Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

180173 April 6, 2011

MICROSOFT PHILIPPINES, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CARPIO, J.: The Case Before the Court is a petition1 for review on certiorari assailing the Decision 2 dated 24 October 2007 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 258, which affirmed the Decision3 dated 31 August 2006 and Resolution4 dated 8 January 2007 of the CTA Second Division in CTA Case No. 6681. The Facts Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly registered with the Bureau of Internal Revenue (BIR). Microsoft renders marketing services to Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated non-resident foreign corporations. The services are paid for in acceptable foreign currency and qualify as zero-rated sales for VAT purposes under Section 108(B) (2) of the National Internal Revenue Code (NIRC) of 1997, 5 as amended. Section 108(B)(2) states: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported x x x; (2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); x x x For the year 2001, Microsoft yielded total sales in the amount of P261,901,858.99. Of this amount,P235,724,614.68 pertain to sales derived from services rendered to MOP and MLI while P26,177,244.31 refer to sales to various local customers. Microsoft paid VAT input taxes in the amount of P11,449,814.99 on its domestic purchases of taxable goods and services. On 27 December 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes in the amount ofP11,449,814.99 with the BIR. The administrative claim for tax credit was filed within two years from the close of the taxable quarters when the zerorated sales were made.

On 23 April 2003, due to the BIR's inaction, Microsoft filed a petition for review with the CTA.6 Microsoft claimed to be entitled to a refund of unutilized input VAT attributable to its zero-rated sales and prayed that judgment be rendered directing the claim for tax credit or refund of VAT input taxes for taxable year 2001. On 16 June 2003, respondent Commissioner of Internal Revenue (CIR) filed his answer and prayed for the dismissal of the petition for review. In a Decision dated 31 August 2006, the CTA Second Division denied the claim for tax credit of VAT input taxes. The CTA explained that Microsoft failed to comply with the invoicing requirements of Sections 113 and 237 of the NIRC as well as Section 4.108-1 of Revenue Regulations No. 7-957 (RR 7-95). The CTA stated that Microsoft's official receipts do not bear the imprinted word "zero-rated" on its face, thus, the official receipts cannot be considered as valid evidence to prove zero-rated sales for VAT purposes. Microsoft filed a motion for reconsideration which was denied by the CTA Second Division in a Resolution dated 8 January 2007. Microsoft then filed a petition for review with the CTA En Banc.8 In a Decision dated 24 October 2007, the CTA En Banc denied the petition for review and affirmed in toto the Decision dated 31 August 2006 and Resolution dated 8 January 2007 of the CTA Second Division. The CTA En Banc found no new matters that have not been considered and passed upon by the CTA Second Division and stated that the petition had only been a mere rehash of the arguments earlier raised. Hence, this petition. The Issue The main issue is whether Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on domestic purchases of goods or services attributable to zero-rated sales for the year 2001 even if the word "zero-rated" is not imprinted on Microsoft's official receipts. The Courts Ruling The petition lacks merit. Microsoft insists that Sections 113 and 237 of the NIRC and Section 4.108-1 of RR 7-95 do not provide that failure to indicate the word "zero-rated" in the invoices or receipts would result in the outright invalidation of these invoices or receipts and the disallowance of a claim for tax credit or refund. At the outset, a tax credit or refund, like tax exemption, is strictly construed against the taxpayer.9 The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund or credit, in this case VAT input tax, by submitting evidence that he has complied with the requirements laid down in the tax code and the BIR's revenue regulations under which such privilege of credit or refund is accorded. Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-registered persons state: SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons .

(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. x x x SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser. The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period. The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from compliance with the provisions of this Section. Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must appear on the face of the official receipts or invoices for every sale of goods by VAT-registered persons. At the time Microsoft filed its claim for credit of VAT input tax, RR 7-95 was already in effect. The provision states: Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3. quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the word "zero-rated" imprinted on the invoice covering zero-rated sales ; and 6. the invoice value or consideration.

xxx Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied) The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales. A "VAT invoice" is an invoice that meets the requirements of Section 4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly states that "[A]ll purchases covered by invoices other than a VAT invoice shall not give rise to any input tax ." Microsoft's invoice, lacking the word "zero-rated," is not a "VAT invoice," and thus cannot give rise to any input tax. The subsequent enactment of Republic Act No. 9337 10 on 1 November 2005 elevating provisions of RR 7-95 into law merely codified into law administrative regulations that already had the force and effect of law. Such codification does not mean that prior to the codification the administrative regulations were not enforceable. We have ruled in several cases11 that the printing of the word "zero-rated" is required to be placed on VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal Revenue,12 we held that the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent such word, the government may be refunding taxes it did not collect. Here, both the CTA Second Division and CTA En Banc found that Microsoft's receipts did not indicate the word "zero-rated" on its official receipts. The findings of fact of the CTA are not to be disturbed unless clearly shown to be unsupported by substantial evidence.13 We see no reason to disturb the CTA's findings. Indisputably, Microsoft failed to comply with the invoicing requirements of the NIRC and its implementing revenue regulation to claim a tax credit or refund of VAT input tax for taxable year 2001. WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 October 2007 of the Court of Tax Appeals En Banc in CTA EB No. 258. SO ORDERED. ANTONIO T. CARPIO Associate Justice WE CONCUR: DIOSDADO M. PERALTA Associate Justice ROBERTO A. ABAD Associate Justice JOSE CATRAL MENDOZA Associate Justice

MARIA LOURDES P. A. SERENO* Associate Justice ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ANTONIO T. CARPIO Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated additional member per Special Order No. 978 dated 30 March 2011. Under Rule 45 of the 1997 Revised Rules of Civil Procedure.

