had agreed that its erratic financial performance — which she found to be "characterized by
long periods of losses alternating with short periods of profitability" — could not sustain PALEA's
demand, she held that, given the company's recent performance, PAL would experience constant
profitability over the three-year contract period, with net earnings of P3.4 billion.
PAL also argues that respondent Secretary had acted with grave abuse of discretion in applying the so-
called "traditional budget-management approach" and awarded one-third of the projected net profits to
PALEA, and in making the award retroactive to October 1, 1992.
In its Comment, PALEA argues that the issues questioning the validity of the award involve the
findings of fact of respondent Secretary which cannot be reviewed in a petition for certiorari.
Furthermore, PALEA argues that the subject matter involved pertains to the field of expertise of
respondent Secretary and therefor her appreciation of the evidence should be respected by this Court.
We agree with PAL. Basically, there is grave abuse of discretion amounting to lack of jurisdiction
where the respondent board, tribunal or officer exercising judicial functions exercised its judgment in a
capricious, whimsical, arbitrary or despotic manner. 7 However, it has also been said that grave abuse
is committed when "the lower court acted capriciously, and whimsically or the petitioner's contention
appears to be clearly tenable of the broader interest of justice or public policy [so] require. . . ." 8
Also, grave abuse of discretion is committed when the board, tribunal or officer exercising judicial
function fails to consider evidence adduced by the parties. 9
While it is true that findings of fact of the Secretary of Labor are entitled to respect by this Court, we
are inclined to review her findings since the fundamental issue here is the survival of the company.
Besides, her findings are not based on a thorough examination of the parties' contending claims but
merely on their respective position papers. There was no trial wherein the adversarial process would
ensure a better presentation and appreciation of the evidence.
After going over the record, we find that respondent Secretary gravely abused her discretion when she
based her award in favor of PALEA on the assumption that PAL would earn P3.4 billion pesos during
the three-year contract period. The assumption finds no basis on the evidence adduced before her.
Respondent Secretary had noted in her original order PAL's erratic performance over a ten-year period
beginning fiscal year (FY) 1981-1982 up to 1990-1991. Said respondent Secretary:
"In appears that in spite of its net profits for the last two years, the Company has not established a firm
financial foothold which could give us sufficient basis to sustain the Union's demands. Not to be
ignored is that the Company's financial history has been characterized by long period of losses
alternating with short period of profitability. It is too early, in this sense to forecast if its apparent
financial rebound over the last two years can be sustained for the coming years, especially during the
contract period in consideration. cdrep
xxx xxx xxx
"First, for 1992-1993, the Company already incurred a shortfall in its projected income. Second, the
Company is presently in a state of transition, with all the attendant risks and possibilities, resulting
from its recent privatization. Third, the Company has not acquired the ten wide-bodied aircrafts it
intended to acquire, thereby necessarily lowering its income projections. And fourth, it is a matter of
public and administrative knowledge that the net profitability of the airline industry worldwide is
experiencing a downturn as a result of increased operating costs and cut-throat competition. While not
irreversible as the Company would have us believe, this downturn will necessarily have a dampening
impact on growth projections." 10
Despite her recognition of PAL's unstable financial performance and the possibility that its earnings in
the foreseeable future could be held down by the factors she enumerated above, respondent Secretary
proceeded to forecast that PAL would make a projected net profit of P1.128 billion for FY 1992-1993,
and P3.4 billion for the three-year contract period.
This Court believes that a more realistic projection should take into account PAL's performance for the
previous ten years, during which time PAL only experienced profit during two fiscal years, 11 and not
solely on the net earnings posted in FY 1991-1992 of P1,113,478,000.00. Relying solely on said
amount would be a mistake since the profit was largely due to the privatization of PAL wherein the
National Government assumed PAL's foreign currency obligations amounting to some P13.5 billion.
Subsequent events have shown the error in respondent Secretary's projections. The actual net income
earned by PAL for FY 1992-1993 was P1,025,665.00, which fell short of respondent Secretary's
projection by P87.813 million. Clearly, there is no way PAL could realize the income projected by
respondent Secretary. llcd
After making her projection of PAL's net profits for the three-year contract period, respondent
Secretary then allocated one-third of the projected profits as labor costs to be paid to PALEA under the
so-called "traditional budget-management approach." This Court is unaware of such a budget-
management approach being traditional in this jurisdiction. Given the fact that neither of the parties
cited the same in their position papers filed before her, respondent Secretary should have explained
more thoroughly her application of said "traditional approach."
At any rate, it would be improper to apply said formula to the instant case since PALEA does not
represent PAL's entire labor force. PALEA accounts for only 45% of PAL'S total labor force. If the
one-third rule would be applied, then PALEA should only be entitled to 45% thereof. The
consequences of applying the one-third rule and awarding the entirety to the PALEA would be nothing
short of disastrous for PAL. As succinctly put by PAL:
"To plow back the entire one-third of the projected net income to PALEA alone is simply anomalous
and discriminatory as this would rob the other components of the labor force of their rightful share in
the allocation and require PAL to shoulder a much higher financial burden to the detriment of its
stockholders and at a higher and greater risk to its continued viability." 12
The offer of PAL of P1 billion to PALEA, which, by the way, is twice the amount that PALEA would
be entitled to if the one-third rule was properly applied, was based on its computation of its projected
operational costs during the three-year contract period and should not be so easily waived aside.
However, this Court believes that the suggestion of the Solicitor General is more appropriate:
respondent Secretary should review the positions of the parties so that a more acceptable and
practicable amount could be found. If her recomputation should turn out to be less than the amount
offered by PAL, then she should award PALEA the amount offered by PAL. llcd
On the matter of whether the arbitral award may be made retroactive to October 1, 1992, the Court
need but cite the decision in St. Luke's Medical Center, Inc. vs. Hon. Ruben O. Torres, et al., 13
wherein it was held that:
"Finally, the effectivity of the Order of January 28, 1991 must retroact to the date of the expiration of
the previous CBA, contrary to the position of petitioner. Under the circumstances of the case, Article
253-A cannot be properly applied to herein case. As correctly stated by public respondent in his
assailed Order of April 12, 1991 dismissing petitioner's Motion for Reconsideration —
'Anent the alleged lack of basis for the retroactivity provisions awarded, we would stress that the
provision of law invoked by the Hospital, Article 253-A of the Labor Code, speaks of agreement by
and between the parties, and not arbitral awards.' (p. 818, Rollo)
Therefore, in the absence of the specific provision of law prohibiting retroactivity of the effectivity of
arbitral awards issued by the Secretary of Labor pursuant to Article 263 (g) of the Labor Code, such as
herein involved, public respondent is deemed vested with plenary and discretionary powers to
determine the effectivity thereof."
Finally, PALEA argues that the instant petition was apparently filed in violation of Circular No. 28-91
of this Court. PAL had initially filed this petition as G.R. No. 111119 on August 6, 1993. On August
16, 1993, said petition was dismissed for non-compliance with paragraph 3 of Circular No. 1-88. PAL
then filed the instant petition on September 1, 1993. PALEA claims that the failure of PAL to mention
the dismissal of its petition in G.R. No. 111119 in the certification required under Circular No. 28-91
warrants the dismissal of the present petition. prcd
We find no violation of Circular No. 28-91. PAL is not required to mention the dismissal of its
previous petition since, having been dismissed, it is not a case pending before any court or tribunal
within the contemplation of said circular. In addition, a petition dismissed under Circular No. 1-88 may
be refiled as a new petition provided the proper reglementary period is observed. 14 The Court notes
that the present petition was filed within the proper reglementary period for the filing of a special civil
action.
In fine, this Court finds that respondent Secretary had committed grave abuse of discretion amounting
to lack of jurisdiction in failing to give weight to the evidence presented by PAL and in applying the
so-called traditional budget-management approach. LLpr
WHEREFORE, the petition is hereby GIVEN DUE COURSE and the same GRANTED. The orders of
respondent Secretary are annulled and set aside and the case remanded to said respondent for
recomputation and to award to PALEA either the recomputed amount or the package offered by PAL,
whichever may be higher.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
Footnotes
1. Order of June 30 1993, pp. 221-231.
2. Id., pp. 10-11; Rollo, pp. 230-231.
3. Order of July 30, 1993, p. 7; Rollo, p. 503.
4. Order of July 30, 1993, p. 10; Rollo, P. 506.
5. Petition, pp. 13-15; Rollo, pp. 14-16.
6. Rollo, p. 854.
7. Abad Santos vs. Prov. of Tarlac, 67 Phil 480; Planters Products, Inc. vs. Court of Appeals, 193
SCRA 563.
8. De Laureano vs. Adil, 72 SCRA 161 (1976).
9. Caltex Filipino Manager's Supervisors vs. Court of Industrial Relations, 44 SCRA 350; Labor
ng Pagkakaisa sa Peter Paul vs. Court of Industrial Relations, 96 Phil. 63.
10. Order of June 30, 1993, pp. 8-9.
11. FY 1986-1987 (P318,128,000.00) and FY 1988-1989 (P304,506,000.00).
12. Petition, p. 18.
13. G.R. No. 99395, June 30, 1993.
14. Caños Medical Center vs. Trajano, 215 SCRA 818 (1992).
FIRST DIVISION
[G.R. No. 60054. July 2, 1991.]
MANILA ELECTRIC COMPANY, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, LABOR ARBITER ANDRES LOMABAO, and JOSE M. MASAYA, respondents.
Benjamin R. Reonal for petitioner.
Eugenio C. Lindo for private respondent.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; QUANTUM OF PROOF IN ADMINISTRATIVE CASES;
GOVERNED BY THE SUBSTANTIVE EVIDENCE RULE. — In administrative or quasi-judicial
proceedings, proof beyond reasonable doubt is not required as basis for a judgment of the legality of an
employer's dismissal of an employee, nor even preponderance of evidence, substantial evidence being
sufficient. Particularly as regards proceedings of the precise nature in question, the Labor Code
provides that — " . . . the rule of evidence prevailing in courts of law or equity shall not be controlling
and it is the spirit and intention of this Code that the Commission and its members and the Labor
Arbiters shall use every reasonable means to ascertain the facts in each case speedily and objectively
and without regard to the technicalities of law or procedure, all in the interest of due process . . .." And
this Court has ruled that the ground for an employer's dismissal of an employee need be established
only by substantial evidence, it not being required that the former's evidence "be of such degree as is
required in criminal cases, i.e., proof beyond reasonable doubt." It is absolutely of no consequence that
the misconduct with which an employee may be charged also constitutes a criminal offense: theft,
embezzlement, assault on another employee or company officer, arson, malicious mischief, etc. The
proceedings being administrative, the quantum of proof is governed by the substantial evidence rule
and not, as the respondent Commission seems to imagine, by the rule governing judgments in criminal
actions.
2. ID.; ID.; ID.; OBSERVED IN CASE AT BAR. — It was thus serious error, and grave abuse of
discretion for the Labor Arbiter and the respondent Commission, for the reasons given, to reject and
exclude from consideration the express admissions made by Masaya during the administrative
investigation conducted by Meralco. The Court cannot close its eyes to the following facts of record, to
wit: (1) the reality of the illegal electrical connection; (2) the written communication to Masaya that he
was accused of that illegal connection and he would be subjected to a formal investigation thereon; (3)
Masaya's acknowledgment that, having a copy of the company's code of discipline, he understood the
nature of the accusation against him, and his declining to be assisted by a lawyer or a representative of
his Union because, according to him, "ang sasabihin ko naman dito ay pawang katotohanan lamang";
(4) his voluntary admission that it was he who had made the illegal electrical connection, describing the
manner by which he had made it, and that he had received P250.00 from the occupant of the house,
Antonio Sanchez; and (5) his plea to the company for forgiveness for having made the illegal
connection. There is on record, too, testimony regarding identification of Masaya by Antonio Sanchez'
servants and by Castañeda, the owner of the house occupied by Sanchez. There is, finally, nothing in
the record to demonstrate that Masaya's admissions were made otherwise than voluntarily; his
subsequent assertion before the Arbiter that he had been "starved" into signing the typewritten record
of the administrative investigation containing said admissions is not persuasive, and was not in fact
accepted by the Arbiter or the Commission.
3. LABOR LAW; TERMINATION OF EMPLOYMENT; DISHONESTY AS A GROUND;
CONSTRUED. — The Court is satisfied that the evidence sufficiently proves the commission by
Masaya of an act of dishonesty against his employer, specifically described in the Meralco Code on
Employee Discipline as follows: "SECTION 7. Dishonesty. — . . . (3) Directly or indirectly tampering
with electric meters or metering installation of the company or the installation of any device, with the
purpose of defrauding the Company." Such an offense is obviously of so serious a character as to merit
the penalty of dismissal from employment. The Labor Code pronounces "fraud or willful breach by the
employee of the trust reposed in him by his employer or duly authorized representative," or "serious
misconduct" on the part of the employee to be lawful ground to terminate employment. And this Court
has held that the "dismissal of a dishonest employee is as much in the interests of labor as it is of
management. The labor force in any company is protected and the workers' security of tenure
strengthened when pilferage of equipment, goods and products which endangers the viability of an
employer and, therefor, the workers' continued employment is minimized or eliminated and
consequently labor-management relations based on mutual trust and confidence are promoted."
DECISION
NARVASA, J p:
Any lawyer worth his salt knows that quanta of proof and adjective rules vary depending on whether
the cases to which they are meant to apply are criminal, civil or administrative in character. In criminal
actions, proof beyond reasonable doubt is required for conviction; 1 in civil actions and proceedings,
preponderance of evidence, as support for a judgment; 2 and in administrative cases, substantial
evidence, as basis for adjudication. 3 In criminal and civil actions, application of the Rules of Court is
called for, with more or less strictness. In administrative proceedings, however, the technical rules of
pleading and procedure, and of evidence, are not strictly adhered to; they generally apply only
suppletorily; 4 indeed, in agrarian disputes application of the Rules of Court is actually prohibited. 5
Quite incredibly, these familiar and elementary propositions were disregarded in the judgment a quo.
The error is serious and must be, as it is here, corrected.
The facts are fairly simple and quickly recounted.
The case originated from the discovery by Meralco employees that a person by the name of Antonio
Sanchez was consuming electricity at the house occupied by him at No. 2048 Amparo Street, Sta. Ana,
Manila, although he had himself neither applied with Meralco for electric service nor made the
requisite deposit in connection therewith. 6 It was learned that electricity was being supplied to
Sanchez's house through a clandestine and illicit connection to a Meralco service line ("shunting the
meter base and tapping its service drop direct to the service wire"); and household helpers of Sanchez
and the owner of the house, a Mr. Castañeda, informed the Meralco investigator that it was a Meralco
employee, Jose Masaya, who had made the unauthorized electric service connection.
The Meralco Legal Department thereupon sent Jose Masaya a letter charging him with a violation of
the Company Code on Employee Discipline, and thereafter conducted a formal investigation of the
matter. 7 Those who gave testimony at that investigation were Jose Masaya himself, and Renato
Repuyan, Meralco field investigator. LibLex
Prior to being interrogated about the illegal connection and in response to preliminary questions by the
investigator, Masaya stated for the record that he had received the letter accusing him of misconduct,
that he had a copy of the code of discipline and understood the nature of the precise charge against him,
and that he did not need to be assisted by a lawyer or a representative of his Union because, in his own
words, "ang sasabihin ko naman dito ay pawang katotohanan lamang." Thereafter, Masaya deposed
that he had indeed installed the connection in question in the following manner, again expressed in his
own words: "Nilagyan ko ng shunt o kaputol ng alambre ang kanilang meter base at ang koneksiyon
nito ay kinabit ko sa malapit na service wire;" and that for that job, he had received P200 from Antonio
Sanchez. At the close of his testimony, he also sought forgiveness for the offense, viz:
"Nais ko po sanang ihingi ng kapatawaran sa kumpanya ang mga nagawa kong pagkakamali. Anim po
ang aking mga anak at kung sakaling ako ay matanggal sa kompanya dahil sa pagkakamaling iyon, sila
po ay walang aasahan kung hindi ako lamang. Kaya't ipinakikiusap ko sa inyo na ipaabot ninyo sa
kompanya ang aking pagmamakaawa."
Repuyan testified on the fact of the undenied and indisputable installation of the illegal electrical
connection at the residence of Antonio Sanchez (his description of the manner of its accomplishment
being substantially the same as Masaya's own), and also, the disclosures made to him by Sanchez's
househelpers and the owner of the house, supra.
After the investigation, and on the basis of the results thereof, Meralco filed with the Ministry of Labor
and Employment an application for clearance to terminate Masaya's services, 8 serving copy on the
latter. Meralco also placed Masaya under preventive suspension. 9
A week later, Masaya filed a complaint for illegal dismissal against Meralco. prcd
After issues were joined on the complaint for illegal dismissal as well as the application for clearance,
and trial had thereon, Labor Arbiter Andres M. Lomabao rendered a decision in Masaya's favor, 10
disposing as follows:
"WHEREFORE, respondent Manila Electric Company is hereby ordered to pay complainant JOSE M.
MASAYA his backwages corresponding to the period December 8, 1978 up to April 30, 1980 and
separation pay of five (5) and a half months salary in lieu of reinstatement."
The Arbiter was of the view that the record of the investigation conducted by Meralco should not be
accorded credence; that Meralco's contention that Masaya had "surreptitiously effected the direct
connection of . . . electric service" was not credible, because Masaya "was employed as a bill collector,
not as a lineman collector, hence, he does not know how to install electrical connection;" and that the
money received by Masaya from Sanchez (P200 or P250) was not in consideration of any clandestine
connection but was accepted as "representation expenses in following up Mr. Sanchez' application for
installation of electric facilities . . . with the Engineer's Office at the City Hall of Manila." 11
On appeal by Meralco, the National Labor Relations Commission affirmed the Arbiter's decision. 12
In the Commission's "considered view" 13 —
". . . while it is true that in administrative proceedings, substantial evidence only is required, the instant
case is an exception for the reason that respondent-appellant in this case is charging complainant-
appellee of a criminal offense, and, therefore, it is incumbent upon the former to prove beyond
reasonable doubt the existence of the crime, failing which, complainant-appellee must be absolved
from responsibility. The alleged admission of complainant-appellee during the investigation conducted
by the legal department of respondent-appellant does not, if at all, prove beyond reasonable doubt the
criminal act allegedly committed by complainant-appellee in the absence of any showing that he was
given the opportunity to be heard by counsel or at least, a representative to confront his accuser."
There is implicit concession that under the substantial evidence rule, the evidence would be adequate to
make out a case of gross misconduct on the part of Masaya; however, the Commission theorizes that an
adjudgment to this effect was precluded by the doctrine of proof beyond reasonable doubt, applicable
exceptionally to Masaya's case. Echoing the Commission's views, the public respondent's comment
points out that "since there is no causal connection between private respondent's duties to the crime
imputed to him, mere substantial evidence is insufficient to hold private respondent guilty of installing
electrical connection let alone deprive him of his right to labor."
There are two evident errors invalidating the Commission's conclusions. prcd
The first is that contrary to the Commission's view, Masaya was in truth asked if he wished to be
assisted by a lawyer or a representative of his Union, and his response was in the negative because, in
his own words, "ang sasabihin ko naman dito ay pawang katotohanan lamang"
The second is that in administrative or quasi-judicial proceedings, proof beyond reasonable doubt is not
required as basis for a judgment of the legality of an employer's dismissal of an employee, nor even
preponderance of evidence, substantial evidence being sufficient. 14 Particularly as regards
proceedings of the precise nature in question, the Labor Code provides that — 15
". . . the rules of evidence prevailing in courts of law or equity shall not be controlling and it is the spirit
and intention of this Code that the Commission and its members and the Labor Arbiters shall use every
and all reasonable means to ascertain the facts in each case speedily and objectively and without regard
to the technicalities of law or procedure, all in the interest of due process. . . ."
And this Court has ruled that the ground for an employer's dismissal of an employee need be
established only by substantial evidence, it not being required that the former's evidence "be of such
degree as is required in criminal cases, i.e., proof beyond reasonable doubt." 16 It is absolutely of no
consequence that the misconduct with which an employee may be charged also constitutes a criminal
offense: theft, embezzlement, assault on another employee or company officer, arson, malicious
mischief, etc. The proceedings being administrative, the quantum of proof is governed by the
substantial evidence rule and not, as the respondent Commission seems to imagine, by the rule
governing judgments in criminal actions. LLjur
It was thus serious error, and grave abuse of discretion for the Labor Arbiter and the respondent
Commission, for the reasons given, to reject and exclude from consideration the express admissions
made by Masaya during the administrative investigation conducted by Meralco.
The Court cannot close its eyes to the following facts of record, to wit:
1) the reality of the illegal electrical connection;
2) the written communication to Masaya that he was accused of that illegal connection and he
would be subjected to a formal investigation thereon;
3) Masaya's acknowledgment that, having a copy of the company's code of discipline, he
understood the nature of the accusation against him, and his declining to be assisted by a lawyer or a
representative of his Union because, according to him, "ang sasabihin ko naman dito ay pawang
katotohanan lamang;"
4) his voluntary admission that it was he who had made the illegal electrical connection,
describing the manner by which he had made it, and that he had received P250.00 from the occupant of
the house, Antonio Sanchez; and
5) his plea to the company for forgiveness for having made the illegal connection.
There is on record, too, testimony regarding identification of Masaya by Antonio Sanchez' servants and
by Castañeda, the owner of the house occupied by Sanchez. There is, finally, nothing in the record to
demonstrate that Masaya's admissions were made otherwise than voluntarily; his subsequent assertion
before the Arbiter that he had been "starved" into signing the typewritten record of the administrative
investigation containing said admissions is not persuasive, and was not in fact accepted by the Arbiter
or the Commission. LibLex
The Court is satisfied that the evidence sufficiently proves the commission by Masaya of an act of
dishonesty against his employer, specifically described in the Meralco Code on Employee Discipline as
follows:
"SECTION 7. Dishonesty. —
xxx xxx xxx
3) Directly or indirectly tampering with electric meters or metering installation of the Company or
the installation of any device, with the purpose of defrauding the Company."
Such an offense is obviously of so serious a character as to merit the penalty of dismissal from
employment. The Labor Code pronounces "fraud or willful breach by the employee of the trust reposed
in him by his employer or duly authorized representative," or "serious misconduct" on the part of the
employee to be lawful ground to terminate employment. And this Court has held that the "dismissal of
a dishonest employee is as much in the interests of labor as it is of management. The labor force in any
company is protected and the workers' security of tenure strengthened when pilferage of equipment,
goods and products which endangers the viability of an employer and, therefore, the workers' continued
employment is minimized or eliminated and consequently labor-management relations based on mutual
trust and confidence are promoted." 17
WHEREFORE, the petition for certiorari is GRANTED, the decisions of the National Labor Relations
Commission and of the Labor Arbiter subject thereof are ANNULLED AND SET ASIDE, and the
petitioner's termination of the employment of private respondent is AUTHORIZED and APPROVED,
without pronouncement as to costs.
SO ORDERED.
Cruz, Griño-Aquino and Medialdea, JJ., concur.
Gancayco, J., is on leave.
Footnotes
1. Sec. 2, Rule 133 (Revised Rules on Evidence), Rules of Court; see, e.g., People v. Javier, 183
SCRA 702; People v. Torre, 184 SCRA 525; People v. Libag, 184 SCRA 707; People v. Flores, 186
SCRA 830.
2. Sec. 1, Rule 133; see, e.g., Stronghold Insurance Co., Inc. v. C.A., 173 SCRA 619; Urbano v.
IAC, 157 SCRA 1; Gandionco v. Penaranda, 155 SCRA 725; Noda v. Cruz-Arnaldo, 151 SCRA 227.
3. Sec. 5, Rule 133; see, e.g., Rubberworld Phils. Inc. v. NLRC, 175 SCRA 450; DBP v. NLRC,
175 SCRA 537; Rodriguez v. ECC, 178 SCRA 30.
4. See Tibulan v. Inciong, 176 SCRA 316; Associated Labor Union (ALU) v. Calleja, 179 SCRA
127; Asiaworld Publishing House v. Ople, 152 SCRA 219.
5. The Revised Rules of Procedure of the Department of Agrarian Reform Adjudication Board
provides that: "Unless adopted herein or by resolution of the board, the provisions of the Rules of Court
do not apply, not even in a suppletory character" (Sec. 3 [c], Rule 1).
6. A "Found Connected Service Report" (No. 369847) was rendered by the Meralco Meter
Reading Division on July 7, 1978.
7. Conducted on October 23, 1978.
8. The application is dated December 4, 1978.
9. The preventive suspension was made effective on December 6, 1978 pending approval of the
application for clearance to dismiss.
10. The decision is dated April 30, 1980.
11. Rollo, p. 22.
12. The Commission's Decision was promulgated on December 12, 1982. Commissioner Cleto T.
Villatuya dissented and voted for "the reversal of the Labor Arbiter's decision and to grant the
application for clearance to terminate the services of the complainant" (Rollo, pp. 26-27). The Solicitor
General also "found it cogent to assume a position contrary to that of (the majority of) respondent
National Labor Relations Commission (NLRC), et al." (Rollo, pp. 73-74).
13. Rollo, p. 24.
14. SEE Cortes, Philippine Administrative Law, 1984 ed., pp. 356-366, citing Perez v. CTA, 101
Phil. 630 (1957), Santos v. Nable, 111 Phil. 1045 (1960), Philippine Movie Pictures Workers
Association v. Premier Productions, Inc., 92 Phil. 844 (1953), Halili v. Floro, 90 Phil. 245 (1951),
Estate of Florencio P. Buan v. Pampanga Bus Company and La Mallorca, 99 Phil. 373 (1956).
15. Art. 221 of the present Labor Code, originally Art. 270, PD 442 issued July 1, 1974.
16. Commercial Motors Corporation v. Commissioners, Second Division, NLRC, et al. G.R. No.
74762, December 10, 1990; Police Commission v. Lood, 127 SCRA 757; Agusmin Promotional
Enterprises, Inc. v. C.A., 117 SCRA 369; East Asiatic Co., Ltd. v. CIR, 40 SCRA 543-544; Philippine
Engineering Corp. v. CIR, 41 SCRA 100; Tajonera v. Lamoroza, 110 SCRA 438.
17. International Hardwood and Veneer Co. of the Phil. v. Leogardo, 117 SCRA 967.
THIRD DIVISION
[G.R. No. 131675. January 18, 2000.]
PEDRO C. LAMEYRA, petitioner, vs. MAYOR GEORGE S. PANGILINAN, respondent.
Lameyra Law Office for petitioner.
The Provincial Attorney for respondent.
SYNOPSIS
Through the instant petition for review petitioner sought to annul and set aside the resolution of the
Court of Appeals which affirmed the resolution of the Civil Service Commission upholding the
dismissal of petitioner from the government service as janitor/messenger of the local government of
Famy, Laguna. Petitioner's basic contention was that he was unlawfully terminated from the service
without just cause and as an act of political harassment by the respondent Mayor of Famy, Laguna.
Petitioner claimed that he was not given due process before respondent terminated his employment,
and that the Civil Service Commission erred in refusing to consider the new evidence submitted with
his motion for reconsideration. Hence, the Court of Appeals erred in evading the factual issues raised
before it by petitioner. CTHDcS
Respondent, on the other hand, pointed out that the basis for the petitioner's separation was his absence
without official leave, and that the affidavits which he submitted before the Civil Service Commission
cannot be considered "newly discovered evidence" as they were all along readily available to him and
were no longer admissible at a late stage to set aside the judgment.
The Supreme Court found merit in the instant petition.
While it is settled doctrine that findings of fact of an administrative agency must be respected and the
Court should not be tasked to weigh once more the evidence submitted before the administrative body,
it is axiomatic that such findings of fact should be supported by substantial evidence. The Court was
not convinced that the certification of the personnel officer that petitioner did not report for work from
July 6, 1995 to August 6, 1995 constitutes such substantial evidence in light of the petitioner's
submission that said personnel officer precisely prevented him from signing the log book, that he had
been replaced by one Leynes in July, 1995, and that he had been asked to submit his resignation which
he refused to do. Under these circumstances, it is believed that, in equity, and in proper compliance
with the requirements of due process, petitioner should be given a last full opportunity to prove his
contention that the termination of his services was illegal. Accordingly, the Court reversed and set
aside the decision of the Court of Appeals and remanded the case to the Civil Service Commission for
further proceedings.
SYLLABUS
ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCY; FINDINGS OF FACT THEREOF
ACCORDED RESPECT PROVIDED THE SAME ARE SUPPORTED BY SUBSTANTIAL
EVIDENCE; DUE PROCESS; PETITIONER MUST BE AFFORDED OPPORTUNITY TO PROVE
HIS CONTENTION THAT HE WAS ILLEGALLY TERMINATED. — While it is settled doctrine
that findings of fact of an administrative agency must be respected and this Court should not be tasked
to weigh once more the evidence submitted before the administrative body, it is axiomatic that such
findings of fact should be supported by substantial evidence. We are not convinced that the certification
of the personnel officer that petitioner did not report for work from July 6, 1995 to August 6, 1995
constitutes such substantial evidence in light of the petitioner's submission that said personnel officer
precisely prevented him from signing the log book, that he has been replaced by one Leynes in July,
1995, and that he has been asked to submit his resignation which he refused to do. Under these
circumstances, it is believed that, in equity, and in proper compliance with the requirements of due
process, petitioner should be given a last full opportunity to prove his contention that the termination of
his services was illegal. CacEIS
DECISION
GONZAGA-REYES, J p:
Before us is a petition for review under Rule 45 filed by Pedro C. Lameyra seeking to annul and set
aside the resolution dated July 15, 1997 of the Court of Appeals which affirmed the resolution of the
Civil Service Commission upholding the dismissal of petitioner from the government service as
janitor/messenger of the local government of Famy, Laguna. Petitioner’s basic contention is that he was
unlawfully terminated from the service without just cause and as an act of political harassment by the
Municipal Mayor of Famy, Laguna. cdrep
Pedro C. Lameyra was a janitor/messenger in the Municipal Hall of Famy, Laguna. He was appointed
as such on February 2, 1988 under temporary status and was given a permanent appointment on
January 1, 1989 to the same position by then Municipal Mayor Melquiadez Acomular. Mayor
Acomular was defeated in the last election for the mayoralty post by respondent Mayor George S.
Pangilinan.
On August 21, 1995, petitioner Lameyra received a letter from respondent Mayor Pangilinan informing
him that he is dropped from the roll of employees of the local government unit of Famy, Laguna
pursuant to Memorandum Circular No. 12, Series of 1994 of the Civil Service Commission due to the
following reasons: 1. Insubordination; 2. AWOL.
Petitioner filed a notice of appeal with the Civil Service Commission alleging that he was a permanent
employee and that he was terminated without prior written notice of the charges and without
investigation and hearing, in violation of his security of tenure and due process. He alleged that the act
of Mayor Pangilinan was an act of political vengeance as he was publicly known to have voted for his
political rival during the May 8, 1995 election.
Mayor Pangilinan, in his comment stated as follows:
"1. That the dropping of appellant from the payroll was pursuant to Memorandum Circular No. 12,
series of 1994, dated March 10, 1994, of this Honorable Commission due to insubordination and for
being absent without official leave, and was resorted to when appellant failed to justify his continued
leave of absence without official leave;
"2. The following circumstances led to the dropping of the name of appellant from the payroll, to
wit:
"3. On May 31, 1995, undersigned issued a memorandum requiring all heads of offices and
employees of local, provincial and municipal agencies to fill up and accomplish the daily time log book
pursuant to paragraph 3, Civil Service Rules XV, Executive Order No. 5, series of 1990, with the
warning that falsification of time records will subject the offender to summary removal from the
service; xerox copy of said memorandum showing that appellant was duly informed of the same is
hereto attached as Annex "A";
"4. That appellant despite knowledge of said memorandum deliberately failed and refused to
comply with the said memorandum and since July 6, 1995 has not been reporting for work; hereto
attached as Annex "B" is a xerox copy of the certification issued by Mr. Benito L. Vicencio, Personnel
Officer, attesting to such fact; that appellant’s failure to comply with the May 31, 1995 memorandum
constitute insubordination and his continued absence without official leave was deemed and considered
as abandonment of employment.
"5. That even prior to the issuance of said May 31, 1995 memorandum, Mr. Benito L. Vicencio on
January 19, 1995, has reported that appellant was always late in coming to work in violation of
Memorandum Circular No. 45, series of 1994 of this Honorable Commission; hereto attached as Annex
"C" and made integral part hereof is xerox copy of said report;
"6. That despite several warnings, appellant deliberately failed to comply with said May 31, 1995
memorandum and likewise, failed to see undersigned to explain his side; moreover, did not even
attempt to justify his absence without official leave and continuously failed to report for work; hence,
his failure to report for work was deemed and considered as abandonment;
"7. Worse, appellant was found to have committed falsification of public document in
accomplishing his daily time record for December, 1994; hence, as the disciplining authority, on
August 1, 1995, I filed a case for falsification of public document against appellant before the
Honorable Deputy Ombudsman for Luzon; xerox copy of which is attached as Annex "D" and made
integral part hereof;
"8. That in view of the foregoing, appellant may not argue that he was denied due process." 1
The Civil Service Commission in Resolution No. 96-0828 dated February 6, 1996 dismissed the appeal
and affirmed the action of the Municipal Mayor in dropping him from the roll of employees for
absence without leave; the Commission ruled: LibLex
"Undisputedly, Lameyra was absent for the period from July 6, 1995 to August 6, 1995 and that he has
not submitted any proof that he actually filed an application for leave. Neither did he present an
approved leave application concerning said absences. On the one hand, Benito Vicencio, Personnel
Officer/Human Resources Management Assistant, Famy, Laguna, certified that Lameyra did not report
for work during the said period. In sum, there is sufficient ground to support the action of the
Municipal Government of Famy in dropping Lameyra from the service." 2
Lameyra filed a motion for reconsideration alleging that he had not earlier been furnished copy of
Mayor Pangilinan’s comment and disputing the version of Mayor Pangilinan that he refused to report
for work. He claimed that upon advice of the Regional office of the Civil Service Commission in Sta.
Cruz, Laguna, he reported for work at the office of the Vice Mayor Constancio Fernandez, as he was
not allowed by the Personnel Officer, Benito Vicencio, to sign his name in the log book. Attached to
his motion was an Affidavit of Vice-Mayor Constancio A. Fernandez attesting to the fact that petitioner
was reporting to his office upon advice of the Civil Service Office at Sta. Cruz, Laguna, and that
petitioner was not allowed to sign the log book at the Office of the Mayor. Also submitted with the
motion for reconsideration was an affidavit of a co-employee, Remegio Jamilan, and petitioner’s own
sworn statement controverting the allegation of Mayor Pangilinan that he refused to report for work or
sign the log book.
In its Resolution No. 970558, dated January 28, 1997, the Civil Service Commission denied
petitioner’s motion for reconsideration, stating as follows:
"The first ground of this Motion for Reconsideration is the existence of a new evidence which would
materially affect the decision in question.
Movant's claim that he was reporting for duty at the office of the Vice Mayor deserves scant
consideration. On the contrary the Office of the Personnel Officer, Municipality of Famy, Laguna,
certified that Lameyra has not reported for work for the period from July 6, 1995 to August 6, 1995.
While it may be true that he was then within the premises of the Municipal Office, the fact remains that
he was not officially reporting for duty as Janitor/Messenger (CSC Resolution No. 94-4822, September
1, 1994).
As to the other grounds alleged in the Motion for Reconsideration, the same are mere reiterations of the
arguments raised in his appeal, which have been thoroughly discussed in the resolution now sought to
be reconsidered." 3
Petitioner filed a petition for review before the Court of Appeals, which denied the same. The Court
stated that the Commission correctly ruled on the issues raised before it, and rejected the claim of
petitioner that he was denied his right to due process, as he had the opportunity to be heard on his
motion for reconsideration. Moreover, the Commission’s findings are supported by substantial
evidence.
Motion for reconsideration of the said decision having been denied by the Court of Appeals, petitioner
comes before us alleging that the Court of Appeals committed an error of law:
"A. BY MISAPPLYING THE CASE OF RUBENECIA V CSC (244 SCRA 652) TO
PETITIONER’S CASE;
B. BY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS;
C. BY CONCLUDING IN EFFECT THAT PETITIONER ABANDONED HIS EMPLOYMENT
UNDER UNDISPUTED FACTS." 4
and committed grave abuse of discretion in the appreciation of facts.
Essentially, petitioner claims that he was not given due process before Mayor Pangilinan terminated his
employment, and that the Civil Service Commission erred in refusing to consider the new evidence
submitted with petitioner’s motion for reconsideration. Hence, the Court of Appeals erred in evading
the factual issues raised before it by petitioner.
Respondent Mayor filed comment, and pointed out that clearly the basis for the petitioner’s separation
is not abandonment but absence without official leave, and that the affidavits which he submitted
before the Civil Service Commission cannot be considered "newly discovered evidence" as they were
all along readily available to him" and were no longer admissible at a late stage to set aside the
judgment. Respondent maintains that the Civil Service Commission and the Court of Appeals correctly
ruled that petitioner was properly terminated for absence without official leave.
We find merit in the instant petition.
Civil Service Memorandum Circular No. 12 Series of 1994 provides as follows: LLjur
"2.1 Absence without approved leave
a. An officer or employee who is continuously absent without approved leave (AWOL) for at least