Rollo, pp. 66-78. Penned by Associate Justice Caesar A. Casanova with Associate Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy and Olga Palanca-Enriquez, concurring and Presiding Justice Ernesto D. Acosta, dissenting.
3

Id. at 45-60. Penned by Associate Justice Olga Palanca-Enriquez with Associate Justices Juanito C. Castaeda, Jr. and Erlinda P. Uy, concurring.
4

Id. at 63-64. Republic Act No. 8424, or The Tax Reform Act of 1997. Docketed as CTA Case No. 6681.

Consolidated Value-Added Tax Regulations. Issued on 9 December 1995 and took effect on 1 January 1996.
8

Docketed as CTA EB No. 258.

Hitachi Global Storage Technologies Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 174212, 20 October 2010, citing Commissioner of Internal Revenue v. Bank of the Philippine Islands , G.R. No. 178490, 7 July 2009, 592 SCRA 219, and Commissioner of Internal Revenue v. Seagate Technology, 491 Phil. 317 (2005).
10

An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as amended, and for other Purposes.
11

Kepco Philippines Corporation v. Commissioner of Internal Revenue , G.R. No. 179961, 31 January 2011;Silicon Philippines, Inc. v. Commissioner of Internal

Revenue, G.R. No. 172378, 17 January 2011; Kepco Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 181858, 24 November 2010; Hitachi Global Storage Technologies Philippines Corporation v. Commissioner of Internal Revenue, G.R. No. 174212, 20 October 2010; J.R.A. Philippines, Inc. v. Commissioner of Internal Revenue , G.R. No. 177127, 11 October 2010; Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, G.R. No. 178090, 8 February 2010, 612 SCRA 28.
12

Supra.

13

Commissioner of Internal Revenue v. Embroidery and Garments Industries (Phil.), Inc., 364 Phil. 541 (1999).

Republic of the Philippines SUPREME COURT Baguio City

THIRD DIVISION A.M. No. P-11-2922 April 4, 2011 (formerly A.M. OCA IPI No. 03-1778-P) MARY JANE ABANAG, Complainant, vs. NICOLAS B. MABUTE, Court Stenographer I, Municipal Circuit Trial Court (MCTC), Paranas, Samar,Respondent. D E CI S I O N BRION, J.: We resolve the administrative case against Nicolas B. Mabute (respondent), Court Stenographer I in the Municipal Circuit Trial Court (MCTC) of Paranas, Samar, filed by Mary Jane Abanag (complainant) for Disgraceful and Immoral Conduct. In her verified letter-complaint dated September 19, 2003, the complainant, a 23-year old unmarried woman, alleged that respondent courted her and professed his undying love for her. Relying on respondents promise that he would marry her, she agreed to live with him. She became pregnant, but after several months into her pregnancy, respondent brought her to a "manghihilot" and tried to force her to take drugs to abort her baby. When she did not agree, the respondent turned cold and eventually abandoned her. She became depressed resulting in the loss of her baby. She also stopped schooling because of the humiliation that she suffered. In his comment on the complaint submitted to the Office of the Court Administrator, the respondent vehemently denied the complainants allegations and claimed that the charges against him were baseless, false and fabricated, and were intended to harass him and destroy his reputation. He further averred that Norma Tordesillas, the complainants co-employee, was using the complaint to harass him. Tordesillas resented him because he had chastised her for her arrogant behavior and undesirable work attitude. He believes that the complainants letter-complaint, which was written in the vernacular, was prepared by Tordesillas who is from Manila and fluent in Tagalog; the respondent would have used the "waray" or English language if she had written the letter-complaint. The complainant filed a Reply, insisting that she herself wrote the letter-complaint. She belied the respondents claim that she was being used by Tordesillas who wanted to get even with him. In a Resolution dated July 29, 2005, the Court referred the letter-complaint to then Acting Executive Judge Carmelita T. Cuares of the Regional Trial Court (RTC) of Catbalogan City, Samar for investigation, report and recommendation. The respondent sought Judge Cuares inhibition from the case, alleging that the Judge was partial and had bias in favor of the complainant; the complainant herself had bragged that she personally knew Judge Cuares. The Court designated Judge Esteban V. dela Pea, who succeeded Judge Cuares as Acting Executive Judge, to continue with the investigation of the case.1 Eventually, Judge Agerico A. Avila took over the investigation when he was designated the Executive Judge of the RTC of Catbalogan City, Samar. In his Report/Recommendation dated June 7, 2010, 2 Executive Judge Avila reported on the developments in the hearing of the case. The complainant testified that she met the respondent while she was a member of the Singles for Christ. They became acquainted

and they started dating. The relationship blossomed until they lived together in a rented room near the respondents office. The respondent, for his part, confirmed that he met the complainant when he joined the Singles for Christ. He described their liaison as a dating relationship. He admitted that the complainant would join him at his rented room three to four times a week; when the complainant became pregnant, he asked her to stay and live with him. He vehemently denied having brought the complainant to a local "manghihilot" and that he had tried to force her to abort her baby. He surmised that the complainants miscarriage could be related to her epileptic attacks during her pregnancy. The respondent further testified that the complainants mother did not approve of him, but the complainant defied her mother and lived with him. He proposed marriage to the complainant, but her mother did not like him as a son-in-law and ordered the complainant to return home. The complainant obeyed her mother. They have separated ways since then, but he pledged his undying love for the complainant. The Investigating Judge recommends the dismissal of the complaint against the respondent, reporting that: Normally the personal affair of a court employee who is a bachelor and has maintained an amorous relation with a woman equally unmarried has nothing to do with his public employment. The sexual liaison is between two consenting adults and the consequent pregnancy is but a natural effect of the physical intimacy. Mary Jane was not forced to live with Nicolas nor was she impelled by some devious means or machination. The fact was, she freely acceded to cohabit with him. The situation may-not-be-so-ideal but it does not give cause for administrative sanction. There appears no law which penalizes or prescribes the sexual activity of two unmarried persons. So, the accusation of Mary Jane that Nicolas initiated the abortion was calculated to bring the act within the ambit of an immoral, disgraceful and gross misconduct. Except however as to the self-serving assertion that Mary Jane was brought to a local midwife and forced to take the abortifacient, there was no other evidence to support that it was in fact so. All pointed to a harmonious relation that turned sour. In no small way Mary Jane was also responsible of what befell upon her.3 The Court defined immoral conduct as conduct that is willful, flagrant or shameless, and that shows a moral indifference to the opinion of the good and respectable members of the community.4 To justify suspension or disbarment, the act complained of must not only be immoral, but grossly immoral.5 A grossly immoral act is one that is so corrupt and false as to constitute a criminal act or an act so unprincipled or disgraceful as to be reprehensible to a high degree. 6 Based on the allegations of the complaint, the respondents comment, and the findings of the Investigating Judge, we find that the acts complained of cannot be considered as disgraceful or grossly immoral conduct. We find it evident that the sexual relations between the complainant and the respondent were consensual.lawphi1 They met at the Singles for Christ, started dating and subsequently became sweethearts. The respondent frequently visited the complainant at her boarding house and also at her parents residence. The complainant voluntarily yielded to the respondent and they eventually lived together as husband and wife in a rented room near the respondents office. They continued their relationship even after the complainant had suffered a miscarriage. Mere sexual relations between two unmmaried and consenting adults are not enough to warrant administrative sanction for illicit behavior. 7 The Court has repeatedly held that voluntary intimacy between a man and a woman who are not married, where both are