thirty (30) calendar days shall be separated from the service or dropped from the rolls without prior
notice. He shall, however, be informed of his separation from the service not later than five (5) days
from its effectivity which shall be sent to the address appearing in his 201 files. 5
It is clear from a reading of the above provision that the no prior notice is required to drop from the
rolls an employee who has been continuously absent without approved leave (AWOL) for at least thirty
(30) calendar days. It appears that solely on the basis of the certification of the Personnel
Officer/Human Resources Management Assistant Benito Vicencio to the effect that petitioner did not
report for work for the period from July 6, 1995 to August 6, 1995, and the undisputed fact that he has
not submitted any proof that he actually filed an application for leave nor presented any approved leave
application for the said period, petitioner’s termination from the service was upheld by the Civil
Service Commission and the Court of Appeals.
However, petitioner contests the finding that he was absent at all. He claims that he reported for work
but was prevented from signing the log book by the very officer, Benito Vicencio, who certified that he
did not report for work on the dates in question. He alleges in his petition and insists in his reply, that
he was not furnished a copy of Mayor Pangilinan’s comment, and was able to secure a copy only after
receiving a copy of the Resolution of the Civil Service Commission upholding the termination of his
service. This allegation of petitioner, which was raised even in the Court of Appeals 6 was not disputed
by respondent Pangilinan in his Comment to the Petition 7 nor in his Comment to the Petition filed in
the Court of Appeals. 8 Accordingly, the first opportunity that petitioner had to contest the sufficiency
of the evidence to support his dismissal was when he filed his motion for reconsideration from the
Resolution of the Civil Service Commission dated February 6, 1996. The three sworn statements which
were annexes to said motion directly controverted Vicencio's certification that he was absent without
leave, cannot be considered new evidence belatedly submitted as there was no notice and hearing when
he was dropped from the rolls. Considering that one of the affiants is Vice-Mayor Fernandez, whose
acts as a public official are also entitled to a presumption of regularity in the performance of duty, it
would be in compliance with the requirements of due process to have given said sworn statement due
consideration in view of the circumstances prevailing in this case. This is in consonance with the
respondent’s own theory that petitioner was afforded his right to be heard when he filed his motion for
reconsideration in the Civil Service Commission. 9
While it is settled doctrine that findings of fact of an administrative agency must be respected and this
Court should not be tasked to weigh once more the evidence submitted before the administrative body,
it is axiomatic that such findings of fact should be supported by substantial evidence. We are not
convinced that the certification of the personnel officer that petitioner did not report for work from July
6, 1995 to August 6, 1995 constitutes such substantial evidence in light of the petitioner’s submission
that said personnel officer precisely prevented him from signing the log book, that he has been replaced
by one Leynes in July, 1995, and that he has been asked to submit his resignation which he refused to
do. Under these circumstances, it is believed that, in equity, and in proper compliance with the
requirements of due process, petitioner should be given a last full opportunity to prove his contention
that the termination of his services was illegal.
WHEREFORE, the judgment appealed from is reversed and set aside. Let the case be remanded to the
Civil Service Commission for further proceedings in accordance with the tenor of this decision. cda
SO ORDERED.
Melo, Vitug, Panganiban and Purisima, JJ., concur.
Footnotes
1. Rollo, pp. 50-51.
2. Rollo, pp. 51-52.
3. Rollo, p. 85.
4. Rollo, p. 15.
5. Rollo, p. 40.
6. p. 163, Rollo.
7. p. 211, et seq., Rollo.
8. p. 129, et seq., Rollo.
9. Comment of the Respondent; p. 211, Rollo.
THIRD DIVISION
[G.R. No. 142049. January 30, 2001.]
GERMAN MARINE AGENCIES, INC. and LUBECA MARINE MANAGEMENT HK LTD.,
petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and FROILAN S. DE LARA,
respondents.
Dollete, Blanco, Ejercito & Associates for petitioners.
The Solicitor General for public respondent.
Leonides A. Garvida for private respondent.
SYNOPSIS
Petitioners employed private respondent as a radio officer on board its vessel, the M/V T.A.
VOYAGER. Sometime in June 1995, while the vessel was docked at the port of New Zealand, private
respondent was taken ill. However, private respondent received medical attention only upon the arrival
of the vessel in Manila. In Manila, private respondent was confined in the Manila Doctors Hospital,
wherein he was treated by a team of medical specialists from 24 June 1995 to 26 July 1995. The
attending physician at the Manila Doctors Hospital then issued a certification describing private
respondent as suffering from a partial disability and unfit to go back to his previous work.
Petitioners assured private respondent that all his benefits would be paid in time. Petitioners never did.
Hence, private respondent filed a complaint with the National Labor Relations Commission for
payment of disability benefits and the balance of his sickness wages. On 31 July 1997, the labor arbiter
rendered a decision ordering petitioners to pay private respondent disability benefit, sickness wage
balance and attorney's fees. The NLRC affirmed the labor arbiter's decision in toto. On appeal, the
Court of Appeals upheld the decision of the NLRC, with modification awarding exemplary damages.
Petitioners' motion for reconsideration was denied by the Court of Appeals. Hence, the present appeal.
Petitioners contended that the existence and degree of a seamen's disability must be declared by a
"company-designated physician" who must be accredited by the POEA. Hence, petitioners claimed that
private respondent is not entitled to disability benefits because he was found fit to return to work by the
designated physician of petitioners, who is also accredited with the POEA.
The parties are at odds as to the proper interpretation of the POEA Standard Employment Contract
Governing the Employment of All Filipino Seamen on Board Ocean-Going Vessels particularly Part II,
Section C thereof.
Petitioners' contention that the existence and grade of a seamen's disability must be pronounced by a
physician accredited by the POEA does not find any support in the above cited provision, nor in any
other portion of the Standard Employment Contract. In order to claim disability benefits under the
Standard Employment Contract, it is the "company-designated" physician who must proclaim that the
seaman suffered a permanent disability, whether total or partial, due to either injury or illness, during
the term of the latter's employment. There is no provision requiring accreditation by the POEA of such
physician. If accreditation of the company — designated physician was contemplated by the POEA, it
would have expressly provided for such a qualification, by specifically using the term "accreditation"
in the Standard Employment Contract, to denote its intention. Moreover, petitioners' act of committing
private respondent to the Manila Doctors Hospital for treatment and paying the hospital bills therein
was tantamount to "company-designation." Hence, the Decision and Resolution of the Court of
Appeals were affirmed by the Supreme Court with modifications awarding private respondent moral
damages and deleting the award of attorney's fees.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; POEA; STANDARD EMPLOYMENT
CONTRACT; PART II, SECTION C THEREOF; SEAMAN'S DISABILITY BENEFITS; TERM
"COMPANY-DESIGNATED" PHYSICIAN, CONSTRUED. — In order to claim disability benefits
under the Standard Employment Contract, it is the "company-designated" physician who must proclaim
that the seaman suffered a permanent disability, whether total or partial, due to either injury or illness,
during the term of the latter's employment. There is no provision requiring accreditation by the POEA
of such physician. In fact, aside from their own gratuitous allegations, petitioners are unable to cite a
single provision in the said contract in support of their assertions or to offer any credible evidence to
substantiate their claim. If accreditation of the company-designated physician was contemplated by the
POEA, it would have expressly provided for such a qualification, by specifically using the term
"accreditation" in the Standard Employment Contract, to denote its intention. For instance, under the
Labor Code it is expressly provided that physicians and hospitals providing medical care to an injured
or sick employee covered by the Social Security System or Government Service Insurance System
must be accredited by the Employees Compensation Commission. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall control. There is no ambiguity in
the wording of the Standard Employment Contract — the only qualification prescribed for the
physician entrusted with the task of assessing the seaman's disability is that he be "company-
designated." When the language of the contract is explicit, as in the case at bar, 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.
2. ID.; ID.; ID.; ID.; ID.; WORD "DESIGNATE," DEFINED; PRIVATE RESPONDENT IS
ENTITLED TO DISABILITY BENEFITS; CASE AT BAR. — The word "designate" means to
specify, to mark out and make known, to identify by name, to indicate, to show, to distinguish by mark
or description, or to set apart for a purpose or duty. The Court agrees with the appellate court's ruling
that petitioners' act of committing private respondent for treatment at the Manila Doctors Hospital and
paying the hospital bills therein is tantamount to "company-designation." By such unequivocal acts,
petitioners clearly set apart and distinguished the Manila Doctors Hospital, together with its team of
specialists, as the ones qualified to assess the existence and degree of private respondent's disability
and thereby resolve the question of the latter's entitlement to disability benefits under the Standard
Employment Contract. In addition to their having been effectively designated by petitioners, it was the
physicians from the Manila Doctors Hospital who examined and treated private respondent for a little
more than one month, subjecting the latter to a series of medical procedures, such as medical therapy,
neurological surgical drainage for brain abscess, bilateral thalamic area S/P craniotomy (Burr Hole),
and ophthalmological (orbit) surgery for socket revision and reconstruction of his left eye. The
extensive medical attention given to private respondent enabled the Manila Doctors Hospital specialists
to acquire a detailed knowledge and familiarity with private respondent's medical condition. No doubt
such specialized knowledge enabled these physicians to arrive at a much more accurate appraisal of
private respondent's condition, including the degree of any disability which he might have sustained, as
compared to another physician not privy to private respondent's case from the very beginning. Thus,
the appellate court was not mistaken in giving more weight to the certificate issued by Dr. Nanette
Domingo-Reyes of the Manila Doctors Hospital dated December 4, 1996, than to the one issued by Dr.
Victoria Florendo Cayabyab.
3. ID.; ID.; ID.; ID.; AWARD OF DISABILITY BENEFITS, HOW ASCERTAINED. — Under
the Standard Employment Contract the grade of disability suffered by the seaman must be ascertained
in accordance with Appendix 1 of such contract, which is partially produced herein — . . . Appendix 1
has an equivalent disability allowance or benefit expressed in terms of a percentage of the maximum
amount of $50,000.00. This is specified in Appendix 1-A of the Standard Employment Contract — . . .
Private respondent asked petitioner for disability benefits in the amount of $25,000.00, or fifty percent
(50%) of the maximum rate of $50,000.00, which, under Appendix 1-A, is awarded when the seaman
sustains a grade 6 disability. One of the grade 6 head injuries listed in Appendix 1, specifically number
seven (7), is described as a "moderate mental disorder or moderate brain functional disturbance which
limits worker to the activities of daily living with some directed care or attendance." This coincides
with Dr. Domingo. Reyes' diagnosis of private respondent's condition, as follows — . . . Thus, the
medical certificate of Dr. Domingo-Reyes is more than sufficient basis for the award of disability
benefits in the amount of $25,000.00 in favor of private respondent.
4. ID.; NATIONAL LABOR RELATIONS COMMISSION; FACTUAL FINDINGS THEREOF
ACCORDED RESPECT AND FINALITY WHEN SUPPORTED BY SUBSTANTIAL EVIDENCE;
REASON. — The Supreme Court has always accorded respect and finality to the findings of fact of the
NLRC, particularly if they coincide with those of the Labor Arbiter, when supported by substantial
evidence. The reason for this is that a quasi-judicial agency like the NLRC has acquired a unique
expertise because its jurisdiction is confined to specific matters. Whether or not petitioners actually
paid the balance of the sickness wages to private respondent is a factual question. In the absence of
proof that the labor arbiter or the NLRC had gravely abused their discretion, the Court shall deem
conclusive and cannot be compelled to overturn this particular factual finding.
5. ID.; POEA; SEAMAN'S DISABILITY BENEFITS; PETITIONERS ARE GUILTY OF
NEGLIGENCE IN CASE AT BAR. — We affirm the appellate court's finding that petitioners are
guilty of negligence in failing to provide immediate medical attention to private respondent. It has been
sufficiently established that, while the M/V T.A. VOYAGER was docked at the port of New Zealand,
private respondent was taken ill, causing him to lose his memory and rendering him incapable of
performing his work as radio officer of the vessel. The crew immediately notified the master of the
vessel of private respondent's worsening condition. However, instead of disembarking private
respondent so that he may receive immediate medical attention at a hospital in New Zealand or at a
nearby port, the master of the vessel proceeded with the voyage, in total disregard of the urgency of
private respondent's condition. Private respondent was kept on board without any medical attention
whatsoever for the entire duration of the trip from New Zealand to the Philippines, a voyage of ten
days. To make matters worse, when the vessel finally arrived in Manila, petitioners failed to directly
disembark private respondent for immediate hospitalization. Private respondent was made to suffer a
wait of several more hours until a vacant slot was available at the pier for the vessel to dock. It was
only upon the insistence of private respondent's relatives that petitioners were compelled to disembark
private respondent and finally commit him to a hospital. There is no doubt that the failure of petitioners
to provide private respondent with the necessary medical care caused the rapid deterioration and
inevitable worsening of the latter's condition, which eventually resulted in his sustaining a permanent
disability.
6. CIVIL LAW; DAMAGES; MORAL DAMAGES; AWARDED TO PRIVATE RESPONDENT
IN CASE AT BAR. — Petitioners are liable for moral damages for the physical suffering and mental
anguish caused to private respondent. There is no hard and fast rule in the determination of what would
be a fair by amount of moral damages, since each case must be governed by its own peculiar
circumstances. In the present case, the Court considers the amount of P50,000.00 in moral damages as
proper.
7. ID.; ID.; EXEMPLARY DAMAGES; CANNOT BE RECOVERED AS A MATTER OF
RIGHT; MAY BE GRANTED IN QUASI-DELICTS IF DEFENDANT ACTED WITH GROSS
NEGLIGENCE. — Exemplary damages are imposed by way of example or correction for the public
good, pursuant to Article 2229 of the Civil Code. They are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions. While exemplary damages cannot be recovered as a matter of right, they need not
be proved, although plaintiff must show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not exemplary damages should be
awarded. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence. Given the prevailing circumstances, the appellate court's award of P50,000.00 as
exemplary damages is adequate, fair, and reasonable.
8. ID.; ID.; ATTORNEY'S FEES; CANNOT BE GRANTED ABSENT FACTUAL BASIS FOR
AWARD THEREOF. — Although the labor arbiter awarded attorney's fees, which award was
subsequently affirmed by the NLRC and the Court of Appeals, the basis for the same was not discussed
in his decision nor borne out by the records of this case, and should therefore be deleted. There must
always be a factual basis for the award of attorney's fees. This is consistent with the policy that no
premium should be placed on the right to litigate.
DECISION
GONZAGA-REYES, J p:
On 17 October 1994, private respondent was hired by petitioners to work as a radio officer on board its
vessel, the M/V T.A. VOYAGER. Sometime in June, 1995, while the vessel was docked at the port of
New Zealand, private respondent was taken ill. His worsening health condition was brought by his
crewmates to the attention of the master of the vessel. However, instead of disembarking private
respondent so that he may receive immediate medical attention at a hospital in New Zealand, the
master of the vessel proceeded to Manila, a voyage of ten days, during which time the health of private
respondent rapidly deteriorated. Upon arrival in Manila, private respondent was not immediately
disembarked but was made to wait for several hours until a vacant slot in the Manila pier was available
for the vessel to dock. Private respondent was confined in the Manila Doctors Hospital, wherein he was
treated by a team of medical specialists from 24 June 1995 to 26 July 1995. SDEITC
After private respondent was discharged from the hospital, he demanded from petitioners the payment
of his disability benefits and the unpaid balance of his sickness wages, pursuant to the Standard
Employment Contract of the parties. Having been assured by petitioners that all his benefits would be
paid in time, private respondent waited for almost a year, to no avail. Eventually, petitioners told
private respondent that, aside from the sickness wages that he had already received, no other
compensation or benefit was forthcoming. 1 Private respondent filed a complaint with the National
Labor Relations Commission (NLRC) for payment of disability benefits and the balance of his sickness
wages. On 31 July 1997, the labor arbiter rendered a decision, 2 the pertinent parts of which are quoted
hereunder —
In the case at bar, there is no issue on the propriety or illegality of complainant's discharge or release
from employment as Radio Operator. What complainant is pursuing is limited to compensation benefits
due a seaman pursuant to POEA Standard Employment Contract, Part II, Section C, paragraph 4(c) and
paragraph 5, which reads:
"SECTION C. COMPENSATION BENEFIT
xxx xxx xxx
"4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:
xxx xxx xxx
c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel, the seaman is entitled to one hundred percent
(100%) of his basic wages until he is declared fit to work or the degree of permanent disability has
been assessed by the company-designated physician, but is [sic] no case shall this period exceed one
hundred twenty (120) days. For this purpose, the seaman shall submit himself to a post-employment
medical examination by the company-designated physician within three working days upon his return,
except when he is physically, incapacitated to do so, in which case the written notice to the agency
within the same period is deemed as compliance . . . .
"5. In case of permanent total or partial disability of the seamen [sic] [during] the term of
employment caused by either injury or illness, the seamen [sic] shall be compensated in accordance
with the schedule of benefits enumerated in Appendix 1 of this Contract. Computation of his benefits
arising from an illness or disease shall be governed by the rates and the rules of compensation
applicable at the time of [sic] the illness or disease was contracted."
The aforecited provisions of the POEA Standards [sic] Employment Contract is clear and unmistakable
that its literal meaning should be preserved.
Thus, the only question at which the liability of respondents is anchored is whether complainant was
really fit to work in his position as radio operator. If this is so, it could mean that he is not entitled to
disability compensation which respondents vigorously disputed, citing in support the certification made
by Dra. Victoria Forendo [sic] Cayabyab, allegedly "the officially accredited and designated physician
of respondents, which is likewise, accredited with the Philippine Overseas Employment
Administration" where it is stated that "Nothing [sic] his job description as a radio operator, Mr. de
Lara may be allowed to go back to work." (Annex D & E). Complainant on the other hand disputes
respondent's above posture contending that the more persuasive and authentic evidence for purposes of
deciding his fitness or lack of fitness to work is the certificate issued by Ms. Naneth [sic] Domingo-
Reyes, MD, FPMA where it appears that after submitting himself to another medical examination by
his attending physicians at the Manila Doctors Hospital on December 4, 1996, to verify possible
mistake in his post treatment examination on March 25, 1996, firmly "was classified under partial
permanent disability and is not fit to go back to his previous work due to mental state." (Annex "C",
complainant's reply to respondent's position paper). TDCaSE
We have gone into a judicious study and analysis of the arguments and exhibits particularly the ones
relied upon by the parties and find that of the complainant worthy of consideration. Looking closely at
Annexes "D" and "E" of respondents' position paper, there is hardly any clear affirmation that
complainant was fully fit to resume his work as radio operator. Although the document alluded to,
declares that complainant may be allowed to go back to work, the tenor of the same seems uncertain
that complainant is fit to resume his work, and that assuming that such was the message, the words
"may be" can not be taken as overriding that coming from the Manila Doctor Hospital which in the
beginning handled the medical case of complainant and to which respondents unconditionally referred
him and by reason of which six or seven medical especialists [sic] of the hospital took turn[s] studying
and reviewing his uncertain ailment after release by respondents. Otherwise stated, unlike the message
of annexes D to E of respondents, annex "C" of complainant is clear and unmistakable and confirm
complainant's partial permanent disability and his definite unfitness to go back to his previous work
due to his mental health. Some pronouncements in this exhibit mentions also that when complainant
was admitted an emerging basis for drowsiness, behavioral change and off and on fever" and different
procedures were resorted along his case, like emergency CT scan on the brain and his admission in
June 24, 1995 was catastrophic, whereas, more could be said in three document[s] issued by Dra.
Victoria Florendo Cayabyab.
Finally, respondents contend that the annexes issued by Dr. Domingo-Reyes of the Manila Doctors
Hospital should not be given weight because it is not issued by the hospital or doctor duly accredited by
the POEA. Neither would a close look on the applicable provision for seamen show — that a duly
accredited hospital or doctor is needed for purposes of the grant of compensation benefits to a such
[sic] or ailing seamen. We are more persuaded based on the arguments of the complainant among
others, that it is absurd to require an ailing seaman in high seas or in a foreign land to still wait until the
ship where he is working land in the country to secure treatment in a duly accredited hospital or doctor.
On the basis of the above therefore, and convinced that complainant's "partial permanent disability"
which was contracted in the course or on account of his employment as radio operator in foreign
principal's vessel, he is entitled to disability benefit in accordance with the schedule of benefits
enumerated in Appendix 1 of the Contract, the maximum of which is US $50,000. But since the
amount prayed for is US$25,000.00 which we presume has a more realistic basis, the same is hereby
granted.
Concerning the sickness wage, respondents averred that the same had already been paid. However,
there is no evidence that the same has been paid except the payment to the complainant of P49,546.00.
Since complainant's salary as US$870 and a seaman's sick wage entitlement is fixed to a maximum of
120 days, his "sickness wages would rest to a total sum of US$3,480 or its peso equivalent. On this,
complainant has been paid only [P]49,546.00 (US$1,943), thereby leaving for complainant a balance of
US$1,537. Finally, it is also argued that as regards the balance, the same has been paid citing as proof
the Sickness Release and Quitclaim signed by complainant (Annexes "C" & "C-1"). Complainant, on
the other hand denied this, and contended that the quitclaim and release is invalid. Considering that
there is no proof on record that this balance of US$1,537 was paid, unlike the P49,546.00, the same is
granted. TIDcEH
WHEREFORE, premises above-considered, a decision is hereby issued ordering respondent German
Marine Agencies Inc. to pay complainant the following sums:
(a) Disability benefit US$25,000.00
(b) Sickness wage balance US$1,137.00
all in the aggregate of Twenty Six Thousand One Hundred Thirty Seven Dollars (US$26,137.00) or its
peso equivalent, the claim for damages being hereby dismissed for lack of merit, plus ten (10%)
percent attorney's fees.
SO ORDERED.
On 29 July 1998, the NLRC 3 affirmed the labor arbiter's decision in toto and declared that the latter's
findings and conclusions were supported by substantial evidence. 4 After its motion for reconsideration
was denied by the NLRC on 20 May 1999, petitioners repaired to the Court of Appeals. 5 The appellate
court's assailed decision was promulgated on 1 December 1999, upholding the decision of the NLRC,
with the modification that petitioners were ordered to pay private respondent exemplary damages in the
amount of P50,000.00. The appellate court reasoned out its decision, 6 thus —
The basic issue here is: Whether or not petitioner is liable to pay private respondents claim as awarded
by the NLRC, and whether or not there was abuse of discretion on the part of the NLRC in affirming
such decision on appeal? To resolve this issue, this Court took time in looking closely at the pertinent
provision of the Standard Employment Contract Governing the Employment of Filipino Seafarers on
Board Ocean-Going Vessels, particularly PART II, SECTION C, par. no. 4 (c), and par. no. 5, which
states as follows:
"SECTION C. COMPENSATION AND BENEFITS
"4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:
"xxx xxx xxx
"c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel the seaman is entitled to hundred percent (100%) of
his basic wages until he is declared fit to work or his degree of permanent disability has been assessed
by the company-designated physician, but in no case shall this period exceed one hundred twenty (120)
days. . . .
"5. In case of permanent total or partial disability of the seaman during the term of his employment
caused by either injury or illness the seaman shall be compensated in accordance with the schedule of
benefits enumerated in Appendix 1 of his Contract. Computation of his benefits arising from an illness
or disease shall be governed by the rates and the rules of compensation applicable at the time the illness
or disease was contracted.
xxx xxx xxx"
A cursory reading of these applicable contractual provisions and a thorough evaluation of the
supporting evidence presented by both parties, lends strong credence to the contentions and arguments
presented by private respondent.
The award of disability compensation has a clear and valid basis in the Standard Employment Contract
and the facts as supported by the medical certificate issued by Dr. Nanette Domingo-Reyes of the
Manila Doctors Hospital. Petitioners' contention, that Dr. Domingo-Reyes is not company designated is
far from the truth. The designation of the Manila Doctors Hospital by petitioners as the company doctor
for private respondent cannot be denied. Their very act of committing private respondent for treatment
at the Manila Doctors Hospital under the care of its physician is tantamount to company designation.
The very act of paying the hospital bills by the petitioners constitutes their confirmation of such
designation. Hence, petitioners cannot resort to the convenience of denying this fact just to evade their
obligation to pay private respondent of his claims for disability benefit. CTSDAI
This Court also finds no basis on (sic) the petitioners' contention that the company-designated
[physician] must also be accredited with the POEA before he can engage in the medical treatment of a
sick seaman. There is nothing in the Standard Employment Contract that provides this accreditation
requirement, and even if there is, this would be absurd and contrary to public policy as its effect will
deny and deprive the ailing seaman of his basic right to seek immediate medical attention from any
competent physician. The lack of POEA accreditation of a physician who actually treated the ailing
seaman does not render the findings of such physician (declaring the seaman permanently disabled)
less authoritative or credible. To our mind, it is the competence of the attending physician, not the
POEA accreditation, that determines the true health status of the patient-seaman, which in this instant
case, is [sic] the attending physicians from the Manila Doctors Hospital.
As to the award of the balance of wages, this Court is inclined not to disturb the factual findings of the
NLRC. The failure of the petitioners to present a strong and credible evidence supporting the fact of
alleged payment of the balance of sickness justifies the award of such claim. The long standing
doctrine in labor cases that "in case of doubt, the doubt is resolved in favor of labor" applies. For there
are indications that the evidence presented by petitioners appears to be of dubious origin as private
respondent challenged the petitioners to present the original copy of the quitclaim and the vouchers in a
motion demanding from petitioners to produce the original copy of those documents purporting to
show that he had received the alleged sum of P39,803.30, which allegedly shows the payment of the
balance of his sickness wages. This motion was vehemently opposed by petitioners. To our mind, such
opposition only created more doubts and eroded the veracity and credence of petitioners' documentary
evidence.
As to the award of attorney's fees, the same is justified by the fact that private respondent actually hired
the services of a lawyer to vindicate his right to claim for his disability benefit which is being
arbitrarily denied to him by petitioners. Had it not been for the arbitrary denial of petitioners, private
respondent could not have been compelled to hire the services of a lawyer to pursue his claims in court,
for which he is presumed to have incurred costs.
With respect to private respondent's claim for damages, this Court finds that the NLRC overlooked the
attendance of negligence on the part of petitioners in their failure to provide immediate medical
attention to private respondent. It further appears that negligence not only exists but was deliberately
perpetrated by petitioners by its arbitrary refusal to commit the ailing private respondent to a hospital in
New Zealand or at any nearest port deprived of his right to immediate medical attention by petitioners,
which resulted to the serious deterioration of his health that caused his permanent partial disability.
Such deprivation of immediate medical attention appears deliberate by the clear manifestation from
petitioners' own words which states that, "the proposition of the complainant that respondents should
have taken the complainant to the nearest port of New Zealand is easier said than done. It is worthy to
note that deviation from the route of the vessel will definitely result to loss of a fortune in dollars not
only to the respondents but likewise to the owners of the cargoes being shipped by the said vessel."
By petitioners' own statement, they reveal their utter lack of concern for their Filipino crew. This kind
of attitude cannot be taken to pass by this Court without appropriate sanction by way of payment of
exemplary damages, if only to show that the life of a Filipino crew must be accorded due attention and
respect by the petitioners. For after all, had it not been for the toils of this crew, among others,
petitioners would not be doing as good in their business and making " fortunes in dollars."
In affirming the decision of the Labor Arbiter, this Court finds that the NLRC never abused its
discretion nor exceeded its jurisdiction.
Hence, this Court finds no valid basis to disturb the findings of the NLRC.
WHEREFORE, the decision of the NLRC dated 29 July 1998, and the Order dated 20 May 1999, are
hereby AFFIRMED, and in addition thereto, petitioners are ordered to pay exemplary damages to
private respondent in the sum of Fifty Thousand Pesos (P50,000.00).
SO ORDERED.
Petitioners' motion for reconsideration was denied by the Court of Appeals in its Resolution of 11
February 2000. Hence, the present appeal.
Disability Benefits
Petitioners contend that the existence and degree of a seaman's disability must be declared by a
"company-designated physician" who must be accredited with the POEA. Following this line of
reasoning, petitioners claim that private respondent is not entitled to disability benefits because he was
found fit to return to work by Dr. Victoria Florendo Cayabyab, the designated physician of petitioners,
who is also accredited with the POEA. 7
Disagreeing with petitioners' stand, the labor arbiter ruled that, for purposes of determining
compensation benefits under the Standard Employment Contract, an ailing seaman need not have his
condition assessed by a doctor or hospital accredited with the POEA. Consequently, the labor arbiter
gave more weight to the opinion of the specialists from the Manila Doctors Hospital who treated
private respondent and declared him as having sustained a partial permanent disability and unfit to go
back to his previous work. 8 Meanwhile, the Court of Appeals held that petitioners' act of committing
private respondent for treatment at the Manila Doctors Hospital and of paying his hospital bills therein
is tantamount to "company-designation," and therefore, the certificate issued by Dr. Nanette Domingo-
Reyes of the Manila Doctors Hospital describing private respondent as suffering from a partial
permanent disability should be construed as decisive in the matter of private respondents entitlement to
disability benefits. The appellate court also declared that nothing in the Standard Employment Contract
requires the company-designated physician or hospital to also be accredited with the POEA. 9
In the case at bar, the parties are at odds as to the proper interpretation of the POEA Standard
Employment Contract Governing the Employment of All Filipino Seamen On Board Ocean-Going
Vessels (Standard Employment Contract), particularly Part II, Section C thereof, which provides that
—
xxx xxx xxx
4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:
a. The employer shall continue to pay the seaman his basic wages during the time he is on board
the vessel; SDIaCT
b. If the injury or illness requires medical and/or dental treatment in a foreign port, the employer
shall be liable for the full cost of such medical, dental, surgical and hospital treatment as well as board
and lodging until the seaman is declared fit to work or to be repatriated.
However, if after repatriation the seaman still requires medical attention arising from said injury or
illness, he shall be so provided at cost to the employer until such time he is declared fit or the degree of
his disability has been established by the company-designated physician.
c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel the seaman is entitled to one hundred percent
(100%) of his basic wages until he is declared fit to work or the degree of permanent disability has
been assessed by the company-designated physician, but in no case shall this period exceed one
hundred twenty (120) days. For this purpose, the seaman shall submit himself to a post-employment
medical examination by the company-designated physician within three working days upon his return
except when he is physically incapacitated to do so, in which case a written notice to the agency within
the same period is deemed as compliance. Failure of the seaman to comply with the mandatory
reporting requirement shall result in his forfeiture of the right to claim the above benefits.
xxx xxx xxx
5. In case of permanent total or partial disability of the seaman during the term of employment
caused by either injury or illness the seaman shall be compensated in accordance with the schedule of
benefits enumerated in Appendix 1 of his Contract. Computation of his benefits arising from an illness
or disease shall be governed by the rates and the rules of compensation applicable at the time the illness
or disease was contracted.
xxx xxx xxx
Petitioners' contention that the existence and grade of a seaman's disability must be pronounced by a
physician accredited by the POEA does not find any support in the abovecited provision, nor in any
other portion of the Standard Employment Contract. In order to claim disability benefits under the
Standard Employment Contract, it is the "company-designated" physician who must proclaim that the
seaman suffered a permanent disability, whether total or partial, due to either injury or illness, during
the term of the latter's employment. There is no provision requiring accreditation by the POEA of such
physician. In fact, aside from their own gratuitous allegations, petitioners are unable to cite a single
provision in the said contract in support of their assertions or to offer any credible evidence to
substantiate their claim. If accreditation of the company-designated physician was contemplated by the
POEA, it would have expressly provided for such a qualification, by specifically using the term
"accreditation" in the Standard Employment Contract, to denote its intention. For instance, under the
Labor Code it is expressly provided that physicians and hospitals providing medical care to an injured
or sick employee covered by the Social Security System or Government Service Insurance System
must be accredited by the Employees Compensation Commission. 10 It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall control. 11 There is no ambiguity in
the wording of the Standard Employment Contract — the only qualification prescribed for the
physician entrusted with the task of assessing the seaman's disability is that he be "company-
designated." When the language of the contract is explicit, as in the case at bar, 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. 12
The word "designate" means to specify, to mark out and make known, to identify by name, to indicate,
to show, to distinguish by mark or description, or to set apart for a purpose or duty. 13 The Court
agrees with the appellate court's ruling that petitioners' act of committing private respondent for
treatment at the Manila Doctors Hospital and paying the hospital bills therein is tantamount to
"company-designation." By such unequivocal acts, petitioners clearly set apart and distinguished the
Manila Doctors Hospital, together with its team of specialists, as the ones qualified to assess the
existence and degree of private respondent's disability and thereby resolve the question of the latter's
entitlement to disability benefits under the Standard Employment Contract.
In addition to their having been effectively designated by petitioners, it was the physicians from the
Manila Doctors Hospital who examined and treated private respondent for a little more than one month,
subjecting the latter to a series of medical procedures, such as medical therapy, neurological surgical
drainage for brain abscess, bilateral thalamic area S/P craniotomy (Burr Hole), and ophthalmological
(orbit) surgery for socket revision and reconstruction of his left eye. The extensive medical attention
given to private respondent enabled the Manila Doctors Hospital specialists to acquire a detailed
knowledge and familiarity with private respondent's medical condition. 14 No doubt such specialized
knowledge enabled these physicians to arrive at a much more accurate appraisal of private respondent's
condition, including the degree of any disability which he might have sustained, as compared to
another physician not privy to private respondent's case from the very beginning. Thus, the appellate
court was not mistaken in giving more weight to the certificate issued by Dr. Nanette Domingo-Reyes
of the Manila Doctors Hospital dated December 4, 1996, than to the one issued by Dr. Victoria
Florendo Cayabyab. cDAISC
On the strength of Dr. Domingo-Reyes' medical certificate which stated that private respondent "can be
classified under partial permanent disability and is not fit to go back to his previous work due to his
mental state," the labor arbiter awarded $25,000.00 as disability benefits, which award was upheld by
the NLRC and the appellate court. Petitioners insist that there is no factual basis for the award of
$25,000.00 since there is no finding as to the grade of permanent partial disability sustained by private
respondent, in accordance with Appendix 1 of the Standard Employment Contract (Schedule of
Disability or Impediment For Injuries Suffered and Diseases or Illness Contracted), and therefore, no
means of determining the exact amount of compensation to which private respondent may be entitled.
15
The Court does not agree with petitioners' position. Under the Standard Employment Contract the
grade of disability suffered by the seaman must be ascertained in accordance with Appendix 1 of such
contract, which is partially produced herein —
Appendix 1
SCHEDULE OF DISABILITY OR IMPEDIMENT
FOR INJURIES SUFFERED AND OR ILLNESS CONTRACTED
HEAD
Traumatic head injuries that result to:
1. Aperture unfilled with bone not over
three (3) inches without brain injury Gr. 9
2. Aperture unfilled with bone over
three (3) inches without brain injury Gr. 3
3. Severe paralysis of both upper or
lower extremities or one upper and one
lower extremity Gr. 1
4. Moderate paralysis of two (2) extremities
producing moderate difficulty in
movements with self care activities Gr. 6
5. Slight paralysis affecting one extremity
producing slight difficulty with self-care
activities Gr. 10
6. Severe mental disorder or Severe Complex
Cerebral function disturbance or post-
traumatic psychoneurosis which require
regular aid and attendance as to render worker
permanently unable to perform any work Gr. 1
7. Moderate mental disorder or moderate brain
functional disturbance which limits worker
to the activities of daily living with some
directed care or attendance Gr. 6
8. Slight mental disorder or disturbance that
requires little attendance or aid and which
interferes to a slight degree with the working
capacity of the claimant Gr. 10
9. Incurable imbecility Gr. 1
Each grade under Appendix 1 has an equivalent disability allowance or benefit expressed in terms of a
percentage of the maximum amount of $50,000.00. This is specified in Appendix 1-A of the Standard
Employment Contract —
APPENDIX 1-A
SCHEDULE OF DISABILITY ALLOWANCES
Impediment Grace Impediment
1 Maximum Rate x 120.00%
 2 " x 88.81%
3 " x 78.36%
4 " x 68.66%
5 " x 58.96%
6 " x 50.00%
7 " x 41.80%
8 " x 33.59%
9 " x 26.12%
10 " x 20.15%
11 " x 14.93%
12 " x 10.45%
13 " x 6.72%
14 " x 3.74%
Maximum Rate: US$50,000.
To be paid in Philippine Currency equivalent at the exchange rate prevailing during the time of
payment.
Private respondent asked petitioner for disability benefits in the amount of $25,000.00, or fifty percent
(50%) of the maximum rate of $50,000.00, which, under Appendix 1-A, is awarded when the seaman
sustains a grade 6 disability. One of the grade 6 head injuries listed in Appendix 1, specifically number
seven (7), is described as a "moderate mental disorder or moderate brain functional disturbance which
limits worker to the activities of daily living with some directed care or attendance." This coincides
with Dr. Domingo-Reyes' diagnosis of private respondent's condition, as follows —
xxx xxx xxx
Work-ups and Management:
Patient was admitted on an emergency bases for drowsiness, behavioral change and on and off fever.
This started with headaches since the first week of June 1995 while on duty (on voyage). Patient
progressively deteriorated and arrived here already dehydrated with high grade fever. (emphasis
supplied)
Emergency CT Scan of the brain revealed rounded masses in both thalamus on the brain; the larger
mass was situated at the right.
Burr hole at the right parietal and drainage of the right thalamic abscess was done on June 26, 1995.
Repair of shallow fornix of left eye and biopsy was done for culture studies thereafter. DEICHc
Mr. De Lara stayed in the hospital for 33 days and was still in bedridden state when discharge. He
became ambulant on mid-August 1996 but his cerebral functions (cognitive and behavioral) remain
impaired.
This is his 18th month of illness. His admission last June 24, 1995 is considered catastrophic. He now
can be classified under partial permanent disability and is not fit to go back to his previous work due to
his mental state. 16 (emphasis supplied)
xxx xxx xxx
Thus, the medical certificate of Dr. Domingo-Reyes is more than sufficient basis for the award of
disability benefits in the amount of $25,000.00 in favor of private respondent.
Sickness wages
Petitioners assert that the award of $1,137.00, representing the balance of the sickness wages owed to
private respondent, is erroneous and in absolute disregard of their documentary evidence —
particularly the three check vouchers in the total amount of P89,354.80, all issued in 1995 in favor of
either private respondent or his wife, and the "Sickwages Release & Quitclaim" — which, according to
petitioners, taken together would prove that they had paid private respondent the total amount of
P89,354.80, or $3,480.00, corresponding to the 120 days sickness wages as required under the Standard
Employment Contract.
Contrary to petitioners' assertions, the labor arbiter held that only P49,546.00 ($1,943.00) was paid by
petitioners and that private respondent is still entitled to the balance of the sickness wages in the
amount of $1,537.00. According to the labor arbiter, petitioners failed to prove that they had paid this
amount to private respondent, notwithstanding the document entitled "Sickness Release & Quitclaim"
introduced by petitioners in evidence, which was not given credence. 17 The NLRC and the Court of
Appeals concurred with the labor arbiter on this issue. The appellate court held that the documentary
evidence of petitioners was insufficient to support their contentions. 18
The Supreme Court has always accorded respect and finality to the findings of fact of the NLRC,
particularly if they coincide with those of the Labor Arbiter, when supported by substantial evidence.
The reason for this is that a quasi-judicial agency like the NLRC has acquired a unique expertise
because its jurisdiction is confined to specific matters. 19 Whether or not petitioners actually paid the
balance of the sickness wages to private respondent is a factual question. In the absence of proof that
the labor arbiter or the NLRC had gravely abused their discretion, the Court shall deem conclusive and
cannot be compelled to overturn this particular factual finding. 20
Damages
We affirm the appellate court's finding that petitioners are guilty of negligence in failing to provide
immediate medical attention to private respondent. It has been sufficiently established that, while the
M/V T.A. VOYAGER was docked at the port of New Zealand, private respondent was taken ill,
causing him to lose his memory and rendering him incapable of performing his work as radio officer of
the vessel. The crew immediately notified the master of the vessel of private respondent's worsening
condition. However, instead of disembarking private respondent so that he may receive immediate
medical attention at a hospital in New Zealand or at a nearby port, the master of the vessel proceeded
with the voyage, in total disregard of the urgency of private respondent's condition. Private respondent
was kept on board without any medical attention whatsoever for the entire duration of the trip from
New Zealand to the Philippines, a voyage of ten days. To make matters worse, when the vessel finally
arrived in Manila, petitioners failed to directly disembark private respondent for immediate
hospitalization. Private respondent was made to suffer a wait of several more hours until a vacant slot
was available at the pier for the vessel to dock. It was only upon the insistence of private respondent's
relatives that petitioners were compelled to disembark private respondent and finally commit him to a
hospital. 21 There is no doubt that the failure of petitioners to provide private respondent with the
necessary medical care caused the rapid deterioration and inevitable worsening of the latter's condition,
which eventually resulted in his sustaining a permanent disability. HcTEaA
In light of the foregoing, petitioners are liable for moral damages for the physical suffering and mental
anguish caused to private respondent. 22 There is no hard and fast rule in the determination of what
would be a fair amount of moral damages, since each case must be governed by its own peculiar
circumstances. 23 In the present case, the Court considers the amount of P50,000.00 in moral damages
as proper. 24
Meanwhile, exemplary damages are imposed by way of example or correction for the public good,
pursuant to Article 2229 of the Civil Code. They are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.
While exemplary damages cannot be recovered as a matter of right, they need not be proved, although
plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded. 25 In quasi-
delicts, exemplary damages may be granted if the defendant acted with gross negligence. 26 Coming
now to the case at bar, the appellate court found that —
. . . negligence not only exists but was deliberately perpetrated by petitioners by its arbitrary refusal to
commit the ailing private respondent to a hospital in New Zealand or at any nearest port . . . which
resulted to the serious deterioration of his health that caused his permanent partial disability. Such
deprivation of immediate medical attention appears deliberate by the clear manifestation from
petitioners' own words which states that, "the proposition of the complainant that respondents should
have taken the complainant to the nearest port of New Zealand is easier said than done. It is worthy to
note that deviation from the route of the vessel will definitely result to loss of a fortune in dollars not
only to the respondents [petitioners herein] but likewise to the owners of the cargoes being shipped by
the said vessel.
Petitioners never denied making this statement. Given the prevailing circumstances, the appellate
courts award of P50,000.00 as exemplary damages is adequate, fair, and reasonable. 27
Although the labor arbiter awarded attorney's fees, which award was subsequently affirmed by the
NLRC and the Court of Appeals, the basis for the same was not discussed in his decision nor borne out
by the records of this case, and should therefore be deleted. There must always be a factual basis for the
award of attorney's fees. 28 This is consistent with the policy that no premium should be placed on the
right to litigate. 29
WHEREFORE, the 1 December 1999 Decision and 11 February 2000 Resolution of the Court of
Appeals are AFFIRMED, with the modification that petitioners must also pay private respondent
P50,000.00 as moral damages and the award of attorney's fees is deleted.
SO ORDERED.
Melo, Vitug, Panganiban and Sandoval-Gutierrez, JJ., concur.
Footnotes
1. Rollo, 72-73.
2. Ibid., 41-52.
3. First Division, composed of Commissioners Vicente S.E. Veloso, ponente; Rogelio I. Rayala,
presiding commissioner; and Alberto R. Quimpo.
4. Rollo, 54-65.
5. Thirteenth Division, composed of Justices Omar U. Amin, ponente; Hector L. Hofilena,
chairman; and Jose L. Sabio.
6. Rollo, 71-89.
7. Petitioners' Memorandum, 11.
8. Rollo, 49-51.
9. Ibid., 85-86.
10. Labor Code, Book IV, Title II, Chapter I, Article 167(u), (v).
11. Civil Code, Article 1370; Palmares v. Court of Appeals, 288 SCRA 422 (1998).
12. Cruz v. Court of Appeals, 293 SCRA 239 (1998).
13. Words and Phrases, Permanent Edition, "Designate," vol. 12, 415 (1954). Citing State v. Noah,
124 N.W. 1121, 1126, 20 N.D. 281; Colgrove v. U.S., C.A. Cal., 176 F.2d 614, 617; Lankford v. Pope,
57 S.E.2d 538, 540, 206 Ga. 430; Thrailkill v. Smith, 138 N.E. 532, 534, 106 Ohio St. 1; Hall v.
Cotton, 180 S.W. 779, 781, 167 Ky. 464, L.R A.1916C, 1124; State ex rel. Rocky Mountain Bell Tel.
Co. v. City of Red Lodge, 83 P. 642, 643, 33 Mont. 345, quoting and adopting definition in Webst. Int.
Dict.; Lowry v. Davis, 70 N.W. 190, 101 Iowa, 236, 239; Jewel Tea Co. v. City of Geneva, 291 N.W.
664, 669, 137 Neb. 768; St. Louis Police Relief Ass'n v. Tierney, 91 S.W. 968, 974, 116 Mo. App. 447.
14. Rollo, 49-50, 86.
15. Petitioners' Memorandum, 12-13.
16. Records, 154.
17. Rollo, 51.
18. Ibid., 86-87.
19. Travelaire & Tours Corporation v. National Labor Relations Commission, 294 SCRA 505
(1998); Suarez v. National Labor Relations Commission, 293 SCRA 496 (1998); Autobus Workers'
Union v. National Labor Relations Commission, 291 SCRA 219 (1998); Prangan v. National Labor
Relations Commission, 289 SCRA 142 (1998); International Pharmaceuticals, Inc. v. National Labor
Relations Commission, 287 SCRA 213 (1998); Villa v. National Labor Relations Commission, 284
SCRA 105 (1998).
20. Gandara Mill Supply v. National Labor Relations Commission, 300 SCRA 702 (1998);
National Union of Workers in Hotels, Restaurants and Allied Industries v. National Labor Relations
Commission, 287 SCRA 192 (1998).
21. Rollo, 72.
22. Civil Code, Article 2217.
23. Philippine National Bank v. Court of Appeals, 266 SCRA 136 (1997).
24. Ong v. Court of Appeals, 301 SCRA 387 (1999); Philtranco Service Enterprises, Inc. v. Court
of Appeals, 273 SCRA 562 (1997).
25. Del Rosario v. Court of Appeals, 267 SCRA 158 (1997).
26. Civil Code, Article 2231.
27. Petitioners have never questioned the jurisdiction of the labor arbiter or the NLRC over private
respondent's claim for damages. See Zamboanga v. Buat, 243 SCRA 47 (1995); Ocheda v. Court of
Appeals, 214 SCRA 629 (1992).
28. Congregation of the Religious of the Virgin Mary v. Court of Appeals, 291 SCRA 385 (1998).
29. Philtranco Service Enterprises, Inc. v. Court of Appeals, supra.
EN BANC
[G.R. No. 150732. August 31, 2004.]
TOMAS G. VELASQUEZ, Officer-In-Charge, Office of the School Superintendent, DECS —
Division of Abra; MARIETTA BERSALONA, Chairperson, DECS — Fact Finding Committee;
EDUARDO RUPERTO, JOAQUIN PILIEN and LUZ CURBI, Members, DECS — Fact Finding
Committee, petitioners, vs. HELEN B. HERNANDEZ, respondent.
[G.R. No. 151095. August 31, 2004.]
CIVIL SERVICE COMMISSION, petitioner, vs. HELEN B. HERNANDEZ, respondent.
The Solicitor General for the Civil Service Commission.
SYNOPSIS
Pursuant to the letter of the Assistant Schools Division Superintendent of the DECS-NCR (Cordillera
Administrative Region), petitioner Tomas G. Velasquez convened a fact-finding committee to
determine the veracity of the alleged violations of respondent Helen B. Hernandez that she demanded
and/or received money in various amounts from the teachers in consideration of their appointment,
promotion and transfer from one school to another. In her answer to the charges against her, respondent
contended that those were brazen fabrications and falsehoods made by parties with ulterior motives,
which are designed to harass her in a systematic campaign to discredit her. After investigation, the
Committee recommended the filing of administrative and criminal complaints against the respondent.
As to the criminal case the Office of the Deputy Ombudsman, upon motion by respondent and her co-
accused, ordered the withdrawal of Informations for direct bribery filed against her and Luzviminda de
la Cruz. In the administrative case, the Civil Service Commission (CSC) issued a resolution finding
respondent guilty of dishonesty and grave misconduct and ordering her dismissal from the service. On
appeal, the Court of Appeals reversed the resolutions of the CSC. It opined that respondent's right to
administrative due process was violated and that the evidence against the respondent was insufficient.
Hence, these petitions.
The Court ruled for the petitioners. Respondent had been amply accorded the opportunity to be heard.
She was required to answer the formal charge against her and given the chance to present evidence in
her behalf. She actively participated in the proceedings and even cross-examined the witnesses against
her. Clearly, based on the jurisprudential pronouncements, the appellate court's finding that respondent
was denied due process is utterly without basis.
The Court is of the view further that the sworn complaints of the twenty remaining complainants
coupled with their positive testimonies in the proceedings below, more than adequately complied with
the standard of proof required in administrative cases. The desistance executed by three (3) out of the
twenty-three (23) original complainants is of no moment since administrative actions cannot be made
to depend upon the will of every complainant who may, for one reason or another, condone a detestable
act. Thus, respondent's guilt in the administrative case has been sufficiently established and pursuant to
existing Civil Service Rules and Regulations, her dismissal from the service is warranted.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; RULE AGAINST FORUM SHOPPING; FORUM
SHOPPING; ELUCIDATED. — Forum shopping consists of filing of multiple suits involving the
same parties for the same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment. It may also consist in a party against whom an adverse judgment has
been rendered in one forum, seeking another and possibly favorable opinion in another forum other
than by appeal or special civil action of certiorari. aESIHT
2. ID.; ID.; ID.; A PARTY CANNOT BE SAID TO HAVE SOUGHT TO IMPROVE HIS
CHANCES OF OBTAINING A FAVORABLE DECISION OR ACTION WHERE NO
UNFAVORABLE DECISION HAS EVER BEEN RENDERED AGAINST HIM IN ANY OF THE
CASES. — The most important factor in determining the existence of forum shopping is the vexation
caused the courts and parties-litigants by a party who asks different courts to rule on the same or related
causes or grant the same or substantially the same reliefs. A party, however, cannot be said to have
sought to improve his chances of obtaining a favorable decision or action where no unfavorable
decision has ever been rendered against him in any of the cases he has brought before the courts.
3. ID.; ID.; ID.; YARDSTICK TO DETERMINE WHETHER A PARTY VIOLATED THE
RULE. — In not a few cases, this Court has laid down the yardstick to determine whether a party
violated the rule against forum shopping as where the elements of litis pendentia are present or where a
final judgment in one case will amount to res judicata in the other. Stated differently, there must be
between the two cases (a) identity of parties; (b) identity of rights asserted and reliefs prayed for, the
relief being founded on the same facts; and (c) that the identity of the two preceding particulars is such
that any judgment rendered in the other action will, regardless of which party is successful, amount to
res judicata in the action under consideration. HICcSA
4. ID.; ID.; ID.; NOT APPLICABLE WHEN THE TWO CASES DO NOT RAISE IDENTICAL
CAUSES OF ACTION AND ISSUES. — It is significant to note that the action filed before the CSC-
CAR is administrative in nature, dealing as it does with the proper administrative liability, if any,
which may have been incurred by respondent for the commission of the acts complained of. In stark
contrast, the case filed before the Office of the Deputy Ombudsman for Luzon, which incidentally was
not initiated by herein petitioners but by the complainant teachers, deals with the criminal
accountability of the respondent for violation of the Anti-Graft and Corrupt Practices Act.
Unmistakably, the rule on forum shopping would find no proper application since the two cases
although based on the same essential facts and circumstances do not raise identical causes of action and
issues. It would, therefore, be absurd to require the certification of forum shopping to be attached to the
formal charge filed before the CSC, for the evil sought to be curbed by the proscription against forum
shopping is simply not extant in the instant case.
5. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE CASE; DUE
PROCESS; ELUCIDATED. — The essence of due process is that a party be afforded a reasonable
opportunity to be heard and to present any evidence he may have in support of his defense or simply an
opportunity to be heard; or as applied to administrative proceedings, an opportunity to seek a
reconsideration of the action of ruling complained of. One may be heard, not solely by verbal
presentation but also, and perhaps even many times more creditably than oral argument, through
pleadings. Technical rules of procedure and evidence are not even strictly applied to administrative
proceedings, and administrative due process cannot be fully equated to due process in its strict judicial
sense. CASTDI
6. ID.; ID.; ID.; IT IS THE ADMINISTRATIVE RESOLUTION, NOT THE INVESTIGATION
REPORT, WHICH SHOULD BE THE BASIS OF ANY FURTHER REMEDIES THAT THE
LOSING PARTY MIGHT WISH TO PURSUE. — In fact in Pefianco v. Moral, the Court had the
occasion to rule that a respondent in an administrative case is not entitled to be informed of the findings
and recommendations of any investigating committee created to inquire into charges filed against him
— he is entitled only to the administrative decision based on substantial evidence made of record, and a
reasonable opportunity to meet the charges and the evidence presented against him during the hearing
of the investigation committee. It is the administrative resolution, not the investigation report, which
should be the basis of any further remedies that the losing party in an administrative case might wish to
pursue.
7. ID.; ID.; ID.; ADMINISTRATIVE PROCEEDINGS ARE GOVERNED BY THE
"SUBSTANTIAL EVIDENCE RULE"; DISMISSAL OF THE CRIMINAL CASE WILL NOT
FORECLOSE ADMINISTRATIVE ACTION AGAINST RESPONDENT. — Administrative
proceedings are governed by the "substantial evidence rule". A finding of guilt in an administrative
case would have to be sustained for as long as it is supported by substantial evidence that the
respondent has committed the acts stated in the complaint or formal charge. As defined, substantial
evidence is such relevant evidence as a reasonable mind may accept as adequate to support a
conclusion. This is different from the quantum of proof required in criminal proceedings which
necessitates a finding of guilt of the accused beyond reasonable doubt. The Ombudsman, in ordering
the withdrawal of the criminal complaints against respondent was simply saying that there is no
evidence sufficient to establish her guilt beyond reasonable doubt which is a condition sine qua non for
conviction. Ergo, the dismissal of the criminal case will not foreclose administrative action against
respondent. DHAcET
8. ID.; ID.; ID.; ACTIONS CANNOT BE MADE TO DEPEND UPON THE WILL OF EVERY
COMPLAINANT WHO MAY CONDONE A DETESTABLE ACT. — [T]his Court is of the view
that the sworn complaints of the twenty remaining complainants coupled with their positive testimonies
in the proceedings below, more than adequately complies with the standard of proof required in
administrative cases. The desistance executed by three (3) out of the twenty-three (23) original
complainants is of no moment since administrative actions cannot be made to depend upon the will of
every complainant who may, for one reason or another, condone a detestable act.
9. ID.; ID.; CIVIL SERVICE RULES; DISHONESTY AND GRAVE MISCONDUCT;
PENALTY. — All told, the Court holds that respondent's guilt in the administrative case has been
sufficiently established and pursuant to existing Civil Service Rules and Regulations, her dismissal
from the service is warranted. DEHaTC
DECISION
TINGA, J p:
Subject of the consolidated petitions is the Decision of the Court of Appeals in CA-G.R. SP No. 61081,
entitled Helen B. Hernandez v. Tomas G. Velasquez, promulgated on 07 November 2001. 1 The
assailed Decision annulled and set aside the twin resolutions issued by the Civil Service Commission
(CSC for brevity), in Administrative Case No. 97-45 filed against respondent Hernandez. The CSC, in
its Resolution No. 00-1375 dated 13 June 2000, found respondent Hernandez guilty of dishonesty and
grave misconduct and ordered her dismissal from the service, with all the accessory penalties including
her perpetual disqualification from holding public office. In Resolution No. 00-2064 dated 07
September 2000, the CSC denied respondent's motion for reconsideration of Resolution No. 00-1375.
SEAHcT
Stripped of non-essentials, the following are the factual antecedents:
In a letter dated 25 September 1996, the Assistant Schools Division Superintendent of the DECS-CAR,
(Cordillera Administrative Region) sent a letter to petitioner (in G.R. No. 150732) Tomas G.
Velasquez, informing him of the alleged infractions committed by respondent, Helen B. Hernandez,
such as soliciting, accepting, and receiving sums of money, in exchange for transfer or promotion of
complainant teachers. Acting on the letter, petitioner Velasquez convened a fact-finding committee to
determine the veracity of the alleged violations of respondent and to render a formal report and
recommendation.
On 26 September 1996, the Committee composed of members assigned at the DECS-Division of Abra,
summoned to a meeting the teachers who have grievances against respondent. Based on the sworn
statements of the teachers, namely: Elena Princena, Myrna Bayabos, Mildred Millare, Ofrina Benabese,
Emilia Beralde, Ruby Bringas, Regina Potolin, spouses Ernesto Callena, Jr. and Ma. Louisa Callena,
Irene Bermudez, Francisco Castillo, Elizabeth Castillo, Maribel Medrano, Benigna Bulda, Irenea
Viado, Cecilia Turqueza, Catherine Badere, Rosalinda Bilgera, Nardita Tuscano, Henry Bisquera,
Melba Linggayo, and Maritess Navarro, it appears that respondent demanded and/or received money in
various amounts from the teachers in consideration of their appointment, promotion, and transfer from
one school to another.
On 15 November 1996, the Committee issued an Investigation Report recommending the filing of
administrative and criminal complaints against respondent. On 14 March 1997, a formal charge for
Grave Misconduct, Conduct Grossly Prejudicial to the Best Interest of the Service, Abuse of Authority,
and Violation of Section 22(k) Omnibus Rules Implementing Book V of E.O. 292 and other related
laws was filed against respondent.
On 24 March 1997, respondent filed her Answer to the charges. In the main, she contended that the
charges are brazen fabrications and falsehoods made by parties with ulterior motives which are
designed to harass her in a systematic campaign to discredit her. Respondent likewise alleged that the
preparation and taking of the statements of the supposed 23 counts of irregularity leveled against her
were attended by coercion and fraud. SEIDAC
Meanwhile, the Office of the Provincial Prosecutor of Abra issued a Resolution in I.S. No. 97-003
entitled, "People of the Philippines v. Helen Hernandez, et al." This Resolution, which arose from the
sworn complaints filed by the complaining teachers, indicted respondent and a certain Luzviminda de
la Cruz for violation of Section 3(b), Republic Act No. 3019 otherwise known as the Anti-Graft and
Corrupt Practices Act. The Resolution of the Provincial Prosecutor was affirmed with modification by
the Office of the Deputy Ombudsman for Luzon in its Review Action dated 6 November 1997. Under
the modified indictment, respondent and dela Cruz were charged with direct bribery. However, upon
motion filed by respondent and her co-accused, the Office of the Deputy Ombudsman in its Order
dated 24 February 1998, reconsidered and set aside its Review Action dated 6 November 1997, and
ordered the withdrawal of Informations for direct bribery filed against respondent and de la Cruz.
After due proceedings, the CSC issued Resolution No. 00-1375, dated 13 June 2000, finding
respondent guilty of the charges against her and ordering her dismissal from the service. The motion
for reconsideration filed by respondent was denied by the CSC in its Resolution No. 00-2064 dated 7
September 2000.
Respondent appealed to the Court of Appeals raising the following issues:
1) Whether or not the CSC erred in assuming jurisdiction and/or in rendering judgment adverse to
her;
2) Whether or not the CSC erred in rendering judgment against her in violation of her right to due
process in administrative proceedings;
3) Whether or not the CSC erred in its appreciation of the evidence on record and;
4) Whether or not the CSC erred in imposing the penalty of dismissal. 2
The appellate court, in its now assailed Decision, reversed the resolutions of the CSC. It opined that
when petitioners filed a formal charge against respondent, it was incumbent upon them to inform the
Civil Service Commission that another case was filed before the Office of the Deputy Ombudsman for
Luzon considering that the facts and circumstances from which both complaints stem are the same.
Citing Section 13(1) of Article XI of the 1987 Constitution, and Section 19 and 21 of Republic Act No.
6770, the appellate court added that the CSC and the Office of the Ombudsman have concurrent
original jurisdiction over administrative cases filed against any government employee. Thus, it ruled
that the effects of res judicata or litis pendentia may not be avoided by varying the designation of the
parties, changing the form of the action, or adopting a different mode of presenting one's case.
ICacDE
Anent the issue of violation of respondent's right to due process, the appellate court stressed that it is
not enough that the twin requisites of notice and hearing be present. It is important that the tribunal
hearing the case must be unbiased; indeed, if the government official or employee under investigation
is not afforded the opportunity to present his case before a fair, independent, and impartial tribunal, the
hearing would be futile. Considering that the composition of the fact-finding Committee is in question,
the appellate court concluded that it cannot properly be said that there was a fair and impartial hearing
of the petitioner's case.
The appellate court also ruled that petitioner failed to discharge the burden of proving by substantial
evidence the averments of the complaint because it appears that some affiants who executed sworn
statements to support the charges against respondent later retracted their statements and executed new
statements, alleging that they were merely induced to testify against respondent. It also noted that some
of the complaining teachers even failed to appear in the investigation to confirm their respective sworn
statements. The appellate court, therefore, annulled and set aside the Resolutions of the CSC and
ordered the payment of backwages to respondent.
Separate appeals via petition for review were filed before this Court by petitioner Velasquez, in his
capacity as Officer-in Charge, Office of the School Superintendent, DECS-Division of Abra (G.R. No.
150732) and the Civil Service Commission (G.R. No. 151095), assailing the decision of the appellate
court. The two petitions were ordered consolidated in a Resolution of this Court dated 25 June 2002.
G.R. No. 150732, assigned to the Third Division of this Court, was ordered consolidated with G.R. No.
151095, an En Banc case even if the first mentioned petition has a lower docket number considering
that both cases involve resolutions of the Civil Service Commission.
The issues in both petitions are substantially the same.
In G.R. No. 150732, petitioner raised the following issues:
I.
THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE FORMAL CHARGE
WHICH WAS FILED BY THE CSC AGAINST THE RESPONDENT SHOULD CONTAIN A
CERTIFICATION OF NON-FORUM SHOPPING. CcAHEI
II.
THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT RESPONDENT'S RIGHT
TO ADMINISTRATIVE DUE PROCESS WAS VIOLATED.
III.
THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE EVIDENCE
AGAINST THE RESPONDENT WAS INSUFFICIENT.
IV.
THE COURT OF APPEALS GRAVELY ERRED IN ORDERING THE REINSTATEMENT OF THE
RESPONDENT AND THE PAYMENT OF HER BACKWAGES. 3
On the other hand, the following issues were raised by the CSC in G.R. No. 151095:
I.
WHETHER OR NOT THE FORMAL CHARGE SHOULD CONTAIN A CERTIFICATE AGAINST
FORUM SHOPPING;
II.
WHETHER OR NOT THE CSC ERRED IN RENDERING JUDGMENT AGAINST RESPONDENT
IN VIOLATION OF THE LATTER'S RIGHT TO DUE PROCESS IN ADMINISTRATIVE
PROCEEDINGS;
III.
WHETHER OR NOT THE CSC ERRED IN ITS APPRECIATION OF THE EVIDENCE ON
RECORD AND FINDING RESPONDENT GUILTY OF THE OFFENSES CHARGED. 4
In both cases, petitioners asseverate that under Section 21 of the Uniform Rules of Procedure in the
Conduct of Administrative Investigations (CSC Resolution No. 99-1936, dated 31 August 1999), it is
the complaint and the not the formal charge which should contain a certification of non-forum
shopping. The Office of the Solicitor General strongly argues that the formal charge was filed, not by
the complaining teachers or the DECS Fact-Finding Committee, but by the CSC-CAR and it would
thus be unnecessary to require a certification of non-forum shopping considering that the CSC is the
sole arbiter of all contests relating to the Civil Service and it would be absurd for the CSC-CAR to file
the same administrative case against respondent in another forum. The OSG adds that there was no
need for the CSC-CAR to inform the CSC about the criminal action for Direct Bribery in OMB-1-96-
2757 because the said action was not filed by the CSC-CAR. SaIHDA
The CSC on the other hand, argues that what was filed with the Office of the Ombudsman is a criminal
case and while the facts therein may be similar to the pending administrative case, the Office of the
Ombudsman and the CSC will not rule on the same cause of action or grant the same relief. According
to the CSC, there is no possibility of having conflicting decisions as the two cases are distinct from
each other.
Petitioners dispute the Court of Appeals'’ finding that respondent's right to administrative due process
was violated. Respondent can hardly be said to have been deprived of due process as she was given the
chance to answer the charges, to submit countervailing evidence, and to cross-examine the witnesses
against her. The mere fact that respondent questioned the impartiality of the fact finding committee will
not automatically result in a denial of due process because what matters is that respondent had actively
participated in the proceedings against her. Petitioners add that respondent's culpability was not based
solely on the report of the fact-finding committee, but also on the evidence submitted by the respondent
which, unfortunately, was found wanting.
Succinctly, petitioners argue that the appellate court erred in holding that the evidence they presented to
establish the culpability of the respondent is insufficient. The finding is based merely on the retraction
of the sworn statements of some three teachers and the failure of three others to appear during the
formal investigation. Petitioners stress that a majority of the complainant teachers remained consistent
in their claim that respondent actually and directly received from them various amounts of money in
exchange for their appointment, promotion, or transfer. They add that the dismissal of the criminal
action against respondent in OMB-1-96-2757 cannot be treated as a bar to the administrative case
primarily because administrative liability is distinct from penal liability. In conclusion, petitioners fault
the appellate court for reversing the factual findings of the CSC, ordering the reinstatement of
respondent, and awarding backwages in her favor.
Upon the other hand, respondent would have the Court sustain the Decision of the appellate court
exonerating her of all the charges in the administrative case. Citing CSC Resolution No. 95-3099,
respondent argues that even on the assumption that a certificate of non-forum shopping is not necessary
in the formal charge, petitioners nevertheless failed to show that the complaint filed by the teachers
contained the required certification of non-forum shopping. She theorizes that since it is the CSC-CAR
which filed the formal charge against her, it would be difficult to imagine that the CSC will make a turn
around and take a position contrary to its earlier findings that a prima facie case against her exists.
Respondent insists that to allow the CSC to exercise jurisdiction over the case would be similar to
allowing one person to act as prosecutor and judge at the same time. EaScHT
In support of the appellate court's Decision, respondent maintains that it correctly ruled that there was
no fair and impartial hearing of her case before the fact-finding committee. She contends that the
integrity of the fact-finding committee is questionable considering that the chairperson of the
committee is a relative of one of the complainant teachers, Ms. Immaculada Bringas, who incidentally
would be the next in rank if she is ousted from her position. Finally, she adds that petitioners are urging
this Court to review the factual findings of the appellate court which cannot be done in the instant
petition which must raise only questions of law.
The Court rules for the petitioners.
CSC Resolution No. 95-3099 dated 9 May 1995 (Further Amended by CSC Resolution No. 99-1936,
dated 31 August 1999), amending Section 4 of CSC Resolution No. 94-0521, Series of 1994, provides:
"Section 4. Complaint in Writing and Under Oath. — No complaint against a civil servant shall be
given due course, unless the same is in writing and under oath.
The complaint should be written in a clear, simple and concise language and in a systematic manner as
to apprise the civil servant concerned of the nature and cause of the accusation against him and to
enable him to intelligently prepare his defense or answer.
The complaint shall also contain the following:
(a) ...
(b) ...
(c) ...
(d) a statement that no other administrative action or complaint against the same party involving the
same acts or omissions and issues, has been filed before another agency or administrative tribunal. In
the absence of any one of the requirements therein stated, the complaint shall be dismissed. (Emphasis
supplied) TIADCc
The appellate court placed much reliance on the above-quoted provision of CSC Resolution No. 95-
3099 in relation to Section 5, Rule 7 of the 1997 Rules of Civil Procedure, when it ruled that it was
incumbent upon petitioner (in G.R. No. 150732) to inform that another case was filed before the Office
of the Deputy Ombudsman for Luzon. Strikingly, the appellate court failed to state in its Decision the
person or entity which petitioner must notify of the pending case with the Ombudsman. The appellate
court then cited a litany of cases on forum shopping and concluded that petitioner's failure to state in
the formal charge that there is no other action or complaint pending against herein respondent
constitutes a violation of the rule against forum shopping that merited the dismissal of the complaint. It
ratiocinated that since the facts and circumstances from which both complaints stem from are the same,
petitioners should have attached in their complaint the certificate of non-forum shopping.
Inconsistently, however, the appellate court was quick to add that the cause of action in the CSC and
the Office of the Deputy Ombudsman are distinct; nevertheless, it said that in order to obviate the risk
of violating the rule, petitioners should have attached the certification against non-forum shopping.
The Court finds the above disquisition unsound.
Forum shopping consists of filing of multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. 5 It
may also consist in a party against whom an adverse judgment has been rendered in one forum, seeking
another and possibly favorable opinion in another forum other than by appeal or special civil action of
certiorari. 6
The most important factor in determining the existence of forum shopping is the vexation caused the
courts and parties-litigants by a party who asks different courts to rule on the same or related causes or
grant the same or substantially the same reliefs. A party, however, cannot be said to have sought to
improve his chances of obtaining a favorable decision or action where no unfavorable decision has ever
been rendered against him in any of the cases he has brought before the courts. 7
In not a few cases, this Court has laid down the yardstick to determine whether a party violated the rule
against forum shopping as where the elements of litis pendentia are present or where a final judgment
in one case will amount to res judicata in the other. 8 Stated differently, there must be between the two
cases (a) identity of parties; (b) identity of rights asserted and reliefs prayed for, the relief being
founded on the same facts; and (c) that the identity of the two preceding particulars is such that any
judgment rendered in the other action will, regardless of which party is successful, amount to res
judicata in the action under consideration. 9
It is significant to note that the action filed before the CSC-CAR is administrative in nature, dealing as
it does with the proper administrative liability, if any, which may have been incurred by respondent for
the commission of the acts complained of. In stark contrast, the case filed before the Office of the
Deputy Ombudsman for Luzon, which incidentally was not initiated by herein petitioners but by the
complainant teachers, deals with the criminal accountability of the respondent for violation of the Anti-
Graft and Corrupt Practices Act. Unmistakably, the rule on forum shopping would find no proper
application since the two cases although based on the same essential facts and circumstances do not
raise identical causes of action and issues. 10 It would, therefore, be absurd to require the certification
of forum shopping to be attached to the formal charge filed before the CSC, for the evil sought to be
curbed by the proscription against forum shopping is simply not extant in the instant case. ECaHSI
On the issue of her having been denied administrative due process, the Court likewise finds
respondent's claim untenable.
The essence of due process is that a party be afforded a reasonable opportunity to be heard and to
present any evidence he may have in support of his defense or simply an opportunity to be heard; 11 or
as applied to administrative proceedings, an opportunity to seek a reconsideration of the action of
ruling complained of. 12 One may be heard, not solely by verbal presentation but also, and perhaps
even many times more creditably than oral argument, through pleadings. Technical rules of procedure
and evidence are not even strictly applied to administrative proceedings, and administrative due process
cannot be fully equated to due process in its strict judicial sense. 13
In fact in Pefianco v. Moral, 14 the Court had the occasion to rule that a respondent in an
administrative case is not entitled to be informed of the findings and recommendations of any
investigating committee created to inquire into charges filed against him — he is entitled only to the
administrative decision based on substantial evidence made of record, and a reasonable opportunity to
meet the charges and the evidence presented against him during the hearing of the investigation
committee. It is the administrative resolution, not the investigation report, which should be the basis of
any further remedies that the losing party in an administrative case might wish to pursue.
Respondent had been amply accorded the opportunity to be heard. She was required to answer the
formal charge against her and given the chance to present evidence in her behalf. She actively
participated in the proceedings and even cross-examined the witnesses against her. Clearly, based on
the above jurisprudential pronouncements the appellate court's finding that respondent was denied due
process is utterly without basis.
Administrative proceedings are governed by the "substantial evidence rule." 15 A finding of guilt in an
administrative case would have to be sustained for as long as it is supported by substantial evidence
that the respondent has committed the acts stated in the complaint or formal charge. As defined,
substantial evidence is such relevant evidence as a reasonable mind may accept as adequate to support
a conclusion. 16 This is different from the quantum of proof required in criminal proceedings which
necessitates a finding of guilt of the accused beyond reasonable doubt. The Ombudsman, in ordering
the withdrawal of the criminal complaints against respondent was simply saying that there is no
evidence sufficient to establish her guilt beyond reasonable doubt which is a condition sine qua non for
conviction. Ergo, the dismissal of the criminal case will not foreclose administrative action against
respondent. IcHEaA
In the instant case, this Court is of the view that the sworn complaints of the twenty remaining
complainants coupled with their positive testimonies in the proceedings below, more than adequately
complies with the standard of proof required in administrative cases. The desistance executed by three
(3) out of the twenty-three (23) original complainants is of no moment since administrative actions
cannot be made to depend upon the will of every complainant who may, for one reason or another,
condone a detestable act. 17
All told, the Court holds that respondent's guilt in the administrative case has been sufficiently
established and pursuant to existing Civil Service Rules and Regulations, 18 her dismissal from the
service is warranted.
WHEREFORE, the instant consolidated petitions are hereby GRANTED. The assailed Decision of the