not under any impediment to marry and where no deceit exists, is neither a criminal nor an unprincipled act that would warrant disbarment or disciplinary action. 81avvphi1 While the Court has the power to regulate official conduct and, to a certain extent, private conduct, it is not within our authority to decide on matters touching on employees personal lives, especially those that will affect their and their familys future. We cannot intrude into the question of whether they should or should not marry.9 However, we take this occasion to remind judiciary employees to be more circumspect in their adherence to their obligations under the Code of Professional Responsibility. The conduct of court personnel must be free from any taint of impropriety or scandal, not only with respect to their official duties but also in their behavior outside the Court as private individuals. This is the best way to preserve and protect the integrity and the good name of our courts. 10 WHEREFORE, the Court resolves to DISMISS the present administrative complaint against Nicolas B. Mabute, Stenographer 1 of the Municipal Circuit Trial Court, Paranas, Samar, for lack of merit. No costs. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR: CONCHITA CARPIO MORALES Associate Justice Chairperson LUCAS P. BERSAMIN Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice

MARIA LOURDES P.A. SERENO Associate Justice

Footnotes
1

Per Resolution dated February 13, 2006. Rollo, pp. 163-174. Id. at 172-173. Toledo v. Toledo, A.M. No. P-07-2403, February 6, 2008, 544 SCRA 26. Ibid.; Reyes v. Wong, Adm. Case No. 547, January 29, 1975, 63 SCRA 667. Figueroa v. Barranco, Jr., SBC Case No. 519, July 31, 1997, 276 SCRA 445.

Concerned Employee v. Mayor, A.M. No. P-02-1564, November 23, 2004, 443 SCRA 448; and Toledo v. Toledo, supra note 4.
8

Figueroa v. Barranco, Jr., supra note 6.

Salazar v. Limeta, A.M. No. P-04-1908, August 16, 2005, 467 SCRA 27; and Toledo v. Toledo, supra note 4.
10

Toledo v. Toledo, supra note 4.

Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 190823 April 4, 2011

DOMINGO CARABEO, Petitioner, vs. SPOUSES NORBERTO and SUSAN DINGCO, Respondents. DECISION CARPIO MORALES, J.: On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "Kasunduan sa Bilihan ng Karapatan sa Lupa" 1 (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani, Bataan to respondents for P38,000. Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be paid on September 1990. Respondents were later to claim that when they were about to hand in the balance of the purchase price, petitioner requested them to keep it first as he was yet to settle an on-going "squabble" over the land. Nevertheless, respondents gave petitioner small sums of money from time to time which totaled P9,100, on petitioners request according to them; due to respondents inability to pay the amount of the remaining balance in full, according to petitioner. By respondents claim, despite the alleged problem over the land, they insisted on petitioners acceptance of the remaining balance of P18,900 but petitioner remained firm in his refusal, proffering as reason there for that he would register the land first. Sometime in 1994, respondents learned that the alleged problem over the land had been settled and that petitioner had caused its registration in his name on December 21, 1993 under Transfer Certificate of Title No. 161806. They thereupon offered to pay the balance but petitioner declined, drawing them to file a complaint before the Katarungan Pambarangay. No settlement was reached, however, hence, respondent filed a complaint for specific performance before the Regional Trial Court (RTC) of Balanga, Bataan. Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain, the kasunduan not having specified the metes and bounds of the land. In any event, petitioner alleged that if the validity of the kasunduan is upheld, respondents failure to comply with their reciprocal obligation to pay the balance of the purchase price would render the action premature. For, contrary to respondents claim, petitioner maintained that they failed to pay the balance of P28,000 on September 1990 to thus constrain him to accept installment payments totaling P9,100. After the case was submitted for decision or on January 31, 2001, 2 petitioner passed away. The records do not show that petitioners counsel informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his death and that proper substitution was effected in accordance with Section 16, Rule 3, Rules of Court. 3 By Decision of February 25, 2001,4 the trial court ruled in favor of respondents, disposing as follows: WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant to sell his right over 648 square meters of land pursuant to the contract dated July 10, 1990 by executing a Deed of Sale thereof after the payment of P18,900 by the plaintiffs; 2. The defendant to pay the costs of the suit. SO ORDERED.5 Petitioners counsel filed a Notice of Appeal on March 20, 2001. By the herein challenged Decision dated July 20, 2009, 6 the Court of Appeals affirmed that of the trial court. Petitioners motion for reconsideration having been denied by Resolution of January 8, 2010, the present petition for review was filed by Antonio Carabeo, petitioners son,7 faulting the appellate court: (A) in holding that the element of a contract, i.e., an object certain is present in this case. (B) in considering it unfair to expect respondents who are not lawyers to make judicial consignation after herein petitioner allegedly refused to accept payment of the balance of the purchase price. (C) in upholding the validity of the contract, "Kasunduan sa Bilihan ng Karapatan sa Lupa," despite the lack of spousal consent, (underscoring supplied) and proffering that (D) [t]he death of herein petitioner causes the dismissal of the action filed by respondents; respondents cause of action being an action in personam. (underscoring supplied) The petition fails. The pertinent portion of the kasunduan reads: 8 xxxx Na ako ay may isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may sukat na 27 x 24 metro kuwadrado, ang nasabing lupa ay may sakop na dalawang punong santol at isang punong mangga, kayat ako ay nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng nasabing lupa sa halagang P38,000.00. x x x x (underscoring supplied) That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The requirement that a sale must have for its object a

determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. 9 As the above-quoted portion of the kasunduan shows, there is no doubt that the object of the sale is determinate. Clutching at straws, petitioner proffers lack of spousal consent. This was raised only on appeal, hence, will not be considered, in the present case, in the interest of fair play, justice and due process.10 Respecting the argument that petitioners death rendered respondents complaint against him dismissible, Bonilla v. Barcena11 enlightens: The question as to whether an action survives or not depends on the nature of the action and the damage sued for. In the causes of action which survive, the wrong complained [of] affects primarily and principally property and property rights, the injuries to the person being merely incidental, while in the causes of action which do not survive, the injury complained of is to the person, the property and rights of property affected being incidental. (emphasis and underscoring supplied) In the present case, respondents are pursuing a property right arising from the kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo, however, that the kasunduan is deemed void, there is a corollary obligation of petitioner to return the money paid by respondents, and since the action involves property rights, 12 it survives.1avvphi1 It bears noting that trial on the merits was already concluded before petitioner died. Since the trial court was not informed of petitioners death, it may not be faulted for proceeding to render judgment without ordering his substitution. Its judgment is thus valid and binding upon petitioners legal representatives or successors-in-interest, insofar as his interest in the property subject of the action is concerned. 13 In another vein, the death of a client immediately divests the counsel of authority.14 Thus, in filing a Notice of Appeal, petitioners counsel of record had no personality to act on behalf of the already deceased client who, it bears reiteration, had not been substituted as a party after his death. The trial courts decision had thereby become final and executory, no appeal having been perfected. WHEREFORE, the petition is DENIED. SO ORDERED. CONCHITA CARPIO MORALES Associate Justice WE CONCUR: ANTONIO T. CARPIO* Associate Justice LUCAS P. BERSAMIN Associate Justice ARTURO D. BRION Associate Justice MARIA LOURDES P. A. SERENO Associate Justice

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

CONCHITA CARPIO MORALES Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated member per Raffle dated March 10, 2010. Records, p. 6.

Petitioners Death Certificate is appended as Annex "M" to the petition for review, rollo, p. 105
3

Section 16. Death of party; duty of counsel. Whenever a party to a pending action dies, and the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after such death of the fact thereof, and to give the name and address of his legal representative or representatives. Failure of counsel to comply with his duty shall be a ground for disciplinary action. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs. The court shall forthwith order said legal representative or representatives to appear and be substituted within a period of thirty (30) days from notice. If no legal representative is named by the counsel for the deceased party, or if the one so named shall fail to appear within the specified period, the court may order the opposing party, within a specified time to procure the appointment of an executor or administrator for the estate of the deceased and the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. (16a, 17a)
4

Rollo, pp. 71-79. Id. at 78-79.

Penned by Associate Justice Jose C. Reyes, with the concurrence of Associate Justices Martin S. Villarama, Jr. (now Supreme Court Associate Justice) and Normandie B. Pizzaro, id. at 28-36.

Rositas Death Certificate appended to the petition for review as Annex "M-1", id. at 106.
8

Heirs of Romana Ingjug-Tiro, et. al., v. Spouses Casal, et.al., G.R. No. 134718, August 20, 2001.
9

Civil Code, Article 1460.

10

Philippine Commercial and International Bank v. Custodio , G.R. No. 173207, February 14, 2008, 545 SCRA 367.
11

G.R. No. L-41715, June 18, 1976. Sumaljag v. Spouses Literato, et.al., G.R. No. 149787, June 18, 2008. Saligumba et.al., v. Palanog, G.R. No. 143365, December 4, 2008.

12

13

14

Active Realty and Development Corporation v. Fernandez , G.R. No. 157186, October 19, 2007.

Republic of the Philippines SUPREME COURT Baguio City FIRST DIVISION

G.R. No. 171406

April 4, 2011

ASIAN TERMINALS, INC., Petitioner, vs. MALAYAN INSURANCE, CO., INC., Respondent. DECISION DEL CASTILLO, J.: Once the insurer pays the insured, equity demands reimbursement as no one should benefit at the expense of another. This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the July 14, 2005 Decision2 and the February 14, 2006 Resolution3 of the Court of Appeals (CA) in CA G.R. CV No. 61798. Factual Antecedents On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) from China to Manila.4 The shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party. 5 On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila, 6 the stevedores of petitioner Asian Terminals, Inc., a duly registered domestic corporation engaged in providing arrastre and stevedoring services, 7 unloaded the 60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery to the consignee.8 When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in bad order condition. 9 On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the consignee. 10 On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the contents.11 On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of P643,600.25.12 Ruling of the Regional Trial Court On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a Complaint 13 for damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage.14 After the filing of the Answers,15 trial ensued. On June 26, 1998, the RTC rendered a Decision 16 finding petitioner liable for the damage/loss sustained by the shipment but absolving the other defendants. The RTC found that the proximate cause of the damage/loss was the negligence of petitioners stevedores who handled the unloading of the cargoes from the vessel. 17 The RTC