Court of Appeals is hereby REVERSED and SET ASIDE. Costs against the respondent.
SO ORDERED.
Davide, Jr., C .J ., Quisumbing, Ynares-Santiago, Austria-Martinez, Corona, Carpio-Morales, Callejo,
Sr., Azcuna and Chico-Nazario, JJ ., concur.
Puno, Panganiban, Sandoval-Gutierrez and Carpio, JJ ., are on official leave.
Footnotes
1. Penned by Justice Teodoro P. Regino, concurred in by Justices Eugenio S. Labitoria and
Rebecca de Guia-Salvador, Seventh Division. Rollo, pp. 41–57.
2. Id. at 46.
3. Rollo, pp. 21–22.
4. Rollo, p. 15.
5. Leyson, Jr. v. Office of the Ombudsman, G.R. No. 134990, April 27, 2000, 331 SCRA 227.
6. Bangko Silangan Development Bank v. Court of Appeals, G.R. No. 110480, June 29, 2001, 360
SCRA 322; Philippine Economic Zone Authority v. Vianzon, G.R. No. 131020, July 20, 2000, 336
SCRA 309; Progressive Development Corporation, Inc. v. Court of Appeals, G.R. No. 123555, January
22, 1999, 301 SCRA 637.
7. Roxas v. Court of Appeals, G.R. No. 139337, August 15, 2001, 363 SCRA 207.
8. Manalo v. Court of Appeals, G.R. No. 141297, October 8, 2001, 366 SCRA 752; United
Residents of Dominican Hill, Inc. v. Commission on the Settlement of Land Problems, G.R. No.
135945, March 7, 2001, 353 SCRA 782; Ayala Land, Inc. v. Valisno, G.R. No. 135899, February 2,
2000, 324 SCRA 522; Saura v. Saura, Jr. G.R. No. 136159, September 1, 1999, 313 SCRA 465;
Prubrankers Association v. Prudential Bank & Trust Company, G.R. No. 131247, January 25, 1999,
302 SCRA 74.
9. Benedicto v. Court of Appeals, G.R. No. 125359, September 4, 2001, 364 SCRA 334.
10. Yulienco v. Court of Appeals, G.R. No. 131692, June 10, 1999, 308 SCRA 206.
11. Pilipinas Loan Company, Inc. v. Securities and Exchange Commission, G.R. No. 104720, April
4, 2001, 356 SCRA 193; Philippine Airlines, Inc. v. National Labor Relations Commission, 4th
Division, G.R. No. 115785, August 4, 2000, 337 SCRA 286; Orola v. Alovera, G.R. No. 111074, July
14, 2000, 335 SCRA 609; Tubiano v. Razo, G.R. No. 132598, July 13, 2000, 335 SCRA 531; National
Police Commission v. Bernabe, G.R. No. 129914, May 12, 2000, 332 SCRA 74.
12. Adiong v. Court of Appeals, G.R. No. 136480, December 4, 2001, 371 SCRA 373; Vda. de
Dela Cruz, et al. v. Abille, G.R. No. 130196, February 26, 2001, 352 SCRA 691 (2001).
13. Ocampo v. Office of the Ombudsman, G.R. No. 114683, January 18, 2000, 322 SCRA 17.
14. G.R. No. 132248, January 19, 2000, 322 SCRA 439.
15. Ocampo v. Ombudsman, supra, note 13.
16. Western Shipyard Services, Inc. v. Court of Appeals, G.R. No. 110340, May 28, 2001, 358
SCRA 257; San Juan, Jr. v. Sangalang, Adm. Matter No. P-00-1437, February 6, 2001, 351 SCRA 210.
17. Agulan, Jr. v. Fernandez, A.M. No. MTJ-01-1354, April 4, 2001, 356 SCRA 162.
18. Section 52, (A)(1)(3), Rule IV of the Uniform Rules on Administrative Cases in the Civil
Service in relation to Section 22(k), Rule IV, Omnibus Rules Implementing Book V of Executive
Order No. 292.
EN BANC
[G.R. No. 145737. September 3, 2003.]
CIVIL SERVICE COMMISSION, petitioner, vs. EVELYN P. CAYOBIT, respondent.
The Solicitor General for petitioner.
Edgardo A. Abinales for respondent.
SYNOPSIS
Respondent was found guilty of dishonesty and grave misconduct for submitting, in support of her
appointment as Senior Livelihood Officer, in the National Housing Authority, Quezon City, a
photocopy of her Certificate of Eligibility purporting that she passed the Career Service Examination
when in fact she failed in the said examination. Feeling aggrieved, respondent filed a petition for
certiorari which was referred to the Court of Appeals. The CA granted the petition, ruling that there
was no substantial evidence to prove that respondent committed the offense charged. The CA denied
petitioner's motion for reconsideration. Hence, this present course of action. HETDAa
In reversing the decision of the CA, the Supreme Court held that the masterlist is the primary record of
eligibles. It is the list officially prepared and kept by the petitioner pursuant to its constitutional and
statutory mandates. It is what petitioner utilizes to verify the eligibility of applicants in government
service. IaHAcT
The masterlist of eligibles showed that respondent obtained a failing grade in the examination contrary
to what was stated in her certificate of eligibility that she passed it. Since the masterlist is the primary
record of eligibles, the entry therein must prevail. The masterlist of eligibles is an official record. As
such every entry made therein is presumed genuine and accurate unless proven other wise. TAIcaD
Respondent failed to explain the discrepancy in her grades appearing in the masterlist and her
certificate of eligibility. Thus, the Court held that the evidence presented by petitioner was substantial
to support a finding that respondent was guilty of the offense charged against her. Consequently,
respondent was dismissed from the service. EDcIAC
SYLLABUS
1. POLITICAL LAW; ADMINISTRATIVE LAW; CIVIL SERVICE LAW; CIVIL SERVICE
COMMISSION; PREPARES AND KEEPS THE MASTERLIST OF ELIGIBLES WHICH IS THE
PRIMARY RECORD OF ELIGIBLES.— [P]etitioner prepares and keeps the masterlist of eligibles,
which is the list of all examinees who passed and failed a given examination. It contains their complete
names, the general rating they obtained and other relevant personal information such as their places and
dates of birth, and their home addresses. The masterlist of eligibles is kept by petitioner for records and
verification purposes. It is precisely against it that entries in the certificate of eligibility are counter-
checked and verified, specifically whether the score stated therein is true and correct. The basis for the
list was well explained by petitioner, thus: It has been the constitutional (Paragraph (2), Section 2 and
Section 3(B), Article IX, 1987 Philippine Constitution) and statutory (Paragraphs (7) and (8), Section
12, Chapter III, Subtitle A, Title I of the Revised Administrative Code of 1987) mandate of the CSC,
being the central personnel agency of the government, to conduct and safeguard civil service
examinations, and as a necessary incident thereof, issue and keep Certificates of Eligibility to qualified
examinees to a particular CS Examination, on the basis of its own record. We therefore hold the
masterlist to be the primary record of eligibles. It is the list officially prepared and kept by the
petitioner pursuant to its constitutional and statutory mandates. It is what petitioner utilizes to verify the
eligibility of applicants in government service. IDTSEH
2. ID.; ID.; ID.; DISHONESTY AND GRAVE MISCONDUCT; USE OF FAKE CIVIL'
SERVICE ELIGIBILITY, A CASE OF; PENALTY. — Dishonesty is the concealment or distortion of
truth in a matter of fact relevant to one's office or connected with the performance of his duty. It is a
serious offense, which reflects on the person's character and exposes the moral decay which virtually
destroys his honor, virtue and integrity. Its immense debilitating effect on the government service
cannot be overemphasized. Under Civil Service regulations, the use of fake or spurious civil service
eligibility is regarded as dishonesty and grave misconduct, punishable by dismissal from the service.
TIaDHE
3. REMEDIAL LAW; EVIDENCE; QUANTUM OF EVIDENCE; IN ADMINISTRATIVE
PROCEEDINGS, SUBSTANTIAL EVIDENCE IS REQUIRED.— [I]n administrative proceedings,
the quantum of evidence required is only substantial. It is such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion, even if other minds equally reasonable might
conceivably opine otherwise. The standard of substantial evidence is satisfied where there is reasonable
ground to believe that the respondent is responsible for the misconduct, even if the evidence might not
be overwhelming. aAHDIc
DECISION
PER CURIAM p:
This case arose from an administrative complaint filed by petitioner Civil Service Commission against
respondent Evelyn P. Cayobit for Dishonesty and Grave Misconduct. HETDAC
Since 1982, respondent has been employed with the National Housing Authority (NHA). On March 29,
1990, she was appointed as Livelihood Specialist in its Dagat-dagatan Development Project. The
position was co-terminus with the project and did not require any eligibility. Even then, she submitted
her original certificate of eligibility showing a rating of 81.20%, the grade she obtained in a civil
service examination held on July 30, 1989 in Manila. On June 5, 1990, petitioner approved her
appointment, which was given retroactive effect from July 1, 1989.
Another appointment was extended to respondent in September 1993 as Senior Livelihood Officer.
This position required civil service eligibility owing to its permanent status. On September 29, 1993,
Carmelita Bernardino, Senior Specialist at petitioner's field office in NHA, came across her
appointment papers, which included her original certificate of eligibility. In the course of processing
said papers, Bernardino found out that her eligibility was not entered in the service card on file with the
field office. To verify, Bernardino went to petitioner's National Capital Region office on October 18,
1993. Bernardino discovered that respondent was not in the passing list on file.
The matter was referred by Bernardino to her superior, Director Imelda Abueng, who verified
respondent's eligibility with petitioner's central office. She found out that based on the masterlist of
eligibles kept at the central office, respondent obtained a failing mark of 40.96%. Respondent's
appointment was disapproved.
On October 25, 1993, petitioner charged respondent with dishonesty and grave misconduct, committed
as follows:
That in support of your appointment as Senior Livelihood Officer, National Housing Authority,
Quezon City, you submitted a xerox copy of your alleged Certificate of Eligibility (CS Professional)
purporting that you passed the July 30, 1989 Career Service Examination. However, after verification
from the masterlist of eligibles, it was found out that you failed the said examination with a rating of
40.96%. 1
After hearing, respondent was held guilty of the charges against her. In a resolution dated January 5,
1995, petitioner ruled:
After a careful evaluation of the records, we find substantial evidence which proved the commission by
the herein respondent of the offense charged against her.
WHEREFORE, Evelyn P. Cayobit is found guilty of Dishonesty and Grave Misconduct. Accordingly,
the penalty of dismissal from the service with the accessory penalties of perpetual disqualification from
taking any civil service examination and disqualification from holding public office are (sic) imposed
on her. 2
Feeling aggrieved, respondent filed with this court a Petition for Certiorari on March 29, 1995. 3 We
referred the petition to the Court of Appeals for proper disposition in a Resolution dated April 4, 1995,
4 where it was docketed as CA-G.R. SP No. 36978. 5 Pursuant to our ruling in the case Dennis Lazo v.
Civil Service Commission, 6 the appellate court ordered petitioner to retrieve and submit the answer
sheets of respondent. Its Management Information Office, however, stated that the answer sheets have
already been disposed of in accordance with CSC Resolution No. 87-070 which directs the "destruction
or disposal of answer sheets of examinees who passed in the Civil Service examinations . . . after five
(5) years from the date of the release of examination." 7
In its decision dated February 15, 2000, the Court of Appeals granted the petition of the respondent,
viz:
In fine, there was no substantial evidence to prove that petitioner committed the offenses leveled
against her.
WHEREFORE, the petition is GRANTED and the impugned CSC Resolution No. 95-0111 is hereby
NULLIFIED and SET ASIDE.
SO ORDERED. 8
It likewise denied for lack of merit petitioner's motion for reconsideration in a Resolution promulgated
on October 12, 2000.
Hence, the present course of action, where petitioner contends:
That the Honorable Court of Appeals erred in holding that there was no substantial evidence to prove
that respondent committed the offense of dishonesty and grave misconduct.
That the Honorable Court of Appeals erred in holding that the masterlist of eligibles is not the primary
record of civil service eligibles. 9
We will first decide the second issue as our resolution of whether the masterlist of eligibles is the
primary record of civil service eligibles is crucial in determining the innocence or guilt of the
respondent. In this regard, petitioner argues that the masterlist of eligibles must be considered the
primary record of eligibility for this is the official record it keeps pursuant to both its constitutional and
statutory mandates to conduct and safeguard civil service examinations. We agree.
Executive Order No. 292, otherwise known as the Administrative Code of 1987, provides that
petitioner should keep a register of eligibles, where the names of those who pass any particular civil
service examination shall be entered, thus:
Sec. 23. Release of Examination Results. — The results of any particular service examination
held in a number of places on the same date shall be released simultaneously.
Sec. 24. Register of Eligibles. — The names of the competitors who pass an examination shall be
entered in a register of eligibles arranged in the order of their general ratings and containing such
information as the Commission may deem necessary. 10
The implementing rules of the Code similarly provides, viz:
Sec. 5. The results of any particular civil service examination held in a number of places on the same
date shall be held simultaneously. The names of examinees who obtained the required passing grades in
an examination shall be entered in a register of eligibles. 11
Pursuant to the foregoing provisions, petitioner prepares and keeps the masterlist of eligibles, which is
the list of all examinees who passed and failed a given examination. It contains their complete names,
the general rating they obtained and other relevant personal information such as their places and dates
of birth, and their home addresses. 12
The masterlist of eligibles is kept by petitioner for records and verification purposes. It is precisely
against it that entries in the certificate of eligibility are counter-checked and verified, specifically
whether the score stated therein is true and correct. The basis for the list was well explained by
petitioner, thus:
It has been the constitutional (Paragraph (2), Section 2 and Section 3(B), Article IX, 1987 Philippine
Constitution) and statutory (Paragraphs (7) and (8), Section 12, Chapter III, Subtitle A, Title I of the
Revised Administrative Code of 1987) mandate of the CSC, being the central personnel agency of the
government, to conduct and safeguard civil service examinations, and as a necessary incident thereof,
issue and keep Certificates of Eligibility to qualified examinees to a particular CS Examination, on the
basis of its own record. 13 (italics supplied.)
We therefore hold the masterlist to be the primary record of eligibles. It is the list officially prepared
and kept by the petitioner pursuant to its constitutional and statutory mandates. It is what petitioner
utilizes to verify the eligibility of applicants in government service. If we consider the certificate, as
held by the appellate court, to be the primary record of one's eligibility, there will be no way by which
petitioner can countercheck the veracity of the entries therein. In effect, petitioner will be left without a
process of corroborating the eligibility of applicants for government positions with permanent status.
Government offices would be bound to accept a certificate as conclusive and incontestable, without any
means of validation, notwithstanding that the certificate may have been spuriously manufactured or that
an item therein may have been erroneously or irregularly entered. This is dangerous especially
considering the fact that the high level of technological advancement can make easy the forgery and
counterfeiting of these certificates.
This brings us to the first issue petitioner raised. In contending that there was substantial evidence to
hold respondent guilty of using a fake or spurious certificate of eligibility, petitioner relies on the
failing mark she obtained in her examination, based on its masterlist of eligibles. Petitioner further
contends that in the absence of a satisfactory explanation, a person who is found in possession of a
forged document, and who used the same, is presumed the forger thereof or the one who caused the
forgery, and, therefore, is guilty of falsification. Petitioner then concludes that the use of fake or
spurious civil service eligibility amounts to dishonesty and grave misconduct, punishable by dismissal
from the service.
These contentions are impressed with merit. Dishonesty is the concealment or distortion of truth in a
matter of fact relevant to one's office or connected with the performance of his duty. 14 It is a serious
offense, which reflects on the person's character and exposes the moral decay which virtually destroys
his honor, virtue and integrity. 15 Its immense debilitating effect on the government service cannot be
overemphasized. 16
Under Civil Service regulations, the use of fake or spurious civil service eligibility is regarded as
dishonesty and grave misconduct, punishable by dismissal from the service. CSC Memorandum
Circular No. 15, Series of 1991 provides:
An act which includes the procurement and/or use of fake/spurious civil service eligibility, the giving
of assistance to ensure the commission or procurement of the same, cheating, collusion, impersonation,
or any other anomalous act which amounts to any violation of the Civil Service examination, has been
categorized as a grave offense of Dishonesty, Grave Misconduct or Conduct Prejudicial to the Best
Interest of the Service. (italics supplied.)
The question therefore is whether there is substantial evidence to hold that respondent procured and
used a fake or spurious certificate of eligibility. We hold that there is.
The masterlist of eligibles shows that respondent obtained a failing grade in the examination given on
July 30, 1989. Contrary to what is stated in her certificate of eligibility that she passed it with an
81.20% rating, respondent's actual score was only 40.96%. As we have ruled that the masterlist is the
primary record of eligibles, the entry therein must prevail. Well to emphasize, the masterlist of eligibles
is an official record. It is formally prepared and kept by petitioner pursuant to both its constitutional
and statutory mandates to conduct and safeguard civil service examinations and to maintain a register
of eligibles. As such, every entry made therein is presumed genuine and accurate unless proven
otherwise. Section 44, Rule 130 of the Revised Rules of Evidence provides:
Sec. 44. Entries in official records made in the performance of his duty by a public officer of the
Philippines, or by a person in the performance of a duty especially enjoined by law, are prima facie
evidence of the facts stated therein.
Respondent failed to explain the discrepancy in her grades appearing in the masterlist and her
certificate of eligibility. She was not able to offer proof that the score indicated in her certificate was
due to the error or mistake of petitioner's own personnel. In fact, she did not even get a certification
from petitioner that her certificate was issued by it.
The bare testimony of respondent that she has nothing to do with forging the certificate as she actually
just received it by mail in her residential address deserves scant belief. We cannot accept her simplistic
claim that she used the certificate under the false impression that it was genuine. The three witnesses 17
and the various documents she presented cannot exculpate her. The witnesses, essence, merely testified
that they received the certificate of eligibility in question from respondent. Their belief that she was
eligible was based on their reliance on the certificate.
Apropos is the following finding of petitioner:
The testimonies of the three (3) abovementioned witnesses failed to rebut the fact that Cayobit did not
pass the examination and does not have an eligibility. Respondent also failed to prove that she had no
participation in the procurement of eligibility. Hence it cannot be presumed that Cayobit used the fake
eligibility in good faith. 18
In fine, we hold that the evidence presented by petitioner is substantial to support a finding that
respondent is guilty of the offense charged against her. The established facts lead us to accept the
conclusion that she indeed procured and used a fake or spurious certificate of eligibility and, in
accordance with CSC Memorandum Circular No. 15, Series of 1991, committed dishonesty and grave
misconduct. It bears stressing that in administrative proceedings, the quantum of evidence required is
only substantial. 19 It is such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion, even if other minds equally reasonable might conceivably opine otherwise. 20
The standard of substantial evidence is satisfied where there is reasonable ground to believe that the
respondent is responsible for the misconduct, 21 even if the evidence might not be overwhelming. 22
IN VIEW WHEREOF, the assailed Decision is REVERSED and SET ASIDE. We find respondent
Evelyn P. Cayobit Guilty of the charge of Dishonesty and Grave Misconduct. Accordingly, the penalty
of DISMISSAL from the service, with the accessory penalties of perpetual disqualification from taking
any civil service examination and disqualification from holding public office, is imposed on her.
acCTSE
SO ORDERED.
Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Sandoval-Gutierrez, Austria-Martinez, Corona,
Carpio-Morales, Callejo, Sr., Azcuna and Tinga, JJ., concur.
Davide, Jr., C.J., Ynares-Santiago and Carpio, JJ., are on official leave.
Footnotes
1. Formal Charge, p. 1; Rollo, p. 42.
2. Resolution No. 95-0111, January 5, 1995, p. 2; C.A. Rollo, C.A.-G.R. SP No. 36978, p. 19.
3. G.R. No. 119489.
4. Resolution, G.R. No. 119489, April 5, 1995.
5. Entitled "Evelyn P. Cayobit v. Civil Service Commission and National Housing Authority."
6. 235 SCRA 469 (1994).
7. CSC Resolution No. 87-070 provides: the applications, Personal Data Sheets and Answer sheets
of examinees who passed in the Civil Service examinations together with the accomplished Picture
Seat plan shall be destroyed or disposed of to authorized government agencies after five (5) years from
the date of the release of examination, subject to such safeguards the Commission, Department or
agency head may determine.
8. Decision, p. 14; Rollo, p. 40.
9. Petition, p. 7; Id. at 15.
10. Chapter V, Subtitle A, Title I, Book V, Executive Order No. 292.
11. Sec. 5, Rule III, Rules Implementing Book V of Executive Order No. 292.
12. See Masterlist of Eligibles attached as Annex D of the Petition; Rollo, p. 44.
13. Memorandum for the Petitioner, p. 11; Id. at 131.
14. F. Moreno, Philippine Law Dictionary 276 (3rd ed., 1988).
15. Prieto v. Cariaga, 242 SCRA 315 (1995).
16. Ibid.
17. Adorie Sison, an employee at the Personnel Department of the NHA central office; Clemente
Daseco, Liaison Officer of NHA; and Flordeliza M. Sanchez, also an employee at the Personnel
Department of the NHA central office.
18. Resolution No. 95-0111, January 5, 1995, p. 1; C.A. Rollo, C.A.-G.R. SP No. 36978, p. 18.
19. Caña v. Gebusion, 329 SCRA 132 (2000).
20. Betguen v. Masangcay, 238 SCRA 475 (1994).
21. See Consolidated Food Corp. v. NLRC, 315 SCRA 129 (1999).
22. Villaflor v. CA, 280 SCRA 297 (1997).
SECOND DIVISION
[G.R. No. 166116. March 31, 2006.]
OFFICE OF THE OMBUDSMAN, petitioner, vs. FLORENTINA SANTOS, respondent.
DECISION
PUNO, J p:
This is a petition for review of the decision dated June 22, 2004 and resolution dated November 23,
2004 of the Court of Appeals, which reversed the decision of the Ombudsman finding respondent
guilty of dishonesty, violation of Sec. 4 (c) of Republic Act No. (R.A.) 6713 1 and grave misconduct,
and penalizing her with dismissal from the service with forfeiture of benefits equivalent to twelve (12)
months salary and temporary disqualification for re-employment in the government service for one (1)
year. cCTaSH
This case arose from a complaint filed by Estrelita L. Gumabon, Teacher III, Lagro Elementary School,
against the school Principal, respondent Florentina A. Santos, before the Office of the Ombudsman on
September 29, 1997. The complaint alleged that respondent falsified her daily time record as her entries
therein did not match the entries of the school's security guard in their logbook. In particular, on August
20, 1997, respondent indicated in her daily time record that she reported for work at Lagro Elementary
School the whole day, but she actually went to Golden Child Montessori Dela Costa III Annex at 9:00
a.m., and later at 11:30 a.m. to its Carissa II Annex. She left the premises of said school around one in
the afternoon. The complaint also pointed out that respondent was one of the owners/incorporators of
Golden Child Montessori and held the position of President/Chairman of the Board. It was further
alleged that respondent exhibited rude and oppressive behavior not only to the teachers and personnel
of Lagro Elementary School, but also to the parents of their pupils. 2 In a supplemental complaint dated
April 1, 1998, Gumabon also charged respondent with taking several pieces of galvanized iron sheets
used in the construction and repair of some rooms and toilets at Lagro Elementary School. Respondent
allegedly ordered one Jose Sabalilag to take the galvanized iron sheets and deliver them to her house,
and even asked school janitress Pia Amparo to accompany Sabalilag to show him the direction to
respondent's house. 3
Answering the charges, respondent explained that it was her daily routine upon arrival at the school to
inspect its outer premises before entering the school grounds, to see if the school fence is clean and
garbage-free. The security guard only logs in the time of respondent's entry into the school grounds as
her arrival time. As regards the incident on August 20, 1997, respondent stated that she sought
permission from Mrs. Paz T. Quejada, District Supervisor, School District X, to attend an activity at
Golden Child Montessori. She said that Mrs. Quejada did not object to her request. Respondent also
admitted being an owner/incorporator of Golden Child Montessori, but argued that it did not violate
any existing law. She denied all the other allegations in the complaint. With respect to the taking of the
galvanized iron sheets, respondent explained that they were excess materials from the construction
projects in the school and they were sold to her by the project contractor at cost. 4
Hearings were conducted before Graft Investigation Officer Joselito P. Fangon at the Administrative
Adjudication Bureau, Office of the Ombudsman. TADIHE
Gumabon appeared to identify her affidavit, as well as the affidavits of her witnesses, and the
documentary evidence consisting of the photocopy of respondent's daily time record for the months of
February, March and August 1997, 5 copy of the logbook of security guard Willy Casauay, 6 copy of
the memo issued by respondent to the Principals of the various annexes of Golden Child Montessori, 7
the letters of several parents of Lagro Elementary School pupils complaining about the attitude of
respondent towards them, and the copy of the police receipt showing that the police recovered several
galvanized iron sheets from Jose Sabalilag.
Hermelina de Vera, former Principal of Golden Child Montessori Dela Costa III Annex, testified that
respondent attended the Linggo ng Wika celebration at their campus in San Jose Del Monte, Bulacan
on August 20, 1997. Respondent arrived at said campus around nine in the morning. 8
Zaida Zayde, Corporate Secretary and Principal of Golden Child Montessori Dela Costa II Annex,
testified that respondent is also one of the incorporators of said school, and that respondent handles its
finances, signs checks, keeps bank accounts, and issues and signs memoranda for and in behalf of the
school. She also stated that she and respondent visited the Dela Costa III Annex of Golden Child
Montessori during the Linggo ng Wika celebration. 9
Juan S. Gambol, Police Inspector, Lagro Police Station, stated that on February 13, 1998, Gumabon
reported the alleged missing pieces of galvanized iron at Lagro Elementary School. They recovered
around 40 pieces of galvanized iron sheets from Jose Sabalilag on February 23, 1998 and issued a
receipt therefor. 10
Jeorgia Loperez, one of the incorporators of Golden Child Montessori, testified that respondent is the
President and Chairman of the Golden Child Montessori, and that she handles the finances, keeps the
bank account, signs checks and issues memoranda for and in behalf of the school. 11
Fructuosa C. Gavilan, Grade School Teacher, Lagro Elementary School, testified that respondent has
the habit of scolding her even in front of other people. She also testified to an incident where she was
marked absent despite being present, albeit late on the particular date. 12
Sophia Amparo, Janitress at Lagro Elementary School, testified that on February 10, 1998, she was
instructed by respondent to bring to the latter's house several pieces of galvanized iron sheets. 13
Didith Sacueza testified that she used to sell food to the teachers at the Lagro Elementary School. She
said that she had an agreement with respondent that she would be allowed to sell food in the school but
she was required to give a certain amount to the school. Then, one day, without any notice, Sacueza
was refused entry into the school. The guard informed her that it was the Principal's order. She wrote
respondent asking why she was no longer allowed to sell food in the school, but she did not get any
response. 14
Vicente Cue, Security Guard at Lagro Elementary School, testified that on September 5, 1999, his wife
made an emergency call at the school but respondent refused to give the call to him. 15
Willy Casauay, also a Security Guard at Lagro Elementary School, testified that a certain Jose
Sabalilag went to the Lagro Elementary School and, upon instruction of respondent, took several pieces
of galvanized iron sheets. Accompanied by Pia Amparo, Sabalilag brought the same to respondent's
residence. The incident was noted in his logbook. 16
Jose Sabalilag, Benedict Guantero and Erlinda Dela Rosa, on the other hand, testified for respondent.
SCADIT
Jose Sabalilag stated that sometime in February 1998, he was tasked to renovate a comfort room at
Lagro Elementary School. He used about forty (40) pieces of galvanized iron sheets for the
construction. There was an excess of about eight (8) pieces of galvanized iron sheets which respondent
ordered to be taken to her house. He also said that he removed around forty-one (41) pieces of used
galvanized iron sheets which he took to their storage (bodega), but which he also returned to the school
the next day upon instruction of a Commission on Audit (COA) personnel. While they were unloading
the returned materials, Gumabon arrived, took some pictures, and reported the incident to the police.
Gumabon also made him sign an affidavit stating that respondent was the one who ordered the taking
of the galvanized iron sheets. 17
Benedict Guantero, an employee of the COA, testified that respondent sought his advice concerning the
salvageable materials taken from two (2) school toilets which underwent renovation. 18
Erlinda Dela Rosa, former Officer-in-Charge of Golden Child Montessori, testified that Golden Child
Montessori and its branches were being managed by their respective Principals. She also testified that
the payment of rentals for the school, the payment of salaries of teachers and financial management of
the school were undertaken by the respective administrators. 19
On July 23, 2001, the Office of the Ombudsman rendered a decision finding respondent guilty of
dishonesty, violation of Sec. 4 (c) of R.A. 6713 and grave misconduct. It imposed upon respondent the
penalty of dismissal from service with forfeiture of benefits equivalent to twelve (12) months salary
and temporary disqualification for re-employment in the government for one (1) year from the finality
of said decision. 20
The Court of Appeals, however, reversed and set aside the decision of the Ombudsman and ordered the
dismissal of the complaint. It held that the findings of the Office of the Ombudsman were not supported
by substantial evidence. 21
Hence, this petition. Petitioner raised the following arguments:
1. Contrary to the appellate court a quo's [sic] ruling, the extant evidence on record constitutes
more than substantial evidence to establish the administrative guilt of respondent. Cdpr
2. Findings of fact of an administrative agency are generally accorded not only respect but at times
finality. 22
The petition is impressed with merit.
Administrative proceedings are governed by the "substantial evidence rule." A finding of guilt in an
administrative case would have to be sustained for as long as it is supported by substantial evidence
that the respondent has committed acts stated in the complaint or formal charge. As defined, substantial
evidence is such relevant evidence as a reasonable mind may accept as adequate to support a
conclusion. 23
A reading of the decision of the Office of the Ombudsman and a thorough examination of the records
of this case show sufficient evidence to prove respondent's administrative liability. In its decision, the
Office of the Ombudsman, through Graft Investigation Officer Joselito P. Fangon, cites the pieces of
evidence that support its ruling. It discussed its findings thus:
Respondent FLORENTINA A. SANTOS stands administratively charged with, among others, the
falsification of her Form 48; of being one of the Owners/Incorporators of a private school; of having
oppressed and harassed school teachers and employees; and of theft of school property.
With respect to the first charge, the complainant adduced as evidence the Daily Time Record (Civil
Service Form No. 48) of respondent SANTOS for the month of August 1997 (Exhibit B, p. 0191,
Records). Marked as Exhibit "B-1" (supra.) is the entry for August 20, 1997 showing that respondent
SANTOS reported for work at Lagro Elementary School, Quezon City, at 6:45 in the morning and
departed at 7:15 in the evening. Likewise adduced as evidence is the testimony of Hermelina de Vera . .
. . ECcTaH
On the basis of the foregoing, it has been substantially established that respondent SANTOS actually
reported for work at the Lagro Elementary School in Quezon City. However, evidence shows that said
respondent, instead of rendering the required number of hours of work, went to a private school (to
attend a school function) in San Jose Del Monte, Bulacan. It is therefore clear that the respondent
deliberately made it appear that she reported for work on 20 August 1997, when in truth, she attended a
private function and was physically absent from school. The respondent's act of punching her Daily
Time Record constitutes Dishonesty for making it appear that she was present for work when in fact
she was absent therefrom.
As against these, the respondent failed to present any evidence to counter the same, and as such, her
guilt has been adequately shown.
As to the charge against respondent of being an Owner/Incorporator of the Golden Child Montessori
School, we find the evidence to be inadequate to establish any administrative liability.
Although the evidence tend to prove that the respondent is an Owner/Incorporator of the said school,
still, the complainant failed to show any conflict of interest on the part of the respondent. Moreover, no
evidence was presented to show that being an Owner/Incorporator of a private school amounts to a
violation of any law. Verily, the charge against respondent on this score should be dismissed.
On the charge of Oppression/Harassment, witness VICENTE CUE testified that on 8 September 1997,
his wife made an emergency call at Lagro Elementary School where he works as a Security Guard.
However, despite his presence thereat, respondent SANTOS refused to give the call to him. On cross-
examination, the testimony of witness CUE was not rebutted by any evidence. ScaAET
Hence, it has been fairly established that the respondent committed an oppressive act against Vicente
Cue. Her actuations definitely runs [sic] counter to the established norms of conduct and ethical
standards for public officials who, "must act with justice and shall not discriminate against anyone".
Moreover, her action violates the standard of personal conduct, which mandates all civil servants to
"respect the rights of others, and to refrain from doing acts contrary to good morals and customs".
Accordingly, respondent SANTOS appears to be liable for violation of Republic Act No. 6713.
The respondent was also accused of having misappropriated government property. On this point,
Sophia Amparo, janitress, Lagro Elementary School, testified . . . .
It is clear from the foregoing that at the instance of the respondent, several galvanized iron sheets
which appear to be the property of the government were taken out of Lagro Elementary School and
delivered to the residence of the respondent.
The respondent then presented her witnesses, namely: JOSE SABALILAG and BENEDICT
GUANTERO, to rebut the allegation of theft, however, the same proved insufficient to counter the
evidence against her.
xxx xxx xxx
It is therefore clear from the testimony of JOSE SABALILAG that at least eight (8) galvanized iron
sheets (which were purportedly new) were taken by the respondent and which remain unaccounted for.
This bolsters the finding that the respondent was responsible for having taken several galvanized iron
sheets which were government property.
With respect to BENEDICT GUANTERO, a witness for the respondent, the basis for his testimony,
which is a purported Affidavit was not formally offered as evidence in the present case. Hence, the
allegations therein can not be possibly considered in the resolution of the instant case. ICTacD
All told, it has been substantially established that the respondent took government property for her own
personal benefit which constitutes Grave Misconduct, and for which the respondent may be held liable.
(citations omitted) 24
As a general rule, factual findings of administrative bodies are accorded great respect by this Court. We
do not see any reason to depart from this policy, except as regards respondent's liability for holding the
position of President/Chairman of the Board of Golden Child Montessori and managing the affairs of
said school. Contrary to the Ombudsman's ruling that such act does not violate any provision of law,
Section 7 (b) (2) of R.A. 6713 prohibits all public officials and employees from engaging in the private
practice of their profession, thus:
SECTION 7. Prohibited Acts and Transactions. — In addition to acts and omissions of public officials
and employees now prescribed in the Constitution and existing laws, the following shall constitute
prohibited acts and transactions of any public official and employee and are hereby declared to be
unlawful:
xxx xxx xxx
(b) Outside employment and other activities related thereto. — Public officials and employees
during their incumbency shall not:
(1) Own, control, manage or accept employment as officer, employee, consultant, counsel, broker,
agent, trustee or nominee in any private enterprise regulated, supervised or licensed by their office
unless expressly allowed by law;
(2) Engage in the private practice of their profession unless authorized by the Constitution or law,
provided, that such practice will not conflict or tend to conflict with their official functions; or
(3) Recommend any person to any position in a private enterprise which has a regular or pending
official transaction with their office. ISaTCD
These prohibitions shall continue to apply for a period of one (1) year after resignation, retirement, or
separation from public office, except in the case of subparagraph (b) (2) above, but the professional
concerned cannot practice his profession in connection with any matter before the office he used to be
with, in which case the one-year prohibition shall likewise apply.
The rule is that all public officers and employees are prohibited from engaging in the private practice of
their profession. The exception is when such private practice is authorized by the Constitution or law.
However, even if it is allowed by law or the Constitution, private practice of profession is still
proscribed when such practice will conflict or tends to conflict with the official functions of the
employee concerned. Indeed, public servants are expected to devote their undivided attention to their
public duties, to give the tax payers the competent and excellent service that they deserve. In fact,
Section 4 of the Code of Conduct and Ethical Standards for Public Officials and Employees enjoins
said officials and employees to always uphold public interest over and above personal interest. By
actively participating in the management of Golden Child Montessori, a private school, while serving
as Principal of Lagro Elementary School, a government school, respondent has transgressed the
provisions of Section 7 (b) (2) of R.A. 6713.
We affirm all the other findings of the Office of the Ombudsman. The testimonial and documentary
evidence contained in the records constitutes substantial evidence to prove the administrative liability
of respondent, as discussed by the Ombudsman.
We now go to the penalty. Section 11 of R.A. 6713 provides that violations of Section 7 of said law
shall be punishable with imprisonment not exceeding five (5) years, or a fine not exceeding five
thousand pesos (P5,000), or both, and, in the discretion of the court, disqualification to hold public
office. Hence, we deem it appropriate to impose a fine of five thousand pesos (P5,000) upon
respondent in addition to the penalty imposed upon her by the Office of the Ombudsman. cHCIDE
IN VIEW WHEREOF, the petition is GRANTED. The assailed decision and resolution of the Court of
Appeals are SET ASIDE. The decision of the Office of the Ombudsman in OMB-ADM-0-98-0307
dated July 23, 2001 is REINSTATED with MODIFICATION that an additional FINE of FIVE
THOUSAND PESOS (P5,000.00) is imposed upon respondent.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna and Garcia, JJ., concur.
Footnotes
1. Code of Conduct and Ethical Standards for Public Officials and Employees.
2. Original Records, pp. 2-5.
3. Original Records, pp. 39-41.
4. Original Records, pp. 33-35.
5. Exh. "B."
6. Exh. "C."
7. Exh. "F."
8. TSN, December 11, 1997, pp. 8-29; Exh. "Z," Original Records, pp. 214-215.
9. TSN, December 11, 1997, pp. 31-50; Exh. "Y-1," Original Records, p. 216; Exh. "Y-2,"
Original Records, p. 217; Exh. "E," Original Records, p. 218; Exh. "AA," Original Records, p. 219;
Exh. "F," Original Records, pp. 220-223.
10. TSN, March 24, 1999, pp. 3-12; Exh. "T," Original Records, p. 187; Exh. "T-1," Original
Records, p. 188; Exh. "S," Original Records, p. 189.
11. TSN, April 21, 1999, pp. 5-8; Exh. "Y-2," Original Records, p. 217.
12. TSN, April 21, 1999, pp. 9-13.
13. TSN, June 24, 1999, pp. 4-10; Exh. "U," Original Records, p. 190.
14. TSN, July 15, 1999, pp. 4-16.
15. TSN, August 11, 1999, pp. 4-11.
16. TSN, August 25, 1999, pp. 4-11.
17. TSN, January 20, 2000, pp. 3-20.
18. TSN, January 27, 2000, pp. 3-7.
19. TSN, March 6, 2000, pp. 5-12.
20. Rollo, pp. 79-99.
21. Rollo, pp. 60-73.
22. Rollo, pp. 39-40.
23. Velasquez v. Hernandez, G.R. No. 150732, August 31, 2004, 437 SCRA 357.
24. Rollo, pp. 84-98.
340 U.S. 474, 71 S.Ct. 456, 27 L.R.R.M. (BNA) 2373, 95 L.Ed. 456, 19 Lab.Cas. P 66,191

Briefs and Other Related Documents

Supreme Court of the United States
UNIVERSAL CAMERA CORP.
v.
NATIONAL LABOR RELATIONS BOARD.

No. 40.

Argued Nov. 6, 7, 1950.

Decided Feb. 26, 1951.

The National Labor Relations Board filed a petition against the Universal Camera Corporation for an
order enforcing an order of the Board requiring respondent to cease and desist from discharging any
employee because he filed charges or gave testimony under the National Labor Relations Act, and to
offer a discharged employee reinstatement, and to make him whole for loss of pay suffered because of
respondent's discrimination. The United States Court of Appeals for the Second Circuit, 179 F.2d 749,
entered an enforcement order, and the respondent brought certiorari. The Supreme Court, Mr. Justice
Frankfurter, held that under the Administrative Procedure Act and the Taft-Hartley Act, National Labor
Relations Board's findings are entitled to respect, but they must nonetheless be set aside when record
before a Court of Appeals clearly precludes Board's decision from being justified by fair estimate of the
worth of the testimony of witnesses or its informed judgment on matters within its special competence.

Judgment vacated and cause remanded.

Mr. Justice Black, and Mr. Justice Douglas, dissented in part.

West Headnotes

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Administrative Procedure Act. Administrative Procedure Act, § 1 et seq., 5 U.S.C.A. § 1001 et seq.;
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could be drawn, the Administrative Procedure Act providing that court shall set aside agency action
unsupported by substantial evidence and review the whole record, and the Taft-Hartley Act providing
that findings of the National Labor Relations Board supported by substantial evidence on the record as
a whole are conclusive definitively precluded such a theory of review and barred its practice.
Administrative Procedure Act, §§ 1 et seq., 10(e), 5 U.S.C.A. §§ 1001 et seq., 1009(e); Labor
Management Relations Act, § 1 et seq., 29 U.S.C.A. § 141 et seq.; National Labor Relations Act, § 1 et
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Congress, by enactment of Administrative Procedure Act providing that court shall set aside agency
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record as a whole are conclusive, made it clear that a reviewing court is not barred from setting aside a
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that decision is substantial, when viewed in the light that the record in its entirety furnishes, including
the body of evidence opposed to Board's view. Administrative Procedure Act, §§ 1 et seq., 10(e), 5
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Under the Administrative Procedure Act and the Taft-Hartley Act, findings of the National Labor
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Court of Appeals clearly precludes Board's decision from being justified by a fair estimate of worth of
testimony of witnesses or its informed judgment on matters within its special competence or both.
Administrative Procedure Act, §§ 1 et seq., 10(e), 5 U.S.C.A. § 1001 et seq., 1009(e); Labor
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Whether on record as a whole there is substantial evidence to support findings of National Labor
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Supreme Court will intervene only in what ought to be the rare instance when the standard appears to
have been misapprehended or grossly misapplied. Administrative Procedure Act, §§ 1 et seq., 10(e), 5
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Where record showed that testimony of employer's witnesses was inconsistent, and there was clear
evidence that complaining employee had been discharged by an officer of employer who was at one
time influenced against employee because of his appearance at National Labor Relations Board
hearing, Supreme Court could not say that it would be error for Court of Appeals to grant enforcement
of Board's order requiring employer to cease and desist from discharging employee because he gave
testimony under the National Labor Relations Act and to offer employee reinstatement. Administrative
Procedure Act, §§ 1 et seq., 10(e), 5 U.S.C.A. §§ 1001 et seq., 1009(e); National Labor Relations Act,
§§ 1 et seq., 10(e) as amended by Labor Management Relations Act, 29 U.S.C.A. §§ 151 et seq.,
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Court of Appeals, in determining substantiality of evidence to support National Labor Relations Board
order, was not barred from taking into account report of Board's examiner on questions of fact insofar
as examiner's report was rejected by Board, but rather all of examiner's findings were to be considered
along with the consistency and inherent probability of testimony. Administrative Procedure Act, §§ 8(a,
b), 11, 5 U.S.C.A. §§ 1007(a, b), 1010; National Labor Relations Act, § 10(c, e), as amended by Labor
Management Relations Act, 29 U.S.C.A. § 160(c, e); Fed.Rules Civ.Proc. rule 53(e) (2), 28 U.S.C.A.

**458 *475 Mr. Frederick R. Livingston, New York City, pro hac vice by special leave of Court, for
petitioner.

*476 Mr. Mozart G. Ratner, Washington, D.C., for respondent.

Mr. Justice FRANKFURTER delivered the opinion of the Court.

The essential issue raised by this case and its companion, National Labor Relations Board v. Pittsburgh
Steamship Co., 340 U.S. 498, 71 S.Ct. 453, infra, is the effect of the Administrative Procedure Act and
the legislation colloquially known as the Taft-Hartley Act, 5 U.S.C.A. s 1001 et seq.; 29 U.S.C.A. s
141 et seq., on the duty of Courts of Appeals when called upon to review orders of the National Labor
Relations Board.

The Court of Appeals for the Second Circuit granted enforcement of an order directing, in the main,
that petitioner reinstate with back pay an employee found to have been discharged because he gave
testimony under the Wagner Act, 29 U.S.C.A. s 151 et seq., and cease and desist from discriminating
against any employee who files charges or gives testimony under that Act. The court below, Judge
Swan dissenting, decreed full enforcement of the roder. 2 Cir., 179 F.2d 749. Because the views of that
court regarding the effect of the new legislation on the relation between the Board and the courts of
appeals in the enforcement of the Board's orders conflicted with those of the Court of Appeals for the
Sixth CircuitFN1 we brought both cases here. 339 U.S. 951, 70 S.Ct. 842 and **459 339 U.S. 962, 70
S.Ct. 998. The clash of opinion obviously required settlement by this Court.
FN1. National Labor Relations Board v. Pittsburgh Steamship Co., 180 F.2d 731; Id., 340 U.S. 498, 71
S.Ct. p. 453, infra. The Courts of Appeals of five circuits have agreed with the Court of Appeals for the
Second Circuit that no material change was made in the reviewing power. Eastern Coal Corp. v.
National Labor Relations Board, 4 Cir., 176 F.2d 131, 134-136; National Labor Relations Board v. La
Salle Steele Co., 7 Cir., 178 F.2d 829, 833-834; National Labor Relations Board v. Minnesota Mining
& Mfg. Co., 8 Cir., 179 F.2d 323, 325-326; National Labor Relations Board v. Continental Oil Co., 10
Cir., 179 F.2d 552, 555; National Labor Relations Board v. Booker, 5 Cir., 180 F.2d 727, 729; but see
Labor Board v. Caroline Mills, Inc., 5 Cir., 167 F.2d 212, 213.

*477 I.
Want of certainty in judicial review of Labor Board decisions partly reflects the intractability of any
formula to furnish definiteness of content for all the impalpable factors involved in judicial review. But
in part doubts as to the nature of the reviewing power and uncertainties in its application derive from
history, and to that extent an elucidation of this history may clear them away.

The Wagner Act provided: ‘The findings of the Board as to the facts, if supported by evidence, shall be
conclusive.’ Act of July 5, 1935, s 10(e), 49 Stat. 449, 454, 29 U.S.C. s 160(e), 29 U.S.C.A. s 160(e).
This Court read ‘evidence’ to mean ‘substantial evidence,’ Washington, V. & M. Coach Co. v. Labor
Board, 301 U.S. 142, 57 S.Ct. 648, 81 L.Ed. 965, and we said that ‘(s) ubstantial evidence is more than
a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.’ Consolidated Edison Co. v. National Labor Relations Board, 305 U.S. 197, 229,
59 S.Ct. 206, 217, 83 L.Ed. 126. Accordingly, it ‘must do more than create a suspicion of the existence
of the fact to be established. * * * it must be enough to justify, if the trial were to a jury, a refusal to
direct a verdict when the conclusion sought to be drawn from it is one of fact for the jury.’ National
Labor Relations Board v. Columbian Enameling &! Stamping Co., 306 U.S. 292, 300, 59 S.Ct. 501,
505, 83 L.Ed. 660.

The very smoothness of the ‘substantial evidence’ formula as the standard for reviewing the evidentiary
validity of the Board's findings established its currency. But the inevitably variant applications of the
standard to conflicting evidence soon brought contrariety of views and in due course bred criticism.
Even though the whole record may have been canvassed in order to determine whether the evidentiary
foundation of a determination by the Board was ‘substantial,’ the phrasing of this Court's process of
review readily lent itself to the notion *478 that it was enough that the evidence supporting the Board's
result was ‘substantial’ when considered by itself. If is fair to say that by imperceptible steps regard for
the fact-finding function of the Board led to the assumption that the requirements of the Wagner Act
were met when the reviewing court could find in the record evidence which, when viewed in isolation,
substantiated the Board's findings. Compare National Labor Relations Board v. Waterman Steamship
Corp., 309 U.S. 206, 60 S.Ct. 493, 84 L.Ed. 704; National Labor Relations Board v. Bradford Dyeing
Ass'n, 310 U.S. 318, 60 S.Ct. 918, 84 L.Ed. 1226; and see National Labor Relations Board v. Nevada
Consolidated Copper Corp., 316 U.S. 105, 62 S.Ct. 960, 86 L.Ed. 1305. This is not to say that every
member of this Court was consciously guided by this view or that the Court ever explicitly avowed this
practice as doctrine. What matters is that the belief justifiably arose that the Court had so construed the
obligation to review.FN2
FN2. See the testimony of Dean Stason before the Subcommittee of the Senate Committee on the
Judiciary in 1941. Hearings on S. 674, 77th Cong., 1st Sess. 1355-1360.

Criticism of so contracted a reviewing power reinforced dissatisfaction felt in various quarters with the
Board's administration of the Wagner Act in the years preceding the war. The scheme of the Act was
attacked as an inherently unfair fusion of the functions of prosecutor and judge.FN3 **460 Accusations
of partisan bias were not wanting.FN4 The ‘irresponsible admission and weighing of hearsay, opinion,
and emotional speculation in place of factual evidence’ was said to be a ‘serious menace.’ FN5 No
doubt *479 some, perhaps even much, of the criticism was baseless and some surely was reckless.FN6
What is here relevant, however, is the climate of opinion thereby generated and its effect on Congress.
Protests against ‘shocking injustices'FN7 and intimations of judicial ‘abdication'FN8 with which some
courts granted enforcement of the Board's order stimulated pressures for legislative relief from alleged
administrative excesses.

FN3. See, for example, the remarks of Laird Bell, then Chairman of the Committee on Administrative
Law of the Chicago Bar Association, writing in 1940 in the American Bar Association Journal. 26
A.B.A.J. 552.

FN4. See Gall, The Current Labor Problem: The View of Industry, 27 Iowa L.Rev. 381, 382.

FN5. This charge was made by the majority of the Special Committee of the House appointed in 1939
to investigate the National Labor Relations Board. H.R.R.ep. No. 1902, 76th Cong., 3d Sess. 76.

FN6. Professor Gellhorn and Mr. Linfield reached the conclusion in 1939 after an extended
investigation that ‘the denunciations find no support in fact.’ Gellhorn and Linfield, Politics and Labor
Relations, 39 Col.L.Rev. 339, 394. See also Millis and Brown, From the Wagner Act to Taft-Hartley,
66-75.

FN7. Wilson & Co. v. National Labor Relations Board, 7 Cir., 126 F.2d 114, 117.

FN8. In National Labor Relations Board v. Standard Oil Co., 2 Cir., 138 F.2d 885, 887, Judge Learned
Hand said, ‘We understand the law to be that the decision of the Board upon that issue is for all
practical purposes not open to us at all; certainly not after we have once decided that there was
‘substantial’ evidence that the ‘disestablished’ union was immediately preceded by a period during
which there was a ‘dominated’ union. * * *‘(W)e recognize how momentous may be such an
abdication of any power of review * * *.’

The strength of these pressurs was reflected in the passage in 1940 of the Walter-Logan Bill. it was
vetoed by President Roosevelt, partly because it imposed unduly rigid limitations on the administrative
process, and partly because of the investigation into the actual operation of the administrative process
then being conducted by an experienced committee appointed by the Attorney General.FN9 It is worth
noting that despite its aim to tighten control over administrative determinations of fact, the Walter-
Logan Bill contented itself with the conventional formula that an agency's decision could be set aside if
‘the findings of fact are not supported by substantial evidence.'FN10

FN9. 86 Cong.Rec. 13942-13943, reprinted as H.R.Doc. No. 986, 76th Cong., 3d Sess.

FN10. S. 915, H.R. 6324, 76th Cong., 1st Sess., s 5(a).

*480 The final report of the Attorney General's Committee was submitted in January, 1941. The
majority concluded that ‘(d)issatisfaction with the existing standards as to the scope of judicial review
derives largely from dissatisfaction with the fact-finding procedures now employed by the
administrative bodies.'FN11 Departure from the ‘substantial evidence’ test, it thought, would either
create unnecessary uncertainty or transfer to courts the responsibility for ascertaining and assaying
matters the significance of which lies outside judicial competence. Accordingly, it recommended
against Legislation embodying a general scheme of judicial review. FN12

FN11. Final Report, 92.

FN12. Referring to proposals to enlarge the scope of review to permit inquiry whether the findings are
supported by the weight of the evidence, the majority said:‘Assuming that such a change may be
desirable with respect to special administrative determinations, there is serious objection to its adoption
for general application.‘In the first place there is the question of how much change, if any, the
amendment would produce. The respect that courts have for the judgments of specialized tribunals
which have carefully considered the problems and the evidence cannot be legislated away. The line
between ‘substantial evidence’ and ‘weight of evidence’ is not easily drawn-particularly when the court
is confined to a written record, has a limited amount of time, and has no opportunity further to question
witnesses on testimony which seems hazy or leaves some lingering doubts unanswered. ‘Substantial
evidence’ may well be equivalent to the ‘weight of evidence’ when a tribunal in which one has
confidence and which had greater opportunities for accurate determination has already so decided.‘In
the second place the wisdom of a general change to review of the ‘weight of evidence’ is questionable.
If the change would require the courts to determine independently which way the evidence
preponderates, administrative tribunals would be turned into little more than media for transmission of
the evidence to the courts. It would destroy the values of adjudication of fact by experts or specialists in
the field involved. It would divide the responsibility for administrative adjudications.' Final Report, 91-
92.

*481 Three members of the Committee registered a dissent. Their view was that the ‘present system or
lack of system of **461 judicial review’ led to inconsistency and uncertainty. They reported that under
a ‘prevalent’ interpretation of the ‘substantial evidence’ rule ‘if what is called ‘substantial evidence’ is
found anywhere in the record to support conclusions of fact, the courts are said to be obliged to sustain
the decision without reference to how heavily the countervailing evidence may preponderate-unless
indeed the stage of arbitrary decision is reached. Under this interpretation, the courts need to read only
one side of the case and, if they find any evidence there, the administrative action is to be sustained and
the record to the contrary is to be ignored.' FN13 Their view led them to recommend that Congress
enact principles of review applicable to all agencies not excepted by unique characteristics. One of
these principles was expressed by the formula that judicial review could extend to ‘findings, inferences,
or conclusions of fact unsupported, upon the whole record, by substantial evidence.'FN14 So far as the
*482 history of this movement for enlarged review reveals, the **462 phrase ‘upon the whole record’
makes its first appearance in this recommendation of the minority of the Attorney General's
Committee. This evidence of the close relationship between the phrase and the criticism out of which it
arose is important, for the substance of this formula for judicial review found its way into the statute
books when Congress with unquestioning-we might even say uncritical-unanimity enacted the
Administrative Procedure Act.FN15

FN13. Id., 210-211.

FN14. The minority enumerated four ‘existing deficiencies' in judicial review. These were (1) ‘the
haphazard, uncertain, and variable results of the present system or lack of system of judicial review,’
(2) the interpretation permitting substantiality to be determined without taking into account conflicting
evidence, (3) the failure of existing formulas ‘to take account of differences between the various types
of fact determinations,’ and (4) the practice of determining standards of review by ‘case-to-case
procedure of the courts.’ They recommended that‘Until Congress finds it practicable to examine into
the situation of particular agencies, it should provide more definitely by general legislation for both the
availability and scope of judicial review in order to reduce uncertainty and variability. As the
Committee recognizes in its report, there are several principal subjects of judicial review-including
constitutional questions, statutory interpretation, procedure, and the support of findings of fact by
adequate evidence. The last of these should, obviously we think, mean support of all findings of fact,
including inferences and conclusions of fact, upon the whole record. Such a legislative provision
should, however, be qualified by a direction to the courts to respect the experience, technical
competence, specialized knowledge, and discretionary authority of each agency. We have framed such
a provision in the appendix to this statement.’ Id., 210-212.The text of the recommended provision is as
follows:‘(e) Scope of review.-As to the findings, conclusions, and decisions in any case, the reviewing
court, regardless of the form of the review proceeding, shall consider and decide so far as necessary to
its decision and where raised by the parties, all relevant questions of: (1) constitutional right, power,
privilege, or immunity; (2) the statutory authority or jurisdiction of the agency; (3) the lawfulness and
adequacy of procedure; (4) findings, inferences, or conclusions of fact unsupported, upon the whole
record, by substantial evidence; and (5) administrative action otherwise arbitrary or capricious.
Provided, however, That upon such review due weight shall be accorded the experience, technical
competence, specialized knowledge, and legislative policy of the agency involved as well as the
discretionary authority conferred upon it.’ Id., 246-247.

FN15. 60 Stat. 237, 5 U.S.C. s 1001 et seq., 5 U.S.C.A. s 1001 et seq. The form finally adopted reads
as follows:‘Sec. 10. Except so far as (1) statutes preclude judicial review or (2) agency action is by law
committed to agency discretion. * * *‘(e) Scope of Review.-So far as necessary to decision and where
presented the reviewing court shall decide all relevant questions of law, interpret constitutional and
statutory provisions, and determine the meaning or applicability of the terms of any agency action. It
shall (A) compel agency action unlawfully withheld or unreasonably delayed; and (B) hold unlawful
and set aside agency action, findings, and conclusions found to be (1) arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power,
privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of
statutory right; (4) without observance of procedure required by law; (5) unsupported by substantial
evidence in any case subject to the requirements of sections 7 and 8 or otherwise reviewed on the
record of an agency hearing provided by statute; or (6) unwarranted by the facts to the extent that the
facts are subject to trial de novo by the reviewing court. In making the foregoing determinations the
court shall review the whole record or such portions thereof as may be cited by any party, and due
account shall be taken of the rule of prejudicial error.’ 60 Stat. 243-244, 5 U.S.C. s 1009(e), 5 U.S.C.A.
s 1009(e). (Italics ours.)In the form in which he bill was originally presented to Congress, clause (B)
(5) read, ‘unsupported by competent, material, and substantial evidence upon the whole agency record
as reviewed by the court in any case subject to the requirements of sections 7 and 8.’ H.R. 1203, 79th
Cong., 1st Sess., quoted in S.Doc. No. 248, 79th Cong., 2d Sess. 155, 160. References to competency
and materiality of evidence were deleted and the final sentence added by the Senate Committee.
S.Rep.No. 752, 79th Cong., 1st Sess. 28; S.Doc.No. 248, supra, 39-40, 214. No reason was given for
the deletion.