emphasized that despite the admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor Antonio not to use steel hooks in retrieving and picking-up the bags, petitioners stevedores continued to use such tools, which pierced the bags and caused the spillage.18 The RTC, thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles 217619 and 2180 paragraph (4)20 of the Civil Code.21 Hence, the dispositive portion of the Decision reads: WHEREFORE, judgment is rendered ordering defendant Asian Terminal, Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum of P643,600.25 plus interest thereon at legal rate computed from November 20, 1996, the date the Complaint was filed, until the principal obligation is fully paid, and the costs. The complaint of the plaintiff against defendants Inchcape Shipping Services and MEC Customs Brokerage, and the counterclaims of said defendants against the plaintiff are dismissed. SO ORDERED.22 Ruling of the Court of Appeals Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In its July 14, 2005 Decision, the CA agreed with the RTC that the damage/loss was caused by the negligence of petitioners stevedores in handling and storing the subject shipment. 24 The CA likewise rejected petitioners assertion that it received the subject shipment in bad order condition as this was belied by Marine Cargo Surveyors Redentor Antonio and Edgar Liceralde, who both testified that the actual counting of bad order bags was done only after all the bags were unloaded from the vessel and that the Turn Over Survey of Bad Order Cargoes (TOSBOC) upon which petitioner anchors its defense was prepared only on November 28, 1995 or after the unloading of the bags was completed. 25 Thus, the CA disposed of the appeal as follows: WHEREFORE, premises considered, the appeal is DENIED. The assailed Decision dated June 26, 1998 of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 96-80945 is hereby AFFIRMED in all respects. SO ORDERED.26 Petitioner moved for reconsideration27 but the CA denied the same in a Resolution28 dated February 14, 2006 for lack of merit. Issues Hence, the present recourse, petitioner contending that: 1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID, EXISTING, ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN COURT. 2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND RESPONDENT. 3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS DOCUMENTATIONS WOULD POINT TO THE VESSELS LIABILITY AS THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING DOCUMENTARY

EVIDENCE TO PROVE THAT THE DAMAGE IN QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE CUSTODY OF THE VESSEL. 4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT THAT THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE COMPLETION OF THE DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS, CONCLUDING THAT DAMAGE TO THE CARGOES WAS DUE TO THE IMPROPER HANDLING THEREOF BY ATI STEVEDORES. 5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING JUDICIAL NOTICE OF THE CONTRACT FOR CARGO HANDLING SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT PROVISIONS THEREOF AS REGARDS ATIS LIABILITY.29 In sum, the issues are: (1) whether the non-presentation of the insurance contract or policy is fatal to respondents cause of action; (2) whether the proximate cause of the damage/loss to the shipment was the negligence of petitioners stevedores; and (3) whether the court can take judicial notice of the Management Contract between petitioner and the Philippine Ports Authority (PPA) in determining petitioners liability. Petitioners Arguments Petitioner contends that respondent has no cause of action because it failed to present the insurance contract or policy covering the subject shipment. 30 Petitioner argues that the Subrogation Receipt presented by respondent is not sufficient to prove that the subject shipment was insured and that respondent was validly subrogated to the rights of the consignee.31 Thus, petitioner submits that without proof of a valid subrogation, respondent is not entitled to any reimbursement. 32 Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the proximate cause of the damage/loss to the shipment was the negligence of petitioners stevedores.33 Petitioner avers that such finding is contrary to the documentary evidence, i.e., the TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report of Survey.34 According to petitioner, these documents prove that it received the subject shipment in bad order condition and that no additional damage was sustained by the subject shipment under its custody. 35Petitioner asserts that although the TOSBOC was prepared only after all the bags were unloaded by petitioners stevedores, this does not mean that the damage/loss was caused by its stevedores.36 Petitioner also claims that the amount of damages should not be more than P5,000.00, pursuant to its Management Contract for cargo handling services with the PPA.37 Petitioner contends that the CA should have taken judicial notice of the said contract since it is an official act of an executive department subject to judicial cognizance.38 Respondents Arguments Respondent, on the other hand, argues that the non-presentation of the insurance contract or policy was not raised in the trial court. Thus, it cannot be raised for the first time on appeal.39 Respondent likewise contends that under prevailing jurisprudence, presentation of the insurance policy is not indispensable. 40 Moreover, with or without the insurance contract or policy, respondent claims that it should be allowed to recover

under Article 123641 of the Civil Code.42 Respondent further avers that "the right of subrogation has its roots in equity - it is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay." 43 Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss sustained by the subject shipment was caused by the negligent acts of petitioners stevedores.44 Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be disturbed. 45 In fact, under Section 146 of Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari.47 As to the Management Contract for cargo handling services, respondent contends that this is outside the operation of judicial notice.48 And even if it is not, petitioners liability cannot be limited by it since it is a contract of adhesion. 49 Our Ruling The petition is bereft of merit. Non-presentation of the insurance contract or policy is not fatal in the instant case Petitioner claims that respondents non-presentation of the insurance contract or policy between the respondent and the consignee is fatal to its cause of action. We do not agree. First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be resolved during the pre-trial. 50 As we have said, "the determination of issues during the pre-trial conference bars the consideration of other questions, whether during trial or on appeal." 51 Thus, "[t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial because they themselves agreed to the same."52 Neither was this issue raised on appeal. 53 Basic is the rule that "issues or grounds not raised below cannot be resolved on review by the Supreme Court, for to allow the parties to raise new issues is antithetical to the sporting idea of fair play, justice and due process."54 Besides, non-presentation of the insurance contract or policy is not necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of Appeals, 56 we ruled that: Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage.