*483 One is tempted to say ‘uncritical’ because the legislative history of that Act hardly speaks with
that clarity of purpose which Congress supposedly furnishes courts in order to enable them to enforce
its true will. On the one hand, the sponsors of the legislation indicated that they were reaffirming the
prevailing ‘substantial evidence’ test.FN16 But with equal clarity they expressed disapproval of the
manner in which the courts were applying *484 their own standard. The committee reports of both
houses refer to the practice of agencies to rely upon ‘suspicion, surmise, implications, or plainly
incredible evidence,’ and indicate that courts are to exact higher standards ‘in the exercise of their
independent judgment’ and on consideration of ‘the whole record.'FN17

FN16. A statement of the Attorney General appended to the Senate Report explained that the bill ‘is
intended to embody the law as declared, for example, in Consolidated Edison Co. v. National Labor
Relations Board, 305 U.S. 197, 59 S.Ct. 206, 83 L.Ed. 126.’ Section 10(e) of Appendix B to S.Rep. No.
752, supra, reprinted in S.Doc. No. 248, supra, 230. Mr. McFarland, then Chairman of the American
Bar Association Committee on Administrative Law, testified before the House Judiciary Committee to
the same effect. Id., 85-86.
FN17. The following quotation from the report of the Senate Judiciary Committee indicates the
position of the sponsors. ‘The ‘substantial evidence’ rule set forth in section 10(e) is exceedingly
important. As a matter of language, substantial evidence would seem to be an adequate expression of
law. The difficulty comes about in the practice of agencies to rely upon (and of courts to tacitly
approve) something less-to rely upon suspicion, surmise, implications, or plainly incredible evidence. It
will be the duty of the courts to determine in the final analysis and in the exercise of their independent
judgment, whether on the whole record the evidence in a given instance is sufficiently substantial to
support a finding, conclusion, or other agency action as a matter of law. In the first instance, however,
it will be the function of the agency to determine the sufficiency of the evidence upon which it acts-and
the proper performance of its public duties will require it to undertake this inquiry in a careful and
dispassionate manner. Should these objectives of the bill as worded fail, supplemental legislation will
be required.' S.Rep. No. 752, supra, 30-31. The House Committee Report is to substantially the same
effect. H.R.Rep. No. 1980, 79th Cong., 2d Sess. 45. The reports are reprinted in S.Doc. No. 248, supra,
216-217, 279.See also the response of Senator McCarran in debate, to the effect that the bill changed
the ‘rule’ that courts were ‘powerless to interfere’ when there ‘was no probative evidence.’ Id., 322.
And see the comment of Congressman Springer, a member of the House Judiciary Committee, id., 376.

Similar dissatisfaction with too restricted application of the ‘substantial evidence’ test is reflected in the
legislative history of **463 the Taft-Hartley Act. FN18 The bill as reported to the House provided that
the ‘findings of the Board as to the facts shall be conclusive unless it is made to appear to the
satisfaction of the court either (1) that the findings of fact are against the manifest weight of the *485
evidence, or (2) that the findings of fact are not supported by substantial evidence.'FN19 The bill left
the House with this provision. Early committee prints in the Senate provided for review by ‘weight of
the evidence’ or ‘clearly erroneous' standards.FN20 But, as the Senate Committee Report relates, ‘it
was finally decided to conform the statute to the corresponding section of the Administrative Procedure
Act where the substantial evidence test prevails. In order to clearify any ambiguity in that statute,
however, the committee inserted the words ‘questions of fact, if supported by substantial evidence on
the record considered as a whole * * *.“FN21

FN18. 61 Stat. 136, 29 U.S.C. (Supp. III) s 141 et seq., 29 U.S.C.A. s 141 et seq.

FN19. H.R. 3020, 80th Cong., 1st Sess., s 10(e), reprinted in 1 Legislative History of the Labor
Management Relations Act 1947, p. 71.

FN20. The history of the evolution of the Senate provision was given by Senator Morse. 93 Cong.Rec.
5108, reprinted in 2 Legislative History 1504-1505. The prints were not approved by the Committee.

FN21. S.Rep. No. 105, 80th Cong., 1st Sess. 26-27, reprinted in 1 Legislative History 432-433. The
Committee did not explain what the ambiguity might be; and it is to be noted that the phrase it
italicized is indistinguishable in content from the requirement of s 10(e) of the Administrative
Procedure Act that ‘the court shall review the whole record or such portions thereof as may be cited by
any party * * *.’Senator Taft gave this explanation to the Senate of the meaning of the section: ‘In the
first place, the evidence must be substantial; in the second place, it must still look substantial when
viewed in the light of the entire record. That does not go so far as saying that a decision can be reversed
on the weight of the evidence. It does not go quite so far as the power given to a circuit court of appeals
to review a district-court decision, but it goes a great deal further than the present law, and gives the
court greater opportunity to reverse an obviously unjust decision on the part of the National Labor
Relations Board.’ 93 Cong.Rec. 3839, reprinted in 2 Legislative History 1014.

This phraseology was adopted by the Senate. The House conferees agreed. They reported to the House:
‘It is believed that the provisions of the conference agreement*486 relating to the courts' reviewing
power will be adequate to preclude such decisions as those in N.L.R.B. v. Nevada Consol. Copper
Corp., 316 U.S. 105, 62 S.Ct. 960, 86 L.Ed. 1305 and in the Wilson, Columbia Products, Union Pacific
Stages, Hearst, Republic Aviation, and Le Tourneau, etc. cases, supra, without unduly burdening the
courts.'FN22 The Senate version became the law.

FN22. H.R.Rep. No. 510, 80th Cong., 1st Sess. 56, reprinted in 1 Legislative History 560. In National
Labor Relations Board v. Nevada Consolidated Copper Corp., 316 U.S. 105, 107, 62 S.Ct. 960, 961, 86
L.Ed. 1305, we reversed a judgment refusing to enforce a Board order because ‘upon an examination of
the record we cannot say that the findings of fact of the Board are without support in the evidence’. The
sufficiency of evidence to support findings of fact is not involved in the three other decisions of this
Court to which reference was made. National Labor Relations Board v. Hearst Publications, Inc., 322
U.S. 111, 64 S.Ct. 851, 88 L.Ed. 1170; Republic Aviation Corp. v. National Labor Relations Board
(Labor Board v. Le Tourneau Co.), 324 U.S. 793, 65 S.Ct. 982, 89 L.Ed. 557. The language used by the
court offers a probable explanation for including two of the decisions of Courts of Appeals. In Wilson
& Co. v. National Labor Relations Board, 126 F.2d 114, 117, the Court of Appeals for the Seventh
Circuit sustained a finding that the employer dominated a company union after stating that it had
‘recognized (or tried to) that findings must be sustained, even when they are contrary to the great
weight of the evidence, and we have ignored, or at least endeavored to ignore, the shocking injustices
which such findings, opposed to the overwhelming weight of the evidence, produce.’ National Labor
Relations Board v. Columbia Products Corp., 141 F.2d 687, 688 is a per curiam decision of the Court
of Appeals for the Second Circuit sustaining a finding of discriminatory discharge. The court said of
the Board's decison on a question of fact, ‘Though it may strain our credulity, if it does not quite break
it down, we must accept it * * *.’ The reason for disapproval of National Labor Relations Board v.
Union Pacific Stages, 99 F.2d 153, is not apparent. The Court of Appeals for the Ninth Circuit there
enforced the portion of the Board's order directing the company to disavow a policy of discrimiantion
against union members, on the ground that there appeared ‘to be evidence, although disputed,’ that
some company officials had discouraged employees from joining. 99 F.2d at 179. The bulk of the
lengthy opinion, however, is devoted to a discussion of the facts to support the court's conclusion that
the Board's findings of discriminatory discharges should not be sustained.

*487 It is fair to say that in all this Congress expressed a mood. And it expressed its **464 mood not
merely by oratory but by legislation. As legislation that mood must be respected, even though it can
only serve as a standard for judgment and not as a body of rigid rules assuring sameness of
applications. Enfrocement of such broad standards implies subtlety of mind and solidity of judgment.
But it is not for us to question that Congress may assume such qualities in the federal judiciary.

From the legislative story we have summarized, two concrete conclusions do emerge. One is the
identity of aim of the Administrative Procedure Act and the Taft-Hartley Act regarding the proof with
which the Labor Board must support a decision. The other is that now Congress has left no room for
doubt as to the kind of scrutiny which a court of appeals must give the record before the Board to
satisfy itself that the Board's order rests on adequate proof.

[1] It would be mischievous wordplaying to find that the scope of review under the Taft-Hartley Act is
any different from that under the Administrative Procedure Act. The Senate Committee which reported
the review clause of the Taft-Hartley Act expressly indicated that the two standards were to conform in
this regard, and the wording of the two Acts is for purposes of judicial administration identical. And so
we hold that the standard of proof specifically required of the Labor Board by the Taft-Hartley Act is
the same as that to be exacted by courts reviewing every administrative action subject to the
Administrative Procedure Act.

[2] Whether or not it was ever permissible for courts to determine the substantiality of evidence
supporting a Labor Board decision merely on the basis of evidence which in and of itself justified it,
without taking into account contradictory evidence or evidence from which conflicting inferences could
be drawn, the new legislation *488 definitively precludes such a theory of review and bars its practice.
The substantiality of evidence must take into account whatever in the record fairly detracts from its
weight. This is clearly the significance of the requirement in both statutes **465 that courts consider
the whole record. Committee reports and the adoption in the Administrative Procedure Act of the
minority views of the Attorney General's Committee demonstrate that to enjoin such a duty on the
reviewing court was one of the important purposes of the movement which eventuated in that
enactment.

[3] To be sure, the requirement for canvassing ‘the whole record’ in order to ascertain substantiality
does not furnish a calculus of value by which a reviewing court can assess the evidence. Nor was it
intended to negative the function of the Labor Board as one of those agencies presumably equipped or
informed by experience to deal with a specialized field of knowledge, whose findings within that field
carry the authority of an expertness which courts do not possess and therefore must respect. Nor does it
mean that even as to matters not requiring expertise a court may displace the Board's choice between
two fairly conflicting views, even though the court would justifiably have made a different choice had
the matter been before it de novo. Congress has merely made it clear that a reviewing court is not
barred from setting aside a Board decision when it cannot conscientiously find that the evidence
supporting that decision is substantial, when viewed in the light that the record in its entirety furnishes,
including the body of evidence opposed to the Board's view.

There remains, then, the question whether enactment of these two statutes has altered the scope of
review other than to require that substantiality be determined in the light of all that the record
relevantly presents. A formula for judicial review of administrative action may afford grounds for
certitude but cannot assure certainty of application. *489 Some scope for judicial discretion in applying
the formula can be avoided only by falsifying the actual process of judging or by using the formula as
an instrument of futile casuistry. It cannot be too often repeated that judges are not automata. The
ultimate reliance for the fair operation of any standard is a judiciary of high competence and character
and the constant play of an informed professional critique upon its work.

Since the precise way in which courts interfere with agency findings cannot be imprisoned within any
form of words, new formulas attempting to rephrase the old are not likely to be more helpful than the
old. There are no talismanic words that can avoid the process of judgment. The difficulty is that we
cannot escape, in relation to this problem, the use of undefined defining terms.

Whatever changes were made by the Administrative Procedure and Taft-Hartley Acts are clearly within
this area where precise definition is impossible. Retention of the familiar ‘substantial evidence’
terminology indicates that no drastic reversal of attitude was intended.

[4] But a standard leaving an unavoidable margin for individual judgment does not leave the judicial
judgment at large even though the phrasing of the standard does not wholly fence it in. The legislative
history of these Acts demonstrates a purpose to impose on courts a responsibility which has not always
been recognized. Of course it is a statute and not a committee report which we are interpreting. But the
fair interpretation of a statute if often ‘the art of proliferating a purpose’, Brooklyn National Corp. v.
Commissioner, 2 Cir., 157 F.2d 450, 451, revealed more by the demonstrable forces that produced it
than by its precise phrasing. The adoption in these statutes of the judicially-constructed ‘substantial
evidence’ test was a response to pressures for stricter and more uniform practice, not a reflection of
approval of all existing practices. *490 To find the change so elusive that it cannot be precisely defined
does not mean it may be ignored. We should fail in our duty to effectuate the will of Congress if we
denied recognition to expressed Congressional disapproval of the finality accorded to Labor Board
findings by some decisions of this and lower courts, **466 or even of the atmosphere which may have
favored those decisions.

[5] We conclude, therefore, that the Administrative Procedure Act and the Taft-Hartley Act direct that
courts must now assume more responsibility for the reasonableness and fairness of Labor Board
decisions than some courts have shown in the past. Reviewing courts must be influenced by a feeling
that they are not to abdicate the conventional judicial function. Congress has imposed on them
responsibility for assuring that the Board keeps within reasonable grounds. That responsibility is not
less real because it is limited to enforcing the requirement that evidence appear substantial when
viewed, on the record as a whole, by courts invested with the authority and enjoying the prestige of the
Courts of Appeals. The Board's findings are entitled to respect; but they must nonetheless be set aside
when the record before a Court of Appeals clearly precludes the Board's decision from being justified
by a fair estimate of the worth of the testimony of witnesses or its informed judgment on matters within
its special competence or both.

From this it follows that enactment of these statutes does not require every Court of Appeals to alter its
practice. Some-perhaps a majority-have always applied the attitude reflected in this legislation. To
explore whether a particular court should or should not alter its practice would only divert attention
from the application of the standard now prescribed to a futile inquiry into the nature of the test
formerly used by a particular court.

[6] Our power to review the correctness of application of the present standard ought seldom to be
called into action. *491 Whether on the record as a whole there is substantial evidence to support
agency findings is a question which Congress has placed in the keeping of the Courts of Appeals. This
Court will intervene only in what ought to be the rare instance when the standard appears to have been
misapprehended or grossly misapplied.

II.
Our disagreement with the view of the court below that the scope of review of Labor Board decisions is
unaltered by recent legislation does not of itself, as we have noted, require reversal of its decision. The
court may have applied a standard of review which satisfies the present Congressional requirement.

The decision of the Court of Appeals is assailed on two grounds. It is said (1) that the court erred in
holding that it was barred from taking into account the report of the examiner on questions of fact
insofar as that report was rejected by the Board, and (2) that the Board's order was not supported by
substantial evidence on the record considered as a whole, even apart from the validity of the court's
refusal to consider the rejected portions of the examiner's report.

[7] The latter contention is easily met. It is true that two of the earlier decisions of the court below
were among those disapproved by Congress. FN23 But this disapproval, we have seen, may well have
been caused by unintended intimations of judicial phrasing. And in any event, it is clear from the
court's opinion in this case that it in fact did consider the ‘record as a whole,’ and did not deem itself
merely the judicial echo of the Board's conclusion. The testimony of the company's witnesses was
inconsistent, and there was clear evidence that the complaining *492 employee had been discharged by
an officer who was at one time influenced against him because of his appearance at the Board hearing.
On such a record we could not say that it would be error to grant enforcement.

FN23. National Labor Relations Board v. Standard Oil Co., 2 Cir., 138 F.2d 885; National Labor
Relations Board v. Columbia Products Corp., 2 Cir., 141 F.2d 687. See notes 8 and 22, supra.

The first contention, however, raises serious questions to which we now turn.

**467 III.
[8] The Court of Appeals deemed itself bound by the Board's rejection of the examiner's findings
because the court considered these findings not ‘as unassailable as a master's.'FN24 179 F.2d at 752.
They are not. Section 10(c) of the Labor Management Relations Act provides that ‘If upon the
preponderance of the testimony taken the Board shall be of the opinion that any person named in the
complaint has engaged in or is engaging in any such unfair labor practice, then the Board shall state its
findings of fact * * *.’ 61 Stat. 147, 29 U.S.C.(Supp. III) s 160(c), 29 U.S.C.A. s 160(c). The
responsibility for decision thus placed on the Board is wholly inconsistent with the notion that it has
power to reverse an examiner's findings only when they are ‘clearly erroneous.’ Such a limitation
would make so drastic a departure from prior administrative practice that explicitness would be
required.

FN24. Rule 53(e)(2), Fed.Rules Civ.Proc., 28 U.S.C.A., gives finality to the findings of a master unless
they are clearly erroneous.The court's ruling excluding from consideration disagreement between the
Board and the examiner was in apparent conflict with the views of three other circuits. National Labor
Relations Board v. Ohio Calcium Co., 6 Cir., 133 F.2d 721, 724; A. E. Staley Mfg. Co. v. National
Labor Relations Board, 7 Cir., 117 F.2d 868, 878; Wilson & Co. v. National Labor Relations Board, 8
Cir., 123 F.2d 411, 418; cf. International Ass'n of Machinists v. National Labor Relations Board, 71
App.D.C. 175, 180, 110 F.2d 29, 34.

The Court of Appeals concluded from this premise ‘that, although the Board would be wrong in totally
disregarding his findings, it is practically impossible for a *493 court, upon review of those findings
which the Board itself substitutes, to consider the Board's reversal as a factor in the court's own
decision. This we say, because we cannot find any middle ground between doing that and treating such
a reversal as error, whenever it would be such, if done by a judge to a master in equity.’ 179 F.2d at
753. Much as we respect the logical acumen of the Chief Judge of the Court of Appeals, we do not find
ourselves pinioned between the horns of his dilemma.

We are aware that to give the examiner's findings less finality than a master's and yet entitle them to
consideration in striking the account, is to introduce another and an unruly factor into the judgmatical
process of review. But we ought not to fashion an exclusionary rule merely to reduce the number of
imponderables to be considered by reviewing courts.

The Taft-Hartley Act provides that ‘The findings of the Board with respect to questions of fact if
supported by substantial evidence on the record considered as a whole shall be conclusive.’ 61 Stat.
148, 29 U.S.C.(Supp. III) s 160(e), 29 U.S.C.A. s 160(e). Surely an examiner's report is as much a part
of the record as the complaint or the testimony. According to the Administrative Procedure Act, ‘All
decisions (including initial, recommended, or tentative decisions) shall become a part of the record * *
*.’ s 8(b), 60 Stat. 242, 5 U.S.C. s 1007(b), 5 U.S.C.A. s 1007(b). We found that this Act's provision for
judicial review has the same meaning as that in the Taft-Hartley Act. The similarity of the two statutes
in language and purpose also requires that the definition of ‘record’ found in the Administrative
Procedure Act be construed to be applicable as well to the term ‘record’ as used in the Taft-Hartley
Act.

It is therefore difficult to escape the conclusion that the plain language of the statutes directs a
reviewing court to determine the substantiality of evidence on the record including the examiner's
report. The conclusion *494 is confirmed by the indications in the legislative history that enhancement
of the status and function of the trial examiner was one of the important purposes of the movement for
administrative reform.
This aim was set forth by the Attorney General's Committee on Administrative Procedure: ‘In general,
the relationship **468 upon appeal between the hearing commissioner and the agency ought to a
considerable extent to be that of trial court to appellate court. Conclusions, interpretations, law, and
policy should, of course, be open to full review. On the other hand, on matters which the hearing
commissioner, having heard the evidence and seen the witnesses, is best qualified to decide, the agency
should be reluctant to disturb his findings unless error is clearly shown.'FN25

FN25. Final Report, 51.

Apparently it was the Committee's opinion that these recommendations should not be obligatory. For
the bill which accompanied the Final Report required only that hearing officers make an initial decision
which would become final in the absence of further agency action, and that agencies which differed on
the facts from their examiners give reasons and record citations supporting their conclusion.FN26 This
proposal was further moderated by the Administrative Procedure Act. It permits agencies to use
examiners to record testimony but not to evaluate it, and contains the rather obscure provision that an
agency which reviews an examiner's report has ‘all the powers which it would have in making the
initial decision.'FN27

FN26. ss 308(1) and 309(2) of the proposed bill, quoted in Final Report, 200, 201.

FN27. s 8(a), 60 Stat. 242, 5 U.S.C. s 1007(a), 5 U.S.C.A. s 1007(a). The quoted provision did not
appear in the bill in the form in which it was introduced into the Senate. S. 7, 79th Cong., 1st Sess., s 7.
It was added by the Senate Judiciary Committee. The Committee published its reasons for modifying
the earlier draft, but gave no explanation for this particular change. See S.Doc. No. 248, supra, 32-33. It
is likely that the sentence was intended to embody a clause in the draft prepared by the Attorney
General's Committee, which provided that on review of a case decided initially by an examiner an
agency should have jurisdiction to remand or to ‘affirm, reverse, modify, or set aside in whole or in
part the decision of the hearing commissioner, or itself to make any finding which in its judgment is
proper upon the record.’ s 309(2), Final Report, 201. The substance of this recommendation was
included in bills introduced into the House. H.R. 184, 79th Cong., 1st Sess., s 309(2), and H.R. 339,
79th Cong., 1st Sess., s 7(c), both quoted in S.Doc. No. 248, supra, 138, 143.

*495 But this refusal to make mandatory the recommendations of the Attorney General's Committee
should not be construed as a repudiation of them. Nothing in the statutes suggests that the Labor Board
should not be influenced by the examiner's opportunity to observe the witnesses he hears and sees and
the Board does not. Nothing suggests that reviewing courts should not give to the examiner's report
such probative force as it intrinsically commands. To the contrary, s 11 of the Administrative
Procedure Act contains detailed provisions designed to maintain high standards of independence and
competence in examiners. Section 10(c) of the Labor Management Relations Act requires that
examiners ‘shall issue * * * a proposed report, together with a recommended order’. Both statutes thus
evince a purpose to increase the importance of the role of examiners in the administrative process. High
standards of public administration counsel that we attribute to the Labor Board's examiners both due
regard for the responsibility which Congress imposes on them and the competence to discharge it.FN28

FN28. Salaries of trial examiners range from $7,600 to $10,750 per year. See Appendix to the Budget
of the United States Government for the fiscal year ending June 30, 1952, p. 47.

*496 The committee reports also make it clear that the sponsors of the legislation thought the statutes
gave significance to the findings of examiners. Thus, the Senate Committee responsible for the
Administrative Procedure Act explained in its report that examiners' decisions ‘would be of
consequence, for example, to the extent that material facts in any case depend on the determination of
credibility of witnesses as shown by their demeanor or conduct at the hearing.’ FN29 The House
Report reflects **469 the same attitude;FN30 and the Senate Committee Report on the Taft-Hartley
Act likewise indicates regard for the responsibility devolving on the examiner. FN31

FN29. S.Rep. No. 752, supra, 24, reproduced in S.Doc. No. 248, supra, 210.

FN30. H.R.Rep. No. 1980, 79th Cong., 2d Sess. 38-39, reprinted in S.Doc. No. 248, supra, 272-273.
The House Report added that ‘In a broad sense the agencies' reviewing powers are to be compared with
that of courts under section 10(e) of the bill.’ The language of the statute offers no support for this
statement.

FN31. S.Rep. No. 105, 80th Cong., 1st Sess. 9, quoted in 1 Legislative History of the Labor
Management Relations Act 1947, p. 415.

We do not require that the examiner's findings be given more weight than in reason and in the light of
judicial experience they deserve. The ‘substantial evidence’ standard is not modified in any way when
the Board and its examiner disagree. We intend only to recognize that evidence supporting a conclusion
may be less substantial when an impartial, experienced examiner who has observed the witnesses and
lived with the case has drawn conclusions different from the Board's than when he has reached the
same conclusion. The findings of the examiner are to be considered along with the consistency and
inherent probability of testimony. The significance of his report, of course, depends largely on the
importance of credibility in the particular case. To give it this significance does not seem to us
materially more difficult *497 than to heed the other factors which in sum determine whether evidence
is ‘substantial.’

The direction in which the law moves is often a guide for decision of particular cases, and here it serves
to confirm our conclusion. However halting its progress, the trend in litigation is toward a rational
inquiry into truth, in which the tribunal considers everything ‘logically probative of some matter
requiring to be proved.’ Thayer, A Preliminary Treatise on Evidence, 530; Funk v. United States, 290
U.S. 371, 54 S.Ct. 212, 78 L.Ed. 369. This Court has refused to accept assumptions of fact which are
demonstrably false, United States v. Provident Trust Co., 291 U.S. 272, 54 S.Ct. 389, 78 L.Ed. 793,
even when agreed to by the parties, Swift & Co. v. Hocking Valley R. Co., 243 U.S. 281, 37 S.Ct. 287,
61 L.Ed. 722. Machinery for discovery of evidence has been strengthened; the boundaries of judicial
notice have been slowly but perceptibly enlarged. It would reverse this process for courts to deny
examiners' findings the probative force they would have in the conduct of affairs outside a courtroom.

We therefore remand the cause to the Court of Appeals. On reconsideration of the record it should
accord the findings of the trial examiner the relevance that they reasonably command in answering the
comprehensive question whether the evidence supporting the Board's order is substantial. But the court
need not limit its reexamination of the case to the effect of that report on its decision. We leave it free
to grant or deny enforcement as it thinks the principles expressed in this opinion dictate.

Judgment vacated that cause remanded.

Mr. Justice BLACK and Mr. Justice DOUGLAS concur with parts I and II of this opinion but as to part
III agree with the opinion of the court below, 2 Cir., 179 F.2d 749, 753.

U.S. 1951.
UNIVERSAL CAMERA CORP. v. NATIONAL LABOR REL. BD.
340 U.S. 474, 71 S.Ct. 456, 27 L.R.R.M. (BNA) 2373, 95 L.Ed. 456, 19 Lab.Cas. P 66,191

Briefs and Other Related Documents (Back to top)

• 1950 WL 78719 (Appellate Brief) Brief for the National Labor Relations Board (Oct. 16, 1950)
• 1950 WL 78718 (Appellate Brief) Brief for the Petitioner (Sep. 26, 1950)
END OF DOCUMENT
EN BANC
[G.R. No. L-7059. April 28, 1956.]
LAGUNA TAYABAS BUS CO., and BATANGAS TRANSPORTATION CO., petitioners, vs.
OCTAVIANO PABALAN, respondent.
Rodolfo M. Medina for petitioners.
Angel Marave for respondent.
SYLLABUS
PUBLIC SERVICE COMMISSION; DECISION PREDICATED ON EVIDENCE SHOULD NOT BE
DISTURBED. — Where the decision on the Public Service Commission is predicated on the evidence
presented at the trial of the case, the same should not be disturbed, for the Supreme Court would not
unduly interfere with the Commission or attempt to substitute its judgment for the judgment of the
Commission if there be evidence before it reasonably supporting its order.
DECISION
ENDENCIA, J p:
On October 27, 1952, herein respondent Octaviano Pabalan filed an application with the Public Service
Commission to operate an auto- truck service with four jeepneys on the following lines: Calamba-
College via Los Baños, Calamba-Tanauan (Batangas) and Calamba Canlubang (Laguna).
The herein petitioners, Laguna Tayabas Bus Co. and Batangas Transportation Co., filed opposition to
the application on the ground that they are now operating more than enough buses on the lines applied
for by the applicant; that the Honorable Commission has already granted various operators several
certificates of public convenience on the routes sought which are sufficient to serve the people and that
any grant in favor of the applicant of a new certificate of public convenience to operate an auto-truck
service along the lines mentioned in the application would create ruinous competition to the oppositors
and the other operators.
After hearing, the Public Service Commission rendered a decision, the dispositive part of which is as
follows:
"In view of the foregoing considerations, the opposition filed by the Laguna Tayabas Bus Company
and Batangas Transportation Company is hereby overruled, and it appearing from the evidence that
applicant is a Filipino citizen and is financially capable to operate and maintain the proposed service,
and that the approval of this application will promote public convenience and interests in a proper and
suitable manner, it is ordered that, under the provisions of Section 15 of Commonwealth Act No. 146,
as amended, the certificate of public convenience applied for be issued to the applicant . . .."
Not satisfied with this decision, the petitioners have appealed to this Court contending that the Public
Service Commission erred: (1) in not holding that the granting of a new certificate on the lines applied
for by applicant (respondent) would only create ruinous competition to the herein petitioners and other
operators of said lines; (2) in holding that public convenience and necessity will be served by the
approval of respondent's application because the evidence in this case does not warrant the finding that
there was or there is any need for the service sought for in the application; (3) in not giving the
petitioners preference in the granting of new units on the lines in question; and (4) in not denying the
application of the respondent in so far as the lines covered by the application of the respondent are
concerned, and in not sustaining petitioner's opposition thereto.
Errors 1, 2 and 3 essentially raise the issue that the evidence in the case does not warrant the finding
that there was need for the service sought for in the application and that the grant of a new certificate in
favor of the applicant would create ruinous competition to the oppositors. But we find that during the
hearing of the case before the Public Service Commission, the parties introduced their respective
evidence and, after mature consideration thereof, the Public Service Commission rendered its decision
containing the following findings of fact:
(a) "It appears from the evidence presented by the applicant that he proposes to operate one unit on
the line Calamba-College via Los Baños, two units on the line Calamba-Tanauan, and one unit on the
line Calamba-Canlubang that he has already acquired the four units which he proposed to operate as
shown by the certified copies of the certificates of registration marked Exhibits "C", "C-1", "C-2" and
"C- 3" that the trucks operating on these lines are usually filled to capacity and there are many
passengers who cannot be accommodated by the present transportation facilities that there are also
many passengers on the line Calamba-Canlubang because of the cadre of the Second Military Area and
the families of the soldiers living in the camp often travel to and from this area; that on the Calamba-
College line the Laguna Tayabas Bus Company operates only one truck; and that the Batangas
Transportation Company operates express trucks which do not pick up passengers in the barrios along
the lines in question.
(b) "Staff Sergeant Lorenzo Romabiles, traffic officer of the Philippine Constabulary of the
province of Laguna, stationed at Los Baños, furthermore testified that according to his personal
observation, there is a heavy volume of passengers riding in the buses and jeepneys operating on the
lines Calamba-Canlubang; that he has apprehended many TPU jeepneys and buses as well as
autocalesas for overloading, that there are plenty of passengers between Calamba and Canlubang
because there is an army installation, Camp Vicente Lim, where there are about one thousand soldiers
living with their families; and that there are more than two thousand persons employed in the
Canlubang Estate who need additional transportation facilities on the lines herein applied for.
(c) "On the other hand, the oppositors submitted evidence tending to show that their buses
operating on the lines covered by the present application can accommodate all the passengers; that the
average passenger load of their buses is less than the authorized maximum passenger capacity of the
said buses as shown by the reports of its inspectors marked Exhibits "1", "2", and "3"; that aside from
the buses of the oppositors, there are also other TPU auto trucks and auto-calesas operating along these
lines as shown by the census taken by the inspectors of the Laguna Tayabas Bus Company and
presented in evidence as Exhibits "4", "4-a" to "4-d", Exhibits "5", "5-a", to "5- e", Exhibits 6, 6-a to 6-
d, and that the oppositors have suffered losses in the operation of their San Pablo-Manila line, Tanauan-
Calamba line and Calamba-Canlubang line as shown by their monthly operation reports for March and
April, 1953, marked as Exhibits "7" and "7-a", respectively.
(d) "After a careful consideration of the evidence submitted by both parties and the records of this
Commission on authorized autotruck services on the lines herein applied for, we are of the opinion that
public convenience and necessity will be served by the approval of this application inasmuch as the
service being rendered by the oppositors on the lines in question is inadequate to meet the needs of the
inhabitants for a local service which applicant proposes to operate."
As could be seen, the decision appealed from is predicated on the evidence presented at the trial of the
case, which the Public Service Commission found to be in favor of the respondent; consequently, the
same should not be disturbed, for in several decisions we have already held that "this Court would not
unduly interfere with the Commission or attempt to substitute its judgment for the judgment of the
Commission if there be evidence before it reasonably supporting its order.
Under the third assignment of error, petitioners strongly urge that the Public Service Commission
should not have granted the application but should have required the oppositors to increase their service
on the lines applied for by the new applicant, being old and established operators on the said lines. This
contention, however, was not pleaded by the petitioners in their opposition to the application; it was not
raised during the hearing of the case, and it is only raised now in this appeal, hence it cannot be
properly entertained by this Court.
Wherefore, finding no errors in the decision appealed from, the same is hereby affirmed, with costs
against the oppositors, herein petitioners.
Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion
and Reyes, J. B. L., JJ., concur.
EN BANC
[G.R. No. 46853. January 30, 1940.]
MANILA TRADING & SUPPLY CO., petitioner, vs. THE HONORABLE FRANCISCO ZULUETA,
JOSE G. GENEROSO, and LEOPOLDO ROVIRA, Judges of the Court of Industrial Relations, and
PHILIPPINE LABOR UNION, respondents.
Ross, Lawrence, Selph & Carrascoso for petitioner.
Manabat & Fajardo for respondent Philippine Labor Union.
SYLLABUS
1. EMPLOYER AND EMPLOYEE; MISFEASANCE OR MALFEASANCE OF EMPLOYEE
TOWARDS EMPLOYER; RIGHT OF COURT OF INDUSTRIAL RELATIONS TO ORDER
READMISSION OF DERELICT LABORER. — The whole controversy is centered around the right
of the Court of Industrial Relations to order the readmission of a laborer who, it is admitted, had been
found derelict in the performance of his duties towards his employer. We concede that the right of an
employer to freely select or discharge his employees, is subject to regulation by the State basically in
the exercise of its paramount police power. (Commonwealth Acts Nos. 103 and 213.) But much as we
should expand beyond economic orthodoxy, we hold that an employer cannot legally be compelled to
continue with employment of a person who admittedly was guilty of misfeasance or malfeasance
towards his employer, and whose continuance in the service of the latter is patently inimical to his
interests. The law, in protecting the rights of the laborer, authorizes neither oppression nor self-
destruction of the employer. There may, of course, be cases where the suspension or dismissal of an
employee is whimsical or unjustified or otherwise illegal in which case he will be protected. Each case
will be scrutinized carefully and the proper authorities will go to the core of the controversy and not
close their eyes to the real situation. This is not however the case here.
DECISION
LAUREL, J p:
This is a petition for a writ of certiorari to review the decision of the Court of Industrial Relations
promulgated on August 8, 1929, denying the petitioner's motion for reconsideration of its previous
order directing the reinstatement of laborer Filomeno Ramollo.
On July 7, 1938, the Secretary of Labor apprised the Court of Industrial Relations of a labor dispute
existing between the petitioner company and its employees who were members of the Philippine Labor
Union, which was forthwith docketed as case No. 49 and entitled, "Philippine Labor Union v. Manila
Trading and Supply Co." A preliminary hearing was held after which, on August 6, 1938, the
respondent court entered an order requiring the company, inter alia, not to dismiss any of its employees
and laborers except for good cause and with its permission. Subsequently, on June 30, 1939, one of the
gatekeepers of the petitioners, Filomeno Ramollo, was suspended for a breach of duty. The breach
consisted in that as gatekeeper of the petitioner he permitted, contrary to instructions, one of the
customers to pass thru the exit gate without paying for the work done on the car. Before this, it is also
alleged that he refused to work in the setting up department of the company when ordered by his
superior. The Philippine Labor Union submitted a petition in case No. 49 requesting the reinstatement
of the suspended laborer, to which an answer was filed by the company. In its order of July 28, 1939,
the respondent court found that the laborer was guilty of the breach imputed to him, but, deciding that
his suspension from June 30 to July 28, 1939 was a sufficient punishment, ordered his immediate
reinstatement. 'the moved for reconsideration, but the respondent Court of Industrial Relations, sitting
in banc, denied the motion. Hence, this petition for certiorari.
The whole controversy is centered around the right of the Court of Industrial Relations to order the
readmission of a laborer who, it is admitted, had been found derelict in the performance of his duties
towards his employer. We concede that the right of an employer to freely select or discharge his
employees, is subject to regulation by the State basically in the exercise of its paramount police power.
(Commonwealth Acts Nos. 103 and 213.) But much as we should expand beyond economic orthodoxy,
we hold that an employer cannot legally be compelled to continue with the employment of a person
who admittedly was guilty of misfeasance or malfeasance towards his employer, and whose
continuance in the service of the latter is patently inimical to his interests. The law, in protecting the
rights of the laborer, authorizes neither oppression nor self-destruction of the employer. There may, of
course, be cases where the suspension or dismissal of an employee is whimsical or unjustified or
otherwise illegal in which case he will be protected. Each case will be scrutinized carefully and the
proper authorities will go to the core of the controversy and not close their eyes to the real situation.
This is not however the case here.
The writ of certiorari prayed for is hereby granted, and the order of the Court of Industrial Relations
appealed from, reversed, without pronouncement regarding costs. So ordered.
Avanceña, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur.
SECOND DIVISION
[G.R. No. L-45475. June 20, 1977.]
KAPISANAN NG MGA MANGGAGAWA SA LA SUERTE-FOITAF, petitioner, vs. THE
HONORABLE CARMELO C. NORIEL, in his capacity as Director of the Bureau of Labor Relations,
All officers acting in his behalf and FEDERACION OF FREE WORKERS (FFW-LA SUERTE
CHAPTER), respondents.
Jose T. Maghari for petitioner.
Romeo P. Torres for private respondent.
Acting Solicitor General Vicente V. Mendoza for respondent Director, etc.
DECISION
FERNANDO, J p:
It is now settled rule that under the present Labor Code, 1 if lack of power or arbitrary or improvident
exercise of authority be shown, thus giving rise to a jurisdictional question, this Court may, in
appropriate certiorari proceedings, pass upon the validity of the decisions reached by officials or
administrative agencies in labor controversies. So it was assumed in Maglasang v. Ople. 2 It was
explicitly announced in San Miguel Corporation v. Secretary of Labor, 3 the opinion being penned by
Justice Aquino. Accordingly, cases of that character continue to find a place in our docket. 4 The
present suit is of that category. Petitioner labor union would impugn the holding of a certification
election ordered by respondent Director of Bureau of Labor Relations, Carmelo C. Noriel, 5 it being
alleged that there was a failure to comply with the thirty percent requirement in the petition for
certification and that it was filed after the sixty-day period provided for by law. In the comment of
Acting Solicitor General Vicente V. Mendoza, treated as the answer, it was pointed out that the first
objection was factual, the determination by respondent Noriel being entitled to respect and that the
other was not supported by a reasonable interpretation of the sixty-day period being unduly restrictive
and failing to carry out its basic purpose. The weakness of the petition is thus apparent. Certiorari does
not lie. The certification election must be held.
The facts are undisputed. On February 6, 1976, private respondent Federation of Free Workers, La
Suerte Chapter, filed a petition for certification election alleging that out of a bargaining unit of more or
less 3,500, there were 1,068 signatories. The previous certified collective bargaining agreement
between the employer La Suerte Cigar and Cigarette Factory and petitioner labor union terminated on
December 5, 1975. There was, eleven days later, a motion to intervene filed by petitioner followed on
March 1, 1976 by a motion to dismiss on the ground that respondent Union had not complied with the
thirty percent consent requirement and that the petition for certification was filed beyond the sixty-day
period to the expiration of the collective bargaining contract. When a few days later the employer
submitted a list of the rank and file employees numbering 4,055, private respondent countered with an
additional list of signatories, 331 in number, making a total of 1,399 signatories. Private respondent
thereafter opposed the motion to dismiss, stating that there was compliance with the thirty percent
consent requirement and that the filing was within the period allowed by law. On April 6, 1976, Med-
Arbiter Eusebio M. Jimenez issued an order denying the motion to dismiss and granting the petition for
certification election filed by private respondent, the choice being between petitioner and respondent
unions, with employees likewise being given the opportunity to vote for "No Union." An appeal was
taken to respondent Noriel as Director of the Bureau of Labor Relations. Then came on October 23,
1976 an order from him, the dispositive portion of which is to the effect that the appeal was denied. A
motion for reconsideration having proved futile, this petition for certiorari was filed.
As stated at the outset, there is no showing of arbitrary or improvident exercise of authority to justify
granting the writ of certiorari. The petition must be dismissed.
1. The present Labor Code, as the former Industrial Peace Act, rightfully stresses the importance
of a certification election to ascertain which labor union should be the collective bargaining agent and
thus assure the success of the collective bargaining procedure. This excerpt from the recent case of
Philippine Association of Free Labor Unions v. Bureau of Labor Relations 6 finds pertinence:
"Petitioner thus appears to be woefully lacking in awareness of the significance of a certification
election for the collective bargaining process. It is the fairest and most effective way of determining
which labor organization can truly represent the working force. It is a fundamental postulate that the
will of the majority, if given expression in an honest election with freedom on the part of the voters to
make their choice, is controlling. No better device can assure the institution of industrial democracy
with the two parties to a business enterprise, management and labor, establishing a regime of self-rule.
As was pointed out by Chief Justice Castro in Rivera v. San Miguel Brewery Corporation, Inc., 'a
collective bargaining agreement is the law of the plant.' To the same effect is this explicit
pronouncement in Mactan Workers Union v. Aboitiz: 'The terms and conditions of a collective
bargaining contract constitute the law between the parties.' What could be aptly stressed then, as was
done in Compania Maritima v. Compania Maritima Labor Union, is 'the primacy to which the decision
reached by the employees themselves is entitled.' Further, it was therein stated: 'That is in the soundest
tradition of industrial democracy. For collective bargaining implies that instead of a unilateral
imposition by management, the terms and conditions of employment should be the subject of
negotiation between it and labor. Thus the two parties indispensable to the economy are supposed to
take care of their respective interests. Moreover, the very notion of industrial self-rule negates the
assumption that what is good for either party should be left to the will of the other. On the contrary,
there is an awareness that labor can be trusted to promote its welfare through the bargaining process.
To it then must be left the choice of its agent for such purpose.' . . . There is, it would appear, a
decidedly unsympathetic approach by petitioner to the institution of collective bargaining at war with
what has so often and so consistently decided by this Tribunal." 7 The above principle has been
adhered to in subsequent decisions of this Court. 8
2. The objection of petitioner as to the alleged lack of the thirty percent requirement in the number
of signatories according to the present Labor Code is without merit. 9 Private respondent, as noted in
the comment, "filed the petition for certification supported by 1,068 signatories of the employees of the
employer or more than 30% of the 3,500 rank and file employees of the employer. After the petition
was filed, the employer however submitted a list of its regular rank and file employees with a total
number of 4,055. Private respondent, in order to comply with the 30% consent requirement, submitted
an additional list of 331 rank and file employees. Thus, the signatories totalled 1,399 or more than 30%
of the 4,055 employees." 10 Even if, as contended by petitioner, there were among the signatories
submitted 105 falsified or double entries and 7 came from those not qualified to vote or a total of 112,
that would still leave 1,287 signatories or more than thirty percent of the 4,055 employees. 11 The
matter is thus essentially factual in character, the determination by respondent Noriel being entitled to
respect. 12
3. Any rate, as again noted in the comment, petitioner did miss the point that such a requirement of
thirty percent of all the employees in the bargaining unit is relevant only when it becomes mandatory
for respondent Noriel to conduct a certification election. So Article 258 explicitly provides. Petitioner
ignored that respondent Noriel is likewise possessed of discretionary power whether or not a
certification election should be held. In such a case, there is no such thirty percent requirement. So it
was held in the above Philippine Association of Free Labor Unions decision. Thus: "Petitioner would
minimize its failure to abide by what is settled law by invoking this provision in the New Labor Code:
'Any petition for certification election filed by any legitimate labor organization shall be supported by
the written consent of at least 30% of all the employees in the bargaining unit. Upon receipt and
verification of such petition, it shall be mandatory for the Bureau to conduct a certification election for
the purpose of determining the representative of the employees in the appropriate bargaining unit and
certify the winner as the exclusive collective bargaining representative of all the employees in the unit.'
It cannot change the outcome. It does not suffice to impress the petition with merit. . . .. Petitioner's
contention to the effect that the 30% requirement should be satisfied suffers from an even graver flaw.
If fails to distinguish between the right of a labor organization to be able to persuade 30% of the labor
force to petition for a certification election, in which case respondent Bureau is left with no choice but
to order it, and the power of such governmental agency precisely entrusted with implementation of the
collective bargaining process to determine, considering the likelihood that there may be several unions
within a bargaining unit, to order such an election precisely for the purpose of ascertaining which of
them shall be the exclusive collective bargaining representative. The decision of respondent Bureau of
April 14, 1975 was intended for that purpose. *** To reiterate a thought already expressed, what could
be more appropriate than such a procedure if the goal desired is to enable labor to determine which of
the competing organizations should represent it for the purpose of a collective bargaining contract?" 13
4. Nor was there any improvident or arbitrary exercise of authority when respondent Noriel
ordered the certification election after the lapse of the sixty-day period provided for by law. The law
cannot be any clearer. It argues against the pretension of petitioner. According to the Labor Code: "No
certification election issue shall be entertained by the Bureau in any collective bargaining unit if a
collective bargaining agreement exists between the employer and a legitimate labor organization,
except within sixty (60) days prior to the expiration of the life of such certified collective bargaining
agreement." 14 No other meaning can be attached to such provision, as applied to the present situation,
except that the former collective bargaining agreement having expired on December 5, 1975, sixty days
prior to that date, a petition for certification election could have been filed. It does not mean that after
December 5, 1975, no such petition could be entertained by respondent Noriel, provided there was no
certified collective bargaining agreement that had taken its place. It is undisputed that no subsequent
certified collective contract was in existence at the time the petition for holding the certification
election was filed by respondent union on February 6, 1976. There was no legal bar then to such a
move. Moreover, the restrictive interpretation sought to be fastened on such a provision by petitioner
would set at naught the basic objective of the Labor Code to institute a true system of industrial
democracy, through the collective bargaining process with the representative of labor chosen after a
free and honest certification election. This Court then is not prepared to accept the theory of petitioner,
which is not only unsound in theory but pernicious in its consequences.
WHEREFORE, the petition for certiorari is dismissed. Respondent Noriel is directed to set the date for
the holding of the certification election. This decision is immediately executory.
Barredo, Antonio, Aquino and Fernandez, JJ., concur.
Concepcion Jr, J., is on leave.
Footnotes
1. Presidential Decree No. 442, as amended (1974).
2. L-38813, April 29, 1975, 63 SCRA 508.
3. L-39195, May 16, 1975, 64 SCRA 56.
4. Cf. United Employees Union of Gelmart Industries v. Noriel, L-40810, Oct. 3, 1975, 67 SCRA
267; Scott v. Inciong, L-38868, Dec. 29, 1975, 68 SCRA 473; Philippine Association of Free Labor
Unions v. Bureau of Labor Relations, L-42115, Jan. 27, 1976, 69 SCRA 132; Mafinco Trading
Corporation v. Ople, L-37790, March 25, 1976, 70 SCRA 139; Philippine Labor Alliance Council v.
California Employees Labor Union, L-42155, May 31, 1976, 71 SCRA 214; Federacion Obrera v.
Noriel, L-41937, July 6, 1976, 72 SCRA 24; Foamtex Labor Union v. Noriel, L-42359, Aug. 17, 1976,
72 SCRA 371; Philippine Association of Free labor Unions v. Bureau of Labor Relations, L-43760,
Aug. 21, 1976, 72 SCRA 396; Station DYRH v. Noriel, L-43731, Oct 5, 1976, 73 SCRA 330; U.E.
Automotive Employees v. Noriel, L-44350, Nov. 25, 1976; Philippine Labor Alliance v. Bureau of
Labor Relations, L-41288, Jan. 31, 1977; Today's Knitting Free Workers Union v. Noriel, L-45057,
Feb. 28, 1977; Benguet Exploration Miners Union v. Noriel, L-44110, March 29, 1977.
5. The private respondent is Federation of Free Workers (FFW-La Suerte Chapter).
6. L-42115, January 27, 1976, 69 SCRA 132.
7. Ibid, 139-140. Rivera, L-26197, July 20, 1968, is reported in 24 SCRA 86; Mactan Workers
Union, L-30241, June 30, 1972, in 45 SCRA 517; Compania Maritima, L-29504, Feb. 29, 1972, in 43
SCRA 464. Reference was made to fourteen cases starting from PLDT Employees Union v. PLDT Co.,
97 Phil. 424 (1955) to Phil. Communications Workers Federation v. Court of Industrial Relations, L-
34531, March 29, 1974, 56 SCRA 480.
8. Cf. Federacion Obrera v. Noriel, L-41937, July 6, 1976, 72 SCRA 24; U.E. Automotive
Employees and Workers Union-Trade Unions of the Philippines and Allied Services v. Noriel, L-
44350, Nov. 27, 1976; Philippine Labor Alliance Council v. Bureau of Labor Relations, L-41288, Jan.
31, 1977; Today's Knitting Free Workers Union v. Noriel, L-45057, Feb. 28, 1977; Benguet
Exploration Miners' Union v. Noriel, L-44110, March 29, 1977.
9. Article 258 of the Labor Code reads as follows: "Requisites for certification election. — Any
petition for certification election filed by any legitimate labor organization shall be supported by the
written consent of at least thirty percent (30%) of all the employees in the bargaining unit. Upon receipt
and verification of such petition, it shall be mandatory for the Bureau to conduct a certification election
for the purpose of determining the representative of the employees in the appropriate bargaining unit
and certify the winner as the exclusive collective bargaining representative of all the employees in the
unit."
10. Comment of Acting Solicitor General Vicente V. Mendoza, 6-7.
11. Cf. Ibid, 7.
12. Cf. Antipolo Highway Lines v. Inciong, L-38523, June 27, 1975, 64 SCRA 441; Jacqueline
Industries v. National Labor Relations Commission, L-37034, Aug. 29, 1975, 66 SCRA 397;
Federacion Obrera v. Noriel, L-41937, July 1976, 72 SCRA 24.
***.
13. 69 SCRA 132. 140-141.
14. Article 257 of the Labor Code, 2nd par.
SECOND DIVISION
[G.R. Nos. L-47182-83. October 30, 1978.]
FEDERATION OF FREE WORKERS (BISIG NG MANGGAGAWA SA UTEX), petitioner, vs.
CARMELO C. NORIEL as Director of the Bureau of Labor Relations, Department of Labor;
UNIVERSAL TEXTILE MILLS WORKERS UNION-ALU and UNIVERSAL TEXTILE MILLS,
INC., respondents.
Jaime D. Lauron for petitioner.
Venerando B. Briones for respondent Union.
Lutgardo B. Barbo for Universal Textile Mills, Inc.
SYNOPSIS
Petitioner labor union filed a petition for certification election supported by the signatures of more than
30% of the labor force in the collective bargaining unit, even while a supplemental contract which
would extend an existing collective bargaining agreement between management and the prevailing
union was entered into and presumably ratified by more than a majority of the workers in the Universal
Textile Mills, Inc. The Med-Arbiter denied certification but he was reversed by respondent Noriel.
Instead of na election being conducted, respondent Noriel directed the respondent union "to renegotiate
with management the benefits and other conditions of employment for the second and third year of the
contract within three months and to submit the renegotiated benefits to the workers for acceptance
through a secret balloting to be supervised by this Office."
Hence, this petition for certiorari assailing the failure of respondent Noriel to abide by the express
mandate of Article 258 of the Labor Code.
The Supreme Court ruled that if a petition for certification election has the support of a least 30% of the
employees in the bargaining unit, it must be granted and that until the conclusion of a new collective
bargaining contract, the existing collective labor contract should be left undisturbed for the protection
of the labor force.
Writ granted.
SYLLABUS
1. CONSTITUTIONAL LAW; PROTECTION TO LABOR; CERTIFICATION ELECTION;
MANDATORY ONCE THE 30% STATUTORY REQUIREMENT IS MET. — Once it has been
verified that the petition for certification election has the support of at least 30% of the employees in
the bargaining unit, it must be granted. The specific word used can yield no other meaning. It becomes,
under the circumstance, "mandatory" for the Director of the Bureau of Labor Relations to order such
certification election precisely to ascertain which labor organization should be the exclusive bargaining
representative.
2. ID.; ID.; ID.; DUTY OF BUREAU OF LABOR RELATIONS ENDS WITH
CERTIFICATION OF THE WINNERS; ASSAILED ORDER WITHOUT SUPPORT IN LAW;
CASE AT BAR. — An administrative agency entrusted with the enforcement of a regulatory statute is
vested with discretion. Such discretion, however is not unbounded. Where, as in this case, the Labor
Code itself sets limits, they must be observed. That is the only way to manifest fealty to the rule of law.
Once the certification election is conducted, the Bureau of Labor relations must "certify the winner as
the exclusive collective bargaining representative of all the employees in the unit." That is the extent
and scope of the authority entrusted to respondent Noriel as Director of the Bureau of Labor Relations.
He cannot go further than that. Yet, in the assailed order, he would direct respondent Union "to
renegotiate with the management at Universal Textile Mills the benefits and other conditions of
employment for the second and third year of the contract within three (3) months from receipt of this
Resolution and to submit the renegotiated benefits to the workers for acceptance and ratification
through a secret balloting to be supervised by this Office." And this, too, without the benefit of a
certification election mandated by law. The failure to abide by what the Labor Code categorically
requires is thus plain and manifest. What was done by respondent Noriel is bereft of support in law. To
countenance it would be to foil the statutory scheme. There can be no other conclusion except that his
assailed order is tainted with a serious jurisdictional defect.
3. ID.; ID.; SUBSISTING COLLECTIVE BARGAINING CONTRACT TO BE RESPECTED. —
Until the conclusion of a new collective bargaining contract entered into by management and whatever
labor organization may be chosen after the certification election, the existing supplemental collective
labor contract should be left undisturbed. Its terms call for strict compliance.
4. COURTS; FUNCTION; APPLICATION OF THE LAW. — The first and fundamental duty of
courts, is to apply the law. Construction and interpretation come only after it has been demonstrated
that application is impossible or inadequate without them. They are the very last functions which a
court should exercise. The majority of the laws need no interpretation or construction. They require
only application, and were there more application and less construction, there would be more stability
in the law, and more people would know what the law is.
DECISION
FERNANDO, J p:
What immediately calls attention in this certiorari proceeding assailing the decision of respondent
Carmelo C. Noriel, Director of the Bureau of Labor Relations, reversing an order of the Med-Arbiter
calling for a certification election, is the prolixity of counsel for petitioner Federation of Free Workers
(Bisig ng Manggagawa sa Utex) and counsel for respondent union Universal Textile Mill Workers
Union-ALU. 1 The pleadings filed would not have suffered if they were less detailed. 2 For the
decisive issue raised is quite simple and uncomplicated. With the express admission by respondent
Noriel himself that the petition for certification election was supported by the signatures of 1,070
employees, more than 30% of the labor force in the collective bargaining unit, the grave abuse of
discretion alleged is quite apparent. The language of Article 258 of the Labor Code is categorical and
mandatory. 3 It should follow then that once the statutory requisite is satisfied, the certification election
must be held. Our decisions, as will be made apparent, are quite clear on that point. Certiorari lies.
LibLex
As in almost every labor controversy that of late had been elevated to this Tribunal, its origin could be
traced to the fierce struggle for supremacy between a labor union having a collective bargaining
contract with management and another union seeking to replace it and thus desirous of holding a
certification election. So it was in this case, petitioner labor union having, even before the sixty-day
freedom period, filed such a petition as in the meanwhile a supplemental contract which would extend
an existing collective bargaining agreement between management and respondent union was entered
into and presumably ratified by more than a majority of the workers in the Universal Textile Mills, Inc.
The Med-Arbiter ruled in favor of respondent Union denying certification, but he was reversed by
respondent Noriel, the case being remanded to the former precisely for the "reception and evaluation of
the supporting signatures of at least 30% of the employees which petitioner may present and for the
resolution of all (other) pending issues." 4 A motion for reconsideration by respondent Union was
unavailing, respondent Noriel ruling that "the ratification of the collective agreement . . . is being
protested and the same can be threshed out in an appropriate hearing before a Med-Arbiter, and that the
issue on the consent requirement can best be resolved by an appreciation of FFW's evidence." 5 As a
result, an order was issued by the Med-Arbiter on May 3, 1977 calling for a certification election. 6 It
came as a surprise to respondent Union, therefore, that notwithstanding such a finding of the 30%
requisite having been satisfied, the assailed decision of September 29, 1977 recognized "the effectivity
and validity of the May 28, 1976 agreement between [respondent Union] and Universal Textile Mills
for the first year of its duration covering 1977" and at the same time directed respondent Union "to
renegotiate with the management at Universal Textile Mills the benefits and other conditions of
employment for the second and third year of the contract within three (3) months from receipt of this
Resolution and to submit the renegotiated benefits to the workers for acceptance and ratification
through a secret balloting to be supervised by this Office." 7 The refusal to require the certification
election as ordained by the Labor Code and the adoption of a rather unorthodox approach was sought to
be justified on pragmatic considerations.
It was such failure of respondent Noriel to abide by the express mandate of Article 258 of the Labor
Code as well as the rules promulgated for its applicability and the rather ambiguous as well as novel
aspects of the assailed decision that prompted this petition for certiorari. As noted at the outset,
certiorari lies.
1. No administrative agency can ignore the imperative tone of the above article. The language
used is one of command. Once it has been verified that the petition for certification election has the
support of at least 30% of the employees in the bargaining unit, it must be granted. The specific word
used can yield no other meaning. It becomes under the circumstances, "mandatory" for respondent
Noriel as Director of the Bureau of Labor Relations to order such certification election precisely to
ascertain which labor organization should be the exclusive bargaining representative. It becomes
readily understandable then why this Court is firmly committed to such a view. To paraphrase People
v. Mapa, 8 as the law cannot be any clearer, the task of the judiciary is equally clear, its first and
fundamental duty being to yield obedience to what is ordained. So it has been since Philippine
Association of Free Labor Unions v. Bureau of Labor Relations. 9 There are at least seven decisions to
that effect, the latest of which was promulgated early this month. 10 The approach in People v. Mapa
11 of unyielding obedience to the plain and explicit phraseology of the applicable statute has been
followed in subsequent cases. 12 It can trace its origin to the leading case of Lizarraga Hermanos v.
Yap Tico, 13 a 1913 decision. As so emphatically expressed by its ponente, Justice Moreland: "The
first and fundamental duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application is impossible or inadequate
without them. They are the very last functions which a court should exercise. The majority of the laws
need no interpretation or construction. They require only application, and were there more application
and less construction, there would be more stability in the law, and more people would know what the
law is." 14 Such a thought was reiterated by Justice Laurel in Director of Lands v. Abejas. 15 Where
"the law is clear," according to him, this Court "cannot overemphasize the [necessity that there be]
adherence." 16
2. This is not to deny that an administrative agency entrusted with the enforcement of a regulatory
statute is vested with discretion. Such discretion, however, is not unbounded. Where, as in this case, the
Labor Code itself sets limits, they must be observed. That is the only way to manifest fealty to the rule
of law. We turn again to Article 258. Its last sentence specifically defines what must be done by the
Bureau of Labor Relations once the certification election is conducted; it must "certify the winner as
the exclusive collective bargaining representative of all the employees in the unit." That is the extent
and scope of the authority entrusted to respondent Noriel as Director of the Bureau of Labor Relations.
He cannot go further than that. Yet, in the assailed order, he would direct respondent Union "to
renegotiate with the management at Universal Textile Mills the benefits and other conditions of
employment for the second and third year of the contract within three (3) months from receipt of this
Resolution and to submit the renegotiated benefits to the workers for acceptance and ratification
through a secret balloting to be supervised by this Office." 17 And this, too, without the benefit of a
certification election mandated by law. The failure to abide by what the Labor Code categorically
requires is thus plain and manifest. What was done by respondent Noriel is bereft of support in law. To
countenance it would be to foil the statutory scheme. There can be no other conclusion except that his
assailed order is tainted with a serious jurisdictional defect. This is then the proper occasion for the
exercise of the corrective authority of this Tribunal. 18
3. In thus so ruling, we are not unmindful that the supplemental collective bargaining contract
entered into in the meanwhile between management and respondent Union contains provisions
beneficial to labor. So as not to prejudice the workers involved, it must be made clear that until the
conclusion of a new collective bargaining contract entered into by it and whatever labor organization
may be chosen after the certification election, the existing collective labor contract as thus
supplemented should be left undisturbed. Its terms call for strict compliance. This mode of assuring
that the cause of labor suffers no injury from the struggle between contending labor organizations
follows the doctrine announced in the recent case of Vassar Industries Employees Union v. Estrella. 19
To quote from the opinion: "In the meanwhile, if as contended by private respondent labor union the
interim collective bargaining agreement, which it engendered and entered into on September 26, 1977,
has much more favorable terms for the workers of private respondent Vassar Industries, then it should
continue in full force and effect until the appropriate bargaining representative is chosen and
negotiations for a new collective bargaining agreement thereafter concluded." 20
WHEREFORE, the writ of certiorari is granted and the decision of respondent Noriel of September 29,
1977 reversing an order of the Med-Arbiter calling for a certification election is nullified, reversed, and
set aside. A certification election must be conducted forthwith. This decision is immediately executory.
No costs. prcd
Barredo, Antonio, Aquino, Concepcion Jr., and Santos, JJ., concur.
Footnotes
1. Universal Textile Mills, Inc. was likewise included as private respondent.
2. The records of the case contain 1,766 pages. That accounts for the fact that while the petition
was filed on October 25, 1977, it was not until July 17, 1978 that it was submitted for decision.
3. According to Article 258 of the Labor Code: "Requisites for certification election. - Any
petition for certification election filed by any legitimate labor organization shall be supported by the
written consent of at least thirty percent (30%) of all the employees in the bargaining unit. Upon receipt
and verification of such petition, it shall be made mandatory for the Bureau to conduct a certification
election for the purpose of determining the representative of the employees in the appropriate
bargaining unit and certify the winner as the exclusive bargaining representative of all the employees in
the unit."
4. Petition, Decision of respondent Noriel, Annex C, 3.
5. Ibid.
6. Ibid, 4.
7. Ibid, 6.
8. L-22301, August 30, 1967, 20 SCRA 1164.
9. L-42115, January 27, 1976, 69 SCRA 132. This Court went even further by recognizing the
discretionary authority in the Bureau of Labor Relations to order a certification election even when the
30% requirement is not met.
10. Scout Ramon V. Albano v. Noriel, L-48347, October 3, 1978. The other cases follow:
Federacion Obrera v. Noriel, L-41937, July 6, 1976, 72 SCRA 24; Today's Knitting Free Workers
Union v. Noriel, L-45057, Feb. 28, 1977, 75 SCRA 450; Benguet Exploration Miners Union v. Noriel,
L-44110, March 29, 1977, 76 SCRA 107; Kapisanan ng mga Manggagawa v. Noriel, L-45475, June
20, 1977, 77 SCRA 414; Monark International Inc. v. Noriel, L-47570-71, May 11, 1978; National
Mines and Allied Workers Union v. Luna, L-46722, June 15, 1978.
11. 20 SCRA 1164.
12. Cf. Pacific Oxygen & Acetylene Co. v. Central Bank, L-21881, March 1, 1968, 22 SCRA 917;
Dequito v. Lopez, L-27757, March 28, 1968, 22 SCRA 1352; Padilla v. City of Pasay, L-24039, June
29, 1968, 23 SCRA 1349; Garcia v. Vasquez, L-26808, March 28, 1969, 27 SCRA 505; La Perla Cigar
and Cigarette Factory v. Capapas, L-27948 and 28001-11, July 31, 1969, 28 SCRA 1085; Mobil Oil
Phil., Inc. v. Diocares, L-26371, Sept. 30, 1969, 29 SCRA 656; Luzon Surety Co., Inc. v. De Garcia, L-
25659, Oct. 31, 1969, 30 SCRA 111; Vda. de Macabenta v. Davao Stevedore Terminal Co., L-27489,
April 30, 1970, 32 SCRA 553; Republic Flour Mills, Inc. v. Commissioner of Customs, L-28463, May
31, 1971, 39 SCRA 269; Maritime Co. of the Phil. v. Reparations Commission, L-29203, July 26,
1971, 40 SCRA 70; Allied Brokerage Corp. v. Commissioner of Customs, L-27641, Aug. 31, 1971; 40
SCRA 555; Gonzaga v. Court of Appeals, L-27455, June 28, 1973, 51 SCRA 381; Villangca v. Ariola,
L-29226, Sept. 28, 1973, 53 SCRA 139; Jalandoni v. Endaya, L-23894, Jan. 24, 1974, 55 SCRA 261;
Pacis v. Pamaran, L-23996, March 15, 1974; 56 SCRA 16; Cabanas v. Pilapil, L-25843, July 25, 1974,
58 SCRA 94.
13. 24 Phil. 504.
14. Ibid, 513. Outside of People v. Mapa, Lizarraga Hermanos was cited in Lambert v. Fox, 26 Phil.
588 (1914) and Yangco v. Court of First Instance, 79 Phil. 183 (1915).
15. 64 Phil. 428 (1937).
16. Ibid, 429.
17. Decision of respondent Noriel, Petition, Annex C., 6.
18. Cf. San Miguel Corporation v. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56, per
Aquino, J.
19. L-46562, March 31, 1978.
20. Ibid, 8.
EN BANC
[G.R. No. 94374. February 21, 1995.]
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner, vs. NATIONAL
TELECOMMUNICATIONS COMMISSIONS AND EASTERN TELECOMMUNICATIONS
PHILIPPINES, INC., respondents.
Alampay & Manhit Law Offices for petitioner.
Meer, Meer & Meer Law Office for petitioner.
Arthur D. Lim counsel for Eastern, etc.
The Solicitor General for public respondent.
Estelito P. Mendoza for respondent Eastern Telecommunications Phil., Inc.
SYLLABUS
1. COMMERCIAL LAW; PUBLIC SERVICE; TELECOMMUNICATION; INTERNATIONAL
GATE WAY FACILITY; NOT IN ITSELF A TELEPHONE OR TELECOMMUNICATION
SYSTEM; REASON THEREFOR. — What is clear from the technical description by the NTC in its
decision dated November 14, 1989 is that an IGF comprises equipment which makes possible the
interfacing or interconnection between (1) a domestic telecommunication system, like that of PLDT,
and (2) the cables or other equipment for transmitting electronically messages from points within the
Philippines to points outside the Philippines, as well as messages originating from points outside to
points inside the Philippines. The IGF constitutes a telecommunications exchange that in effect
connects PLDT's subscribers or users with the subscribers and users of telecommunications systems