First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.57 (Emphasis supplied.) In International Container Terminal Services, Inc. v. FGU Insurance Corporation, 58 we used the same line of reasoning in upholding the Decision of the CA finding the arrastre contractor liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance contract or policy. We explained: Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home Insurance Corporation v. Court of Appeals. However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioners vessel, unlike in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo occurred, such that the insurer should be liable for it. As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioners custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case. 59 Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner objected to the admission of the Subrogation Receipt in its Comment to respondents formal offer of evidence on the ground that respondent failed to present the insurance contract or policy, 60 a perusal of petitioners Answer61and Pre-Trial Brief62 shows that petitioner never questioned respondents right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no reason to present the insurance contract or policy as evidence during the trial. Factual findings of the CA, affirming the RTC, are conclusive and binding Petitioners attempt to absolve itself from liability must likewise fail.

Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. Thus, it is not our duty "to review, examine, and evaluate or weigh all over again the probative value of the evidence presented," 63 especially where the findings of both the trial court and the appellate court coincide on the matter. 64As we have often said, factual findings of the CA affirming those of the RTC are conclusive and binding, except in the following cases: "(1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the [CA] is based on misapprehension of facts; (5) when the [CA], in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (6) when the findings of fact are conclusions without citation of specific evidence on which they are based; (7) when the [CA] manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (8) when the findings of fact of the [CA] are premised on the absence of evidence and are contradicted by the evidence on record."65 None of these are availing in the present case. Both the RTC and the CA found the negligence of petitioners stevedores to be the proximate cause of the damage/loss to the shipment. In disregarding the contention of petitioner that such finding is contrary to the documentary evidence, the CA had this to say: ATI, however, contends that the finding of the trial court was contrary to the documentary evidence of record, particularly, the Turn Over Survey of Bad Order Cargoes dated November 28, 1995, which was executed prior to the turn-over of the cargo by the carrier to the arrastre operator ATI, and which showed that the shipment already contained 2,702 damaged bags. We are not persuaded. Contrary to ATIs assertion, witness Redentor Antonio, marine cargo surveyor of Inchcape for the vessel Jinlian I which arrived on November 21, 1995 and up to completion of discharging on November 28, 1995, testified that it was only after all the bags were unloaded from the vessel that the actual counting of bad order bags was made, thus: xxxx The above testimony of Redentor Antonio was corroborated by Edgar Liceralde, marine cargo surveyor connected with SMS Average Surveyors and Adjusters, Inc., the company requested by consignee Chemphil Albright and Wilson Corporation to provide superintendence, report the condition and determine the final outturn of quantity/weight of the subject shipment. x x x xxxx Defendant-appellant ATI, for its part, presented its claim officer as witness who testified that a survey was conducted by the shipping company and ATI before the shipment was turned over to the possession of ATI and that the Turn Over Survey of Bad Order Cargoes was prepared by ATIs Bad Order (BO) Inspector. Considering that the shipment arrived on November 21, 1998 and the unloading operation commenced on said date and was completed on November 26, 1998, while the Turn Over Survey of Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and signed on November 28, 1998 by ATIs BO Inspector and co-signed by a representative of the shipping company, the trial courts finding that the damage to the cargoes was due to the improper handling thereof

by ATIs stevedores cannot be said to be without substantial support from the records. We thus see no cogent reason to depart from the ruling of the trial court that ATI should be made liable for the 2,702 bags of damaged shipment. Needless to state, it is hornbook doctrine that the assessment of witnesses and their testimonies is a matter best undertaken by the trial court, which had the opportunity to observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point are accorded great respect and will not be reversed on appeal, unless it overlooked substantial facts and circumstances which, if considered, would materially affect the result of the case. We also find ATI liable for the additional 179 damaged bags discovered upon delivery of the shipment at the consignees warehouse in Pasig. The final Report of Survey executed by SMS Average Surveyors & Adjusters, Inc., and independent surveyor hired by the consignee, shows that the subject shipment incurred a total of 2881 damaged bags. The Report states that the withdrawal and delivery of the shipment took about ninetyfive (95) trips from November 29, 1995 to December 28, 1995 and it was upon completion of the delivery to consignees warehouse where the final count of 2881 damaged bags was made. The damage consisted of torn/bad order condition of the bags due to spillages and caked/hardened portions. We agree with the trial court that the damage to the shipment was caused by the negligence of ATIs stevedores and for which ATI is liable under Articles 2180 and 2176 of the Civil Code. The proximate cause of the damage (i.e., torn bags, spillage of contents and caked/hardened portions of the contents) was the improper handling of the cargoes by ATIs stevedores, x x x xxxx ATI has not satisfactorily rebutted plaintiff-appellees evidence on the negligence of ATIs stevedores in the handling and safekeeping of the cargoes. x x x xxxx We find no reason to disagree with the trial courts conclusion. Indeed, from the nature of the [damage] caused to the shipment, i.e., torn bags, spillage of contents and hardened or caked portions of the contents, it is not difficult to see that the damage caused was due to the negligence of ATIs stevedores who used steel hooks to retrieve the bags from the higher portions of the piles thereby piercing the bags and spilling their contents, and who piled the bags in the open storage area of ATI with insufficient cover thereby exposing them to the elements and [causing] the contents to cake or harden. 66 Clearly, the finding of negligence on the part of petitioners stevedores is supported by both testimonial and documentary evidence. Hence, we see no reason to disturb the same. Judicial notice does not apply Finally, petitioner implores us to take judicial notice of Section 7.01, 67 Article VII of the Management Contract for cargo handling services it entered with the PPA, which limits petitioners liability to P5,000.00 per package. Unfortunately for the petitioner, it cannot avail of judicial notice.

Sections 1 and 2 of Rule 129 of the Rules of Court provide that: SECTION 1. Judicial notice, when mandatory. A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of time, and the geographical divisions.1avvphi1 SEC. 2. Judicial notice, when discretionary. A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration or ought to be known to judges because of their judicial functions. The Management Contract entered into by petitioner and the PPA is clearly not among the matters which the courts can take judicial notice of. It cannot be considered an official act of the executive department. The PPA, which was created by virtue of Presidential Decree No. 857, as amended,68 is a government-owned and controlled corporation in charge of administering the ports in the country. 69 Obviously, the PPA was only performing a proprietary function when it entered into a Management Contract with petitioner. As such, judicial notice cannot be applied. WHEREFORE, the petition is hereby DENIED. The assailed July 14, 2005 Decision and the February 14, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED. SO ORDERED. MARIANO C. DEL CASTILLO Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson PRESBITERO J. VELASCO, JR. Associate Justice TERESITA J. LEONARDO-DE CASTRO Associate Justice

JOSE PORTUGAL PEREZ Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes

Rollo, pp. 8-149, with Annexes "A" to "M" inclusive.

Id. at 26-37; penned by Associate Justice Rosalinda Asuncion-Vicente and concurred in by Associate Justices Godardo A. Jacinto and Bienvenido L. Reyes.
3

Id. at 46-47. Id. at 27. Id. Records, p. 134. Rollo, p. 9. Records, pp. 134-135. Rollo, p. 28. Records, pp. 135-136. Id. Rollo, p. 28. Id. at 49-55. Id. at 28. Records, pp. 19-23, 24-30, and 31-35. Rollo, pp. 38-44; penned by Judge Ramon P. Makasiar. Id. at 39. Id. at 39-43.

10

11

12

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14

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16

17

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Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
20

Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx
21

Rollo, p. 43. Id. at 44.

22

23

Id. at 115-136. Id. at 36. Id. at 30-34. Id. at 36. Id. at 137-148. Id. at 47. Id. at 261. Id. at 262-268. Id. at 262. Id. at 268. Id. at 270. Id. at 268-286. Id. Id. at 283-286. Id. at 290. Id. Id. at 247. Id. at 250.

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31

32

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34

35

36

37

38

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41

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
42

Rollo, p. 251-252. Id. at 253. Id. at 242-244. Id. at 241.

43

44

45

46

Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the Supreme Court a verified

petition for review on certiorari. The petition may include an application for a writ of preliminary injunction or other provisional remedies and shall raise only questions of law, which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified motion filed in the same action or proceeding at any time during its pendency.
47

Rollo, pp. 245-246. Id. at 238-240. Id. at 240-241. III. ISSUES 1. Whether x x x the defendants are liable to pay the plaintiff the amount of US$456,000.00 representing the amount which plaintiff paid to the consignee; 2. What is the extent of the damages sustained by the subject shipment? 3. Which of the defendants is liable to plaintiff for the alleged damages and the extent of liability? 4. Is the package limitation contract applicable in the instant case? 5. Under the Carriage of Goods by Sea [Act] (COGSA), is defendant Inchcape exempted from damages by virtue of the defense like insufficient packing, the very nature of the shipment. 6. Is the defendant Inchcape liable for any damage which may have arisen after the cargo was discharged from the vessels hold or ships docket in the case of Ludo v. Binamira, 101 Phil. 120; 7. Whether x x x defendant MEC broker had something to do with the unloading of the cargo from the carrier up to the terminal; 8. Whether x x x defendant MEC had any participation in the unloading of the cargo to the warehouse or the place of the consignee; 9. Whether x x x the alleged loss or damages to the cargo occurred while the shipper was in transit or after it was unloaded from the carrier; 10. Whether x x x defendants ATI, Inchcape and MEC are entitled to any form of damages, specifically the attorneys fees. (Id. at 66-67).

48

49

50

51

Villanueva v. Court of Appeals, 471 Phil. 394, 406 (2004). Id. at 407. Rollo, p. 121.

52

53

54

Cuenco v. Talisay Tourist Sports Complex, Incorporated, G.R. No. 174154, July 30, 2009, 594 SCRA 396, 399-400.
55

Eastern Shipping Lines, Inc. v. Prudential Guarantee and Assurance, Inc., G.R. No. 174116, September 11, 2009, 599 SCRA 565, 581.

56

420 Phil. 824. (2001). Id. at 835-836. G.R. No. 161539, June 27, 2008, 556 SCRA 194. Id. at 203-204. Rollo, p. 208. SPECIAL AND AFFIRMATIVE DEFENSES 1. Defendant ATI, by way of Special and Affirmative Defenses, reiterates and repleads all the foregoing. 2. Plaintiff has no cause of action against defendant ATI because the latter was not negligent in the performance of its duty as an arrastre operator. 3. As evidenced by the Turn Over Survey of Bad Order Cargoes, the subject shipment arrived and was discharged unto the custody of defendant ATI in bad order condition. 4. The subject shipment was released/withdrawn from the custody of defendant ATI in exactly the same quantity and condition as when discharged from the carrying vessel. Hence, any alleged loss or damage is no longer the liability of defendant ATI. 5. Under Section 7.01 of Article VII of the Management Contract between the Philippine Port[s] Authority and defendant ATI (formerly Manila Ports Services, Inc.), the liability of the latter in case of loss, damage or nondelivery of cargoes in its custody and control shall be limited to PESOS FIVE THOUSAND ONLY (P5,000.00). (Id. at 57).

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58

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60

61

62

IV. ISSUES ATI submits that the issues to be resolved by this Honorable Court are the following: 1. What is the extent of the damages sustained by the subject shipment? 2. Which of the defendants is liable for the damages? 3. Assuming that ATI is liable for the damages up to how much may it be held liable? (Records, p. 42)

63

Puno v. Puno Enterprises, Inc., G.R. No. 177066, September 11, 2009, 599 SCRA 585, 590.
64

Dueas v. Guce-Africa, G.R. No. 165679, October 5, 2009, 603 SCRA 11, 20. Id. at 20-21. Rollo, pp. 30-36.

65

66

67

Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions The Contractor shall, at its own expense, handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like and

efficient manner. The Contractor shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the Contractor by the interested party or parties before the discharge or loading unto vessel of the goods. xxx
68

Revised Charter of the Philippine Ports Authority. Promulgated on December 23, 1975.
69

SECTION 6. Corporate Powers and Duties. a) The corporate duties of the Authority shall be: xxxx (ii) To supervise, control, regulate, construct, maintain, operate, and provide such facilities or services as are necessary in the ports vested in, or belonging to the Authority. xxxx b) The corporate powers of the Authority shall be as follows: xxxx (vi) To make or enter [into] contracts of any kind or nature to enable it to discharge its functions under this Decree. x x x x.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 189655 April 13, 2011

AOWA ELECTRONIC PHILIPPINES, INC., Petitioner, vs. DEPARTMENT OF TRADE AND INDUSTRY, National Capital Region, Respondent.

RESOLUTION NACHURA, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure, seeking the reversal of the Court of Appeals (CA) Decision 2 dated June 23, 2009, which affirmed the resolution dated August 26, 2008 3 of the Department of Trade and Industry (DTI), Appeals Committee, sustaining the decision 4 dated April 10, 2008 of the DTI Adjudication Officer (Adjudication Officer). The facts, as quoted by the CA from the Adjudication Officers findings, are as follows: DTI-NCRs records show that numerous administrative complaints have been filed against Aowa Electronic Philippines, Inc. by different consumers, or a total of at least two hundred and seventy-three (273) from the year 2001 until 2007. The facts narrated in the said complaints consistently contain a common thread, as follows: A target customer is approached by Aowas representatives, usually in a mall and informs the former that he/she has won a gift or is to receive some giveaways. In certain cases, when the target customer expresses interest in the said "gift" or giveaway, Aowas representatives then verbally reveal that the same can only be claimed or received upon purchase of an additional product or products, which are represented to be of high quality. However, consumer complainants allege that such products are substantially priced. An initial gift is offered to the target customer, and upon acceptance, the customer is invited to [Aowas] store/outlet. It is at that point that the customer is informed that he/she has qualified for a raffle draw or contest, entitling them to claim an additional "gift." In the same manner, such additional gift can be received only upon the purchase of additional products, also represented to be of high quality, and sometimes similarly alleged to be substantially charged. [In] the course of enticing the target customer to purchase the additional product, they are physically surrounded by Aowas representatives, otherwise known to many as "ganging up" o[n] customers. Although the customer is required to purchase an additional product to claim the offered "gift/s," this is not disclosed during the initial stages of the sales pitch. The revelation is only done when the target customer is being surrounded by Aowas representatives within its showroom/store/outlet. In some cases, when customers state that they are short of cash, [Aowas] representatives urge said customers to use their credit card or to withdraw from an Automated Teller Machine (ATM). There are even instances where [Aowas] representatives accompany a customer to his/her residence, where the latter can produce their (sic) means of payment. In view thereof, DTI-NCR filed a Formal Charge against AOWA for violation of Articles 50 and 52 of the Consumer Act of the Philippines, praying that a Cease and Desist Order be issued, and [an] administrative fine be imposed, and other reliefs or remedies be granted as may be just and equitable under the circumstances. 5 The CA further narrates: When asked to Answer, AOWA denied having violated the provisions of the Consumer Act. A notice of preliminary conference was thereafter issued, giving the parties to find (sic) ways and means to expedite the proceedings, but the scheduled preliminary

conference had to be terminated, as the proposal to enter into a plea bargain agreement did not ensue. As a consequence thereof, both parties were required to submit their respective position papers. Meanwhile, a Preventive Measure Order (PMO) was issued by the DTI in order to prohibit AOWA from continuing with the act complained of until such time that a sale promotion permit is secured or obtained from the DTI. In their position paper, AOWA vehemently denied committing any violation of the provisions of the Consumer Act as it does not employ the marketing scheme described in the formal charge. AOWA argued that the mere filing of the consumer complaint does not prove outright that an offense has been committed by it, meaning that it is not a conclusive proof that it is violating the law it is charged of. It stressed that all of the consumer complaints against it have not prospered, as the cases have been amicably settled. In addition, majority of the consumer complaints which served as basis for the filing of the formal charge are already deemed barred by prescription. As far as it is concerned therefore, AOWA claims that the complaint[s are] based on mere assumption and not on established facts.6 On April 10, 2008, after considering the arguments of petitioner Aowa Electronic Philippines, Inc. (Aowa) and respondent DTI-National Capital Region (NCR), the Adjudication Officer found that the complaints against Aowa continued to increase despite its claims of amicable settlement. He also found that Aowa submitted no proof of such amicable settlement. Based on the numerous complaints against Aowa, the Adjudication Officer held that the DTI had sufficiently established prima facie evidence against Aowa for violation of the applicable provisions of Republic Act (R.A.) No. 7394, or the Consumer Act of the Philippines (the Consumer Act), and its Implementing Rules and Regulations (IRR). Furthermore, the Adjudication Officer highlighted that Aowa failed to secure any Sales Promotion Permit from the DTI for Aowas alleged promotional sales. Thus, he ruled: WHEREFORE, foregoing premises considered, and by virtue of the power and mandate vested in this Department, to promote and encourage fair, honest and equitable relations among parties in consumer transactions and protect the consumer against deceptive, unfair and unconscionable sales act or practices, [Aowa] is hereby declared liable under the Consumer Act of the Philippines and the Rules and Regulations Implementing the same. As a consequence thereof, it is hereby ordered, that a) [Aowa] must permanently cease and desist from operating its business in all its stores/outlets nationwide; b) [Aowas] Certificates of Business Name Registration for all its stores/outlets applying the sales scheme in question be cancelled; c) [Aowas] application for the registration of the same or another business name be withheld by DTI if the nature thereof is the same as that mentioned in this case; d) [Aowa] must pay and/or refund to those who filed administrative complaint[s] with