located in different parts of the outside world. The IGF is not in itself a telephone or telecommunication
system but it is not, in any case, necessary to try to determine what constitutes a telephone system. In
the first place, the existing legislative franchise of Eastern authorizes it to land, construct, maintain and
operate "telecommunications systems" for the purpose of effecting "the reception and transmission of
messages between any point in the Philippines to points exterior [to the Philippines]."
"Telecommunication" is, in itself, a comprehensive term. Etymologically (tele [from the Greek] +
communication), it means simply communication over distance, making no limiting reference to the
means or mode of such communication. In the second place, the legislative franchise of Eastern itself
expressly elaborates that the "telecommunication systems" which Eastern may install, maintain and
operate may be "by cable or any other means now known to science or which in the future may be
developed." It is very difficult to craft language more comprehensive in scope than the foregoing
phrase. Clearly, the species of method or the particular modality of reception and transmission of
messages across the territorial boundaries of the Philippines, was of secondary importance to the
legislative authority which granted the franchise. In the third place, there is no basis at all in Eastern's
legislative franchise for a supposed distinction (which PLDT tries very hard to suggest) between voice
and non-voice transmissions or messages and for a supposed limitation upon Eastern to transmit and
receive only non-voice messages. The statute simply does not distinguish between voice or oral and
data or non-voice messages or transmissions: the statutory text speaks simply of "messages." There is a
basic and well-known scientific reason why the statute makes no such distinction. Voice messages do
not travel via wires (cables whether submarine or underground or aerial) or any other media qua voice
(i.e., as sound waves); voice transmissions, exactly like data (or non-voice) messages, travel in the form
of electronic impulses through cables (or any other media) and are simply converted at the point of
reception or destination into other forms visually or audibly perceptible by human beings. Fourthly,
PLDT's own legislative franchise provides no support for the selective reading that PLDT would have
the Court place upon the word "telephone system." The portion of PLDT's legislative franchise
defining the scope of PLDT's franchise authority does not even use the word "telephone" (except in
referring to PLDT by name) nor the phrase "telephone system"; instead the oft-repeated and operative
term is "telecommunications." It is not by accident that PLDT advertises itself in the broadcast media
as a telecommunications company rather than as a telephone company. Even the original 1928
legislative franchise of PLDT did not limit a "telephone company" to the transmission and reception of
voice or oral messages. Fifthly, and perhaps most importantly, Eastern in its application was not asking
for authority to install and operate a domestic telephone or other telecommunications system,
understood as a system for carrying messages from one point in the Philippines to another point also in
the Philippines. Eastern was merely asking for authority to install and operate an international gateway
facility, which would mediate between the domestic telephone system of PLDT and the transmitting
and carrying facilities of Eastern. The gateway facility will permit messages originating from a person
using PLDT's domestic telephone system to enter the transmitting and carrying facilities of Eastern,
and as well allow messages incoming from abroad through Eastern's carrying facilities to enter PLDT's
domestic system. We believe and so hold that there is ample legal authority on the part of Eastern to
install, maintain and operate the IGF that it seeks.
2. ID.; ID.; ID.; ID.; NOT LIMITED TO TWO (2) DISCRETE TELEPHONE SYSTEMS. — We
turn to the issue of interconnection between PLDT's domestic telephone system or network and
Eastern's IGF. PLDT strenuously contends that interconnection is proper only between two (2) discrete
telephone systems; this argument now makes clear why PLDT contended so arduously that Eastern was
not a telephone system and therefore not entitled to apply for interconnection with PLDT's system and
that NTC was not authorized to require such interconnection between PLDT and Eastern. PLDT went
on to contend that interconnection with Eastern "was not directed to meet or satisfy a public need for it
but rather, and exclusively, to allow [Eastern] to exploit PLDT's present telephone subscribers."
Eastern is, as we have already concluded, a "duly authorized telecommunications operator,"
considering the comprehensive scope of the authority granted to it by its legislative franchise. In the
second place, there is no physical or technical or economic basis for restricting the notion of
interconnection to the linking up of two (2) separate telephone systems. Section 13 of PLDT's own
franchise makes clear that interconnection may, and in fact does, relate to connecting or linking up a
telephone or other telecommunications system and a telecommunications facility for transmitting
messages from the Philippines to points outside the Philippines and vice versa. The NTC found as a
fact that interconnection can be physically and technically effected between a gateway facility operated
by an international carrier and a telephone or other telecommunications system operated by another,
local, carrier. Eastern pointed out that its IGF can be and is in fact required to be interconnected not
only with the PLDT domestic telephone system but also with other domestic telecommunications
systems. In the third place, PLDT, exhibiting extraordinary proprietary feelings in respect of people
using its telephone system, managed to ignore that international calls from the outside world will be
transmitted into the Philippines through Eastern's cable system and IGF and fed into PLDT's and other
national domestic telephone systems. The number or frequency of calls originating from outside the
Philippines as compared with the frequency of calls originating within the Philippines, does not appear
in the record. Considering, however, among other things, the number of Filipinos living or working
overseas in different continents, and the growing business and financial relations between Philippine
enterprises and international companies, international calls from the outside world may well be at least
as heavy in volume as, and might in fact be or become heavier than, those originating from the
Philippines. In other words, there may be expected reciprocal flows in a higher aggregate volume of
international traffic and more efficient service, at more moderate cost, should come about with the
interconnection required by the NTC.
3. ID.; ID.; ID.; REGULATION THEREOF, AN EXERCISE OF POLICE POWER OF THE
STATE. — In Philippine Long Distance Telephone Company v. National Telecommunications
Company, et al., PLDT made comparable argument in resisting an NTC interconnection order. In
overruling these objections, the majority of the Court, speaking through Melencio-Herrera, J., said: ". . .
Such regulation of the use and ownership of telecommunications systems is in the exercise of the
plenary police power of the State for the promotion of the general welfare. The 1987 Constitution
recognizes the existence of that power when it provides: 'Sec. 6. The use of property bears a social
function, and all economic agents shall contribute to the common good. Individuals and private groups,
including corporations. cooperatives, and similar collective organizations, shall have the right to own,
establish, and operate economic enterprises, subject to the duty of the State to promote distributive
justice and to intervene when the common good so demands (Article XII).' The interconnection which
has been required of PLDT is a form of "intervention" with property rights dictated by "the objective of
government to promote the rapid expansion of telecommunications services in all areas of the
Philippines, . . .to maximize the use of telecommunications facilities available, . . .in recognition of the
vital role of communications in nation building . . . and to ensure that all users of the public
telecommunications service have access to all other users of the service wherever they may be within
the Philippines at an acceptable standard of service and at reasonable cost" (DOTC Circular No. 90-
248). Undoubtedly, the encompassing objective is the common good. The NTC, as the regulatory
agency of the State, merely exercised its delegated authority to regulate the use of telecommunications
networks when it decreed interconnection. . . . Department of Transportation and Communication
(DOTC) Circular No. 87-188, issued in 1987, also decrees: '12. All public communications carriers
shall interconnect their facilities pursuant to comparatively efficient interconnection (CEI) as defined
by the NTC in the interest of economic efficiency."' We here reaffirm and underscore the continuing
validity and vitality of the doctrine above set out: the requirement of interconnection between
telecommunications carriers found in both legislation and administrative regulations constitutes a
legitimate exercise of the plenary police power of the State for the securing of the general welfare.
4. ID.; ID.; NATIONAL TELECOMMUNICATION COMMISSION; AUTHORITY TO
DETERMINE SPECIFIC OPERATING AND TECHNICAL REQUIREMENTS OF PUBLIC
CONVENIENCE AND NECESSITY IN THE FIELD OF TELECOMMUNICATIONS. — It is
important to recall that NTC, as the governmental agency charged with passing upon applications for
Certificates of Public Convenience and Necessity (CPCNs) in the field of telecommunications, is
authorized to determine what the specific operating and technical requirements of "public convenience
and necessity" are in the field of telecommunications, subject of course to relevant limitations
established by legislative enactments, if any. The NTC is also authorized to examine and assess the
legal, technical and financial qualifications of an applicant for a CPCN and in doing so exercises the
special capabilities and skills and institutional experience it has accumulated. Courts should not
intervene in that administrative process, save upon a very clear showing of serious violation of law or
of fraud, personal malice or wanton oppression. Courts have none of the technical and economic or
financial competence which specialized administrative agencies have at their disposal, and in particular
must be wary of intervening in matters which are at their core technical and economic in nature but
disguised, more or less artfully, in the habiliments of a "question of legal interpretation."
RESOLUTION
FELICIANO, J p:
On 27 August 1992, the Court, speaking through Gutierrez, Jr., J., by a split vote, 1 rendered a
Decision granting the Petition for Certiorari filed by Philippine Long Distance Telephone Company
("PLDT") and set aside the Decision and Order dated, respectively, 14 November 1989 and 16 July
1990, of the National Telecommunications Commission ("NTC"). That Decision of the NTC had
granted the application of private respondent Eastern Telecommunications Philippines, Inc. ("Eastern")
for a Certificate of Public Convenience and Necessity ("CPCN") and to construct, maintain and operate
an International Gateway Facility ("IGF").cdasia
On 16 September 1992, Eastern filed its Motion for Reconsideration. The Solicitor-General too filed on
19 September 1992 a Motion for Reconsideration on behalf of public respondent NTC. A Consolidated
Opposition to these Motions was submitted by PLDT on 14 December 1992. Both Eastern and the
Solicitor-General filed Replies on 22 January 1993 and 19 February 1993, respectively. Finally, a
Consolidated Rejoinder was sent in by PLDT on 26 May 1993.
The parties were heard on oral argument on the Motions for Reconsideration and related pleadings in
Baguio City on 26 April 1994. Thereupon, the Motions were submitted for resolution.
To make crystal clear what the Court is now holding in granting the Motions for Reconsideration, for
the guidance of our courts, administrative agencies and the general public, and in the hope that the
basic issues with which the Court has grappled in the present case may finally be laid at rest, those
issues are canvassed once again below. cdrep
Private respondent Eastern filed, on 16 July 1987, with the NTC an application for a CPCN, to
construct, maintain and operate an IGF, which is estimated to cost US$5 Million. Eastern is a 60%
Filipino owned corporation 2 organized under Philippine law and holder of a legislative franchise
under R.A. No. 808, as amended by R.A. No. 5002, in relation to P.D. No. 489 granting it the right and
privilege to:
". . . land, construct, maintain and operate telecommunication systems by cable, or any other means
now known to science or which in the future may be developed for the reception and transmission of
messages between any point in the Philippines to points exterior thereto, including airplanes, airships or
vessels even though such airplanes, airships or vessels may be located within territorial limits of the
Philippines." (Emphasis supplied)
Eastern is successor to Eastern Extension Australasia and China Telegraph Company, a British
company which had been in the Philippines since the Spanish colonial period. Together with other
companies, Eastern invested in the Philippines US$25 Million in submarine cable and related facilities,
and installed, owns, maintains and operates submarine cables between the Philippines and Hongkong-
Japan, the Philippines and Taiwan, and the Philippines and Singapore.
We turn first to the scope of the franchise authority of Eastern. The contention of PLDT is that an IGF
is inherently part of "a telephone system" since it is "useful only for a telephone system." Thus, PLDT
contends that in effect Eastern is asking for a CPCN to establish a telephone system. But Eastern has no
franchise to establish a telephone system. Hence, PLDT continues, Eastern cannot be granted the
CPCN it seeks. cdasia
The IGF facility which NTC authorized Eastern to install and operate, is described in the following
technical terms, in the NTC decision of 14 November 1989:
"A. System Components
The international gateway shall consist of the international switching maintenance center (ISMC),
international transmission center (ITMC), international network maintenance management center
(INMC), and traffic operations center (TOC). The ISMC shall provide the switching operations
including the maintenance thereof. The ITMC shall provide for the international links and the
maintenance of the international circuits. The INMC shall see to it that traffic [is] routed via the best
route possible. The management of the entire network is undertaken by the INMC. The traffic
operations center shall be where the positions are situated. The TOC shall among others provide for
operator-assisted international calls. LLpr
B. System Capability
1. The proposed ITMC shall be equipped to accommodate terminating circuits as well as transit
facilities. It shall have the capability to interface with domestic broadband transmission and switching
networks operated by other carriers either the analog or digital levels. It will also provide cost effective
manner of terminating/processing and cross connecting digital capacities. It is designed to support
transmission standards for ISDN channels.
2. The proposed ISMC shall be fully ISDN compatible switching system that will carry both
broadband and voice band message, data and information switching. It will support various
international telephone signalling equipments, i.e., C5, C6, C7 as well as transparent circuit switching
and data/records signalling protocols. It can also provide manual switching capability both for voice
and non-voice services. It will also be equipped to act as tandem switch providing the international
switching interface to domestic service carriers.
3. The INMC shall be equipped with the latest in network management technology that can
perform automatic rerouting of circuits and quick mapping of capacities while ensuring a minimum
degree of interruption.
4. The proposed gateway shall initially be capable of switching international telephone traffic to
countries where applicant has international correspondents." 3
In its original decision, the court, adopting PLDT's theory, said that "the gateway facility is part of a
telephone system and that Eastern wants to engage in combined international and substantially
extensive domestic telephone system without any legislative authority." 4 We reject PLDT's theory
and now reconsider the Court's original holding upon the grounds set out below.
What is clear from the foregoing technical description by the NTC is that an IGF comprises equipment
which makes possible the interfacing or interconnection between (1) a domestic telecommunication
system, like that of PLDT, and (2) the cables or other equipment for transmitting electronically
messages from points within the Philippines to points outside the Philippines, as well as messages
originating from points outside to points inside the Philippines. The IGF constitutes a
telecommunications exchange that in effect connects PLDT's subscribers or users with the subscribers
and users with the subscribers and users of telecommunications systems located in different parts of the
outside world. The IGF is not in itself a telephone or telecommunication system but it is not, in any
case, necessary to try to determine what constitutes a telephone system.
In the first place, the existing legislative franchise of Eastern authorizes it to land, construct, maintain
and operate "telecommunications systems" for the purpose of affecting "the reception and transmission
of message between any point in the Philippines to points exterior [to the Philippines]."
"Telecommunication" is, in itself, a comprehensive term. Etymologically (tele [from the Greek] +
communication), 5 it means simply communication over distance, making no limiting reference to the
means or mode of such communication. In the second place, the legislative franchise of Eastern itself
expressly elaborates that the "telecommunication systems" which Eastern may install, maintain and
operate may be "by cable or any other means now known to science or which in the future may be
developed." It is very difficult to craft language more comprehensive in scope than the foregoing
phrase. Clearly, the species of method or the particular modality of reception and transmission of
messages across the territorial boundaries of the Philippines, was of secondary importance to the
legislative authority which granted the franchise. In the third place, there is no basis at all in Eastern's
legislative franchise for a supposed distinction (which PLDT tries very hard to suggest) between voice
and non-voice transmissions or messages and for a supposed limitation upon Eastern to transmit and
receive only non-voice messages. The statute simply does not distinguish between voice or oral and
data or non-voice messages or transmissions: the statutory text speaks simply of "messages." There is a
basic and well-known scientific reason why the statute makes no such distinction. Voice messages do
not travel via wires (cables whether submarine or underground or aerial) or any other media qua voice
(i.e., as sound waves); voice transmissions, exactly like data (or non-voice) messages, travel in the form
of electronic impulses through cables (or any other media) and are simply converted at the point of
reception or destination into other forms visually or audibly perceptible by human beings. 6
Fourthly, PLDT's own legislative franchise provides no support for the selective reading that PLDT
would have the Court place upon the word "telephone system." 7 The portion of PLDT's legislative
franchise defining the scope of PLDT's franchise authority does not even use the word "telephone"
(except in referring to PLDT by name) nor the phrase "telephone system;" instead the oft-repeated and
operative term is "telecommunications." It is not by accident that PLDT advertises itself in the
broadcast media as a telecommunications company rather than as a telephone company. 8 Even the
original 1928 legislative franchise of PLDT did not limit a "telephone company" to the transmission
and reception of voice or oral messages. 9
Fifthly, and perhaps most importantly, Eastern in its application was not asking for authority to install
and operate a domestic telephone or other telecommunications system, understood as a system for
carrying messages from one point in the Philippines to another point also in the Philippines. Eastern
was merely asking for authority to install and operate an international gateway facility, which would
mediate between the domestic telephone system of PLDT and the transmitting and carrying facilities of
Eastern. The gateway facility will permit messages originating from a person using PLDT's domestic
telephone system to enter the transmitting and carrying facilities of Eastern, and as well allow messages
incoming from abroad through Eastern's carrying facilities to enter PLDT's domestic system.
We believe and so hold that there is ample legal authority on the part of Eastern to install, maintain and
operate the IGF that it seeks.
From another point of view, it is important to note the conclusion reached in the 15-page decision of
the NTC:
"After careful consideration of all the evidence submitted in this case, pro and con, the Commission is
convinced that applicant is legally, technically and financially capable to install, operate and maintain
an international digital gateway facilities incorporating transmission, switching and traffic operations
facilities. The Commission is also convinced that while there may be complexities involved in
interconnection and in having three (3) operators of an international digital gateway, it finds out that
another system is technically and economically feasible. The Commission is fully convinced that the
advantages of installing, operating and maintaining another gateway by another carrier outweighs the
disadvantages and that ultimately, public interest will be served and the growth, development and
expansion of telecommunications services in the country will be accelerated. For lack of merit, the
opposition of PLDT is hereby OVERRULED." 10 (Emphasis supplied)
Thus, the NTC did not only address the legal capability of, or franchise authority vested in Eastern; 11
it also explicitly considered the technical requirements of the IGF and acknowledged the technical and
financial ability of Eastern to install, maintain and operate the facility. 12
In attacking the NTC decision, what PLDT was apparently really trying to say was that the NTC had
failed to indicate the necessity or desirability of another international digital gateway facility,
considering that PLDT itself already owns and operates three (3) IGFs. Implicity, PLDT's contention
appears to be that to grant Eastern's application for another facility would be to approve an unnecessary
duplication of facilities. The NTC addressed this broad contention in the following manner:
"As testified to by the applicant, the establishment by it of a new international digital gateway will
complement existing as well as planned switching and transmission to provide continuity and security
of international service in the event of major facility failure. It will use the latest digital technology and
incorporate the most modern very large scale integrated (VLSI) circuit technology which will result in
a significant reduction in per termination installed capital costs. This will result in more efficient and
less expensive switching, operational and maintenance costs thru benefiting both national carriers and
telephone subscribers in the Philippines.
xxx xxx xxx
Applicant strongly advances that the Philippines will be the direct and principal beneficiary of
[Eastern's] proposed gateway since the existing facilities will be enhanced and the role of the
Philippines as a major telecommunications center for international traffic will be maintained. Since
applicant is technically and financially capable of constructing, maintaining and operating international
gateway; that its proposed gateway facility is technically and operationally feasible, and that PLDT by
its acts and conduct appears to have [the] intention to take over the business of [Eastern], it is
imperative to the stability and survival of [Eastern] as an international telecommunications carrier; that
it be able to establish and operate its own international gateway." 13 (Emphasis supplied)
Moreover, in its 16 July 1990 Order, the NTC said:
"As to the allegation that the decision did not consider PLDT's evidence, the same is inaccurate. The
brief prepared by the Technical and Financial Staff of this Commission and the discussions held by the
staff with the then Commissioner which were the basis of the conclusion/decision took into
consideration the volumes of evidence presented by all parties. It also took into consideration the fact
that with PLDT's cut-over of its Makati gateway facility it will have a total of 4575 international switch
termination. The combined capacity of the new international gateway operators, namely Philcom and
ETPI will only amount to 33% of PLDT's capacity. It is the Commission's position that in the event,
therefore, that any of PLDT's gateway facilities become inoperative, relief can be provided by the
gateway facilities of Philcom and the applicant. The possibility that any two of the gateway operator's
facilities would fail at the same time is very remote." 14 (Emphasis supplied)
The above quoted NTC order makes clear that, while PLDT complains strenuously about having to
compete with Eastern and Philippine Global Communications (the other two international gateway
operators granted authority by the NTC at the time this case began), in fact NTC is very protective of
PLDT. For the approved combined capacity of the gateway facilities of Philcom and Eastern will
amount to only one-third (1/3) of PLDT's existing gateway capacity. PLDT was obviously not satisfied
with two-thirds (2/3) of the international end of telecommunications business.
The record shows that additional compelling considerations support the Decision and Order of the NTC
which would make possible the establishment of alternative international gateway facilities — that is,
non-PLDT-owned facilities. During the hearings before the NTC, it was brought out that PLDT had in
the past suffered a major facility breakdown, resulting in the disruption of long distance telephone
service between the Philippines and the outside world. On 9 November 1987, for instance, such a
breakdown occurred with the result that 85% of the country's telecommunications to and from the
outside world were out of commission for about 17 to 18 hours. Again, on 21 December 1987, a
nationwide strike paralyzed PLDT operations, threatening the security and reliability of international
communications between the Philippines and the rest of the world. 15 Undeniably, the availability of
alternative gateway facilities when interconnected with existing local telephone networks (including
but not limited to PLDT's own network and gateway), will substantially increase the reliability and
continuity of international telecommunications service in the Philippines. cdasia
Still another consideration, fully reflected in the record of this case, supports the decision reached by
the NTC. PLDT, in the words of the Solicitor General, "appear[ed] to have abused its monopoly over
the country's only gateway facility to the detriment of public service." 16 In 1988, PLDT unilaterally
stopped collect-call service from the Philippines to Hongkong in an attempt to pressure Cable Wireless
Hongkong (the telephone administration in Hongkong) to appoint PLDT as its Philippine
correspondent, to the prejudice, in particular, of families and friends of Philippine overseas workers in
Hongkong who rely substantially on such service. The NTC had to order PLDT to restore the collect-
call service through a Memorandum dated 13 April 1988. 17 This utilization of its monopoly position
was delicately described as "business leverage" by PLDT First Vice President Ramon Santiago in his
testimony during the hearings. 18
The record also shows that PLDT exercised its power or "leverage" based on its gateway monopoly
position to compel Eastern's telephone correspondents in Singapore and Taiwan to accede to dual
correspondentships. 19
It is important to recall that NTC, as the governmental agency charged with passing upon applications
for Certificates of Public Convenience and Necessity (CPCNs) in the field of telecommunications, is
authorized to determine what the specific operating and technical requirements of "public convenience
and necessity" are in the field of telecommunications, subject of course to relevant limitations
established by legislative enactments, if any. The NTC is also authorized to examine and assess the
legal, technical and financial qualifications of an applicant for a CPCN and in doing so exercises the
special capabilities and skills and institutional experience it has accumulated. Courts should not
intervene in that administrative process, save upon a very clear showing of serious violation of law or
of fraud, personal malice or wanton oppression. Courts have none of the technical and economic or
financial competence which specialized administrative agencies have at their disposal, and in particular
must be wary of intervening in matters which are at their core technical and economic in nature but
disguised, more or less artfully, in the habiliments of a "question of legal interpretation."
We turn to the issue of interconnection between PLDT's domestic telephone system or network and
Eastern's IGF. PLDT strenuously contends that interconnection is proper only between two (2) discrete
telephone systems; this argument now makes clear why PLDT contended so arduously that Eastern was
not a telephone system and therefore not entitled to apply for interconnection with PLDT's system and
that NTC was not authorized to require such interconnection between PLDT and Eastern. PLDT went
on to contend that interconnection with Eastern "was not directed to meet or satisfy a public need for it
but rather, and exclusively, to allow [Eastern] to exploit PLDT's present telephone subscribers." 20
In the first place, PLDT's contention collides frontally with Section 13 of PLDT's own legislative
franchise. Section 13 of R.A. No. 7082 reads:
"SEC. 13. The National Telecommunications Commission is hereby authorized, after due notice
and hearing, to order the grantee [PLDT] to allow interconnection of its facilities, for both local and
international, with other duly authorized telecommunications operators and conversely of the former
with the latter under such terms and conditions as the Commission may deem proper and reasonable in
the interest of public good." (Emphasis supplied)
Eastern is, as we have already concluded, a "duly authorized telecommunications operator,"
considering the comprehensive scope of the authority granted to it by its legislative franchise.
In the second place, there is no physical or technical or economic basis for restricting the notion of
interconnection to the linking up of two (2) separate telephone systems. Section 13 of PLDT's own
franchise makes clear that interconnection may, and in fact does, relate to connecting or linking up a
telephone or other telecommunications system and a telecommunications facility for transmitting
messages from the Philippines to points outside the Philippines and vice versa. The NTC found as a
fact that interconnection can be physically and technically effected between a gateway facility operated
by an international carrier and a telephone or other telecommunications system operated by another,
local, carrier. 21 Eastern pointed out that its IGF can be and is in fact required to be interconnected not
only with the PLDT domestic telephone system but also with other domestic telecommunications
systems.
In the third place, PLDT, exhibiting extraordinary proprietary feelings in respect of people using its
telephone system, managed to ignore that international calls from the outside world will be transmitted
into the Philippines through Eastern's cable system and IGF and fed into PLDT's and other national
domestic telephone systems. The number or frequency of calls originating from outside the Philippines
as compared with the frequency of calls originating within the Philippines, does not appear in the
record. Considering, however, among other things, the number of Filipinos living or working overseas
in different continents, and the growing business and financial relations between Philippine enterprises
and international companies, international calls from the outside world may well be at least as heavy in
volume as, and might in fact be or become heavier than, those originating from the Philippines. In other
words, there may be expected reciprocal flows in a higher aggregate volume of international traffic and
more efficient service, at more moderate cost, should come about with the interconnection required by
the NTC.
In Philippine Long Distance Telephone Company v. National Telecommunications Company, et al.,
22 PLDT made comparable argument in resisting an NTC interconnection order. In overruling these
objections, the majority of the Court, speaking through Melencio-Herrera, J., said:
". . . Such regulation of the use and ownership of telecommunications systems is in the exercise of the
plenary police power of the State for the promotion of the general welfare. The 1987 Constitution
recognizes the existence of that power when it provides:
'Sec. 6. The use of property bears a social function, and all economic agents shall contribute to
the common good. Individuals and private groups, including corporations, cooperatives, and similar
collective organizations, shall have the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice and to intervene when the common good
so demands (Article XII).'
The interconnection which has been required of PLDT is a form of "intervention" with property rights
dictated by "the objective of government to promote the rapid expansion of telecommunications
services in all areas of the Philippines, . . . to maximize the use of telecommunications facilities
available, . . . in recognition of the vital role of communications in nation building . . . and to ensure
that all users of the public telecommunications service have access to all other users of the service
wherever they may be within the Philippines at an acceptable standard of service and at reasonable
cost" (DOTC Circular No. 90-248). Undoubtedly, the encompassing objective is the common good.
The NTC, as the regulatory agency of the State, merely exercised its delegated authority to regulate the
use of telecommunications networks when it decreed interconnection. prcd
xxx xxx xxx
Department of Transportation and Communication (DOTC) Circular No. 87-188, issued in 1987, also
decrees:
'12. All public communications carriers shall interconnect their facilities pursuant to comparatively
efficient interconnection (CEI) as defined by the NTC in the interest of economic efficiency.'" 23
(Emphasis supplied)
We here reaffirm and underscore the continuing validity and vitality of the doctrine above set out: the
requirement of interconnection between telecommunications carriers found in both legislation and
administrative regulations constitutes a legitimate exercise of the plenary police power of the State for
the securing of the general welfare.
It is important to note that Eastern, contrary to PLDT's egregious pleading, does not seek, nor has it
been allowed by NTC, a "free ride" on PLDT's (domestic) telephone network. The IGF will be paid for
by Eastern itself. Revenues derived from international calls originating from, or destined to, a
subscriber in PLDT's telephone network are required to be shared by Eastern with PLDT in proportions
to be negotiated and agreed upon between PLDT and Eastern with the approval of NTC. There is, in
particular, no "appropriation" of property of the PLDT without payment of just reasonable
compensation.
It is also appropriate to note that at least one other non-PLDT IGF which has been approved by the
NTC, the Philippine Global Communications Company, Inc. ("Philglobcom") gateway facility, has in
fact been installed, interconnected with PLDT's domestic telephone network and is presently in
operation. We must assume, therefore, that only was interconnection found physically and technically
feasible, but also that an economically acceptable sharing of revenues between PLDT on one hand and
Philglobcom on the other, was in fact reached and is being implemented. There is no relevant
distinction between the Philglobcom franchise authority and that of Eastern. 24
Through the interpretation it urges, PLDT in effect seeks to monopolize the external transmission and
reception of telecommunications messages, i.e., the sending and receiving of such messages across the
boundaries of the Philippines. The argument made by PLDT will result in local users of PLDT
telephones having no choice but to go to PLDT even for the external portion of international
telecommunications. Presumably, PLDT cannot object if its subscribers were to walk to offices or
branches of Eastern and there make direct telephone calls to countries outside the Philippines. Yet,
PLDT, would prevent its own subscribers from using any IGF and facilities for transmission and
reception of international messages, except those owned by PLDT . PLDT's view, in refusing
interconnection, would logically compel a telecommunication company, wishing to install an
international gateway facility (IGF) to duplicate (however wastefully) the already existing domestic
telecommunications lines of PLDT, and to restrict an IGF operator to transmitting messages originating
in land or domestic lines established by that operator itself. While protective of the monopolistic
position and profitability of PLDT, such a narrow and restrictive view completely disregards the
broader interests of the general public consisting of the users of telecommunications services. Such
view must accordingly, and once again, be rejected and the inherent authority of the State to secure the
interests of the general public in the conserving and efficient utilization of finite or scarce resources,
sustained. LLjur
PLDT has no right to treat its subscribers as its proprietary assets to be "exploited" 25 by PLDT alone,
rather than as customers to be served in the manner that a public utility is supposed to serve the public.
Both local subscribers of PLDT or any other domestic telephone system, as well as callers from across
the oceans, should be accorded a choice. The fundamental point is that customers' choice and free
competition among carriers are essential if reasonable prices and efficient and satisfactory service are
to be achieved and maintained and the public's rapidly growing needs adequately served, in the area of
telecommunications, an area so vital to national, social and economic development.
WHEREFORE, for all the foregoing, the Motions for Reconsideration of public and private
respondents are hereby GRANTED and the Petition for Certiorari DISMISSED for failure to show any
grave abuse of discretion or any act without or in excess of jurisdiction on the part of public respondent
NTC. The decision of the NTC dated 14 November 1989 and its order dated 16 July 1990 are hereby
declared VALID and EFFECTIVE. No pronouncement as to costs. cdasia
Padilla, Romero, Bellosillo, Quiason, Puno, Vitug, Kapunan and Mendoza, JJ., concur.
Narvasa, C.J., I dissent and maintain my vote in the original decision.
Bidin, J., I dissent and vote to deny the motion for reconsideration.
Regalado, J., I dissent and maintain my vote in the original decision.
Davide, Jr., J., I vote to deny in G.R. to maintain the challenge decision to which I expressed my
concurrence.
Melo, J., I vote to deny the motion for the same reasons stated in the then majority opinion of Justice
Gutierrez.
Francisco, J ., took no part.
Footnotes
1. The vote was ten (10) to four (4), with one (1) vacancy in the Court.
2. The shares registered in the name of Philippine citizens have been under sequestration by the
Government since 1986. It is immaterial for present purposes whether the registered owners or the
Philippine Government are finally held to be entitled to such shares of Eastern stock.
3. Rollo, pp. 40-42.
4. 213 SCRA at 31.
5. Please see Webster's Third New International Dictionary of the English Language (Merriam-
Webster; 1986), p. 2349.
6. See "telephone," 21 Encyclopedia Britanica, pp. 774, 778 and 780 [1969 ed.]; 26 Encyclopedia
Americana, pp. 374-375 [1954 ed.].
7. Section 1 of PLDT's legislative franchise, Act No. 3436, as consolidated and last amended by
R.A. No. 7082 [which lapsed into law without the President's signature on 3 August 1991], reads as
follows:
"Section 1. Subject to the provisions of the Constitution, the Philippine Long
Distance Telephone Company (PLDT), its successors or assigns, and hereunder referred to as the
grantee, is hereby granted the right, privilege, and authority to carry on the business of providing basic
and enhanced telecommunications services in and between provinces, cities and municipalities in the
Philippines and between the Philippines and other countries and territories and, for this purpose, to
establish, operate, manage, lease, maintain and purchase telecommunications systems, including
mobile, cellular and wired or wireless telecommunications systems, fiber optics, multichannel
transmission distribution systems, satellite transmit and receive systems, and other telecommunications
systems and their value-added services such as but not limited to transmission of voice, data, facsimile,
control signals, audio and video, information service bureau and all other telecommunications systems
technologies as are at present available or be made available through technical advances or innovations
in the future, or construct, acquire, lease and operate or manage transmitting and receiving stations and
switching stations, both for local and international services, lines, cables or systems, as is or are,
convenient or essential to efficiently carry out the purposes of this franchise: Provided, however, That
the grantee, its successors or assigns shall not, without the permission of the National
Telecommunications Commission or its legal successor first had, install, maintain, operate, purchase or
lease such stations, lines, cables or systems." (Emphasis supplied)
8. Note also the following Sections of PLDT's present franchise:
"Sec. 3. The rates for the telecommunications services which are regulated under
the law that the grantee shall offer to the public shall be subject to the approval of the National
Telecommunications Commission or its legal successor. (Emphasis supplied)
xxx xxx xxx
Sec. 7. All telecommunications lines and systems for telecommunications services
owned, maintained, operated or managed by the grantee, its successors or assigns shall be operated and
maintained at all times in a satisfactory manner, and it shall be the further duty of said grantee, its
successors or assigns, whenever required to do so by the National Telecommunications Commission or
its legal successor, to modify, improve and change such telecommunications systems in such manner
and to such extent as the progress in science and improvements in the telecommunications services
may make reasonable and proper. (Emphasis supplied)
xxx xxx xxx
Sec. 12. The grantee, its successors or assigns shall be liable to pay the same taxes
on their real estate, buildings, and personal property, exclusive on this franchise, as other persons or
corporations are now or hereafter may be required by law to pay. In addition thereof, the grantee, its
successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of
the telephone or other telecommunications businesses transacted under this franchise by the grantee, its
successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof: Provided, . . . ." (Emphasis supplied) (Section 12 thus makes clear that the "telephone
business" is merely one form of "Telecommunications business.")
9. Section 1 of Act No. 3436, effective 28 November 1928, reads in relevant part as follows:
"Section 1. Subject to the conditions established in this Act and the provisions of Act
Numbered Thirty-one hundred and eight, as amended, there is hereby granted to the 'Philippine Long
Distance Telephone Company,' its successors or assigns, for a period of fifty years from the approval of
this Act, the right, privilege, and authority to construct, maintain and operate telephone systems
covering the most feasible following routes: . . . It being understood that the grantee is authorized to
construct, operate and maintain such branch tributary lines within the provinces traversed to connect
with the main lines, as the public interest may warrant. The grantee is authorized to carry on the
business of the electrical transmission of messages, pictures, and signals in and between provinces and
respective municipalities, and for the purpose of operating said telephone systems and transmitting
impressions, messages, pictures, and signals by means of electricity, to construct telephone lines in and
between said provinces and municipalities and to lay, place, operate and maintain telephone cables
between the Philippine Islands and other countries. . . ." (Emphasis supplied)
10. Rollo, pp. 45-46.
11. Id., pp. 36, 38-39.
12. Id., pp. 43-45.
13. Id., pp. 37, 39-40.
14. Id., p. 61.
15. Id., p. 239.
16. Id., pp. 239-240.
17. TSN, 14 September 1988, pp. 84-85; Exhibit "N."
18. Rollo, p. 240.
19. Please see footnote 21 in the Dissenting Opinion appended to the original Decision of 27
August 1992; 213 SCRA at 46; this footnote is hereby incorporated herein by reference.
20. Petition, Rollo, p. 21.
21. Rollo, p. 43.
22. 190 SCRA 717 (1990).
23. 190 SCRA at 734-735.
24. R.A. No. 4617, approved 19 June 1965, granted the following franchise authority to the RCA
Communications, Inc. (predecessor of Philglobcom):
"SECTION 1. There is hereby granted to the RCA Communications, Inc., hereinafter
referred to as the grantee, the right and privilege of constructing, maintaining and operating
communications systems by radio, wire satellites, and other means now known to science or which in
the future may be developed for the reception and transmission of messages between any point in the
Philippines to points exterior thereto, including airplanes, airships or vessels, even though such
airplanes, airships or vessels may be located within the territorial limits of the Philippines." (Emphasis
supplied)
The relevant phrase used in R.A. No. 4617 is "communications systems." (See, e.g.,
Section 2, Section 3 and Section 17) Section 17 of R.A. No. 4617 reads as follows:
"Sec. 17. Nothing in this franchise shall be construed to authorize the grantee to
engage in domestic communications service." (Emphasis supplied)
25. The terms used by PLDT in assailing Eastern's desire to participate in the international end of
telecommunications. See supra, note 20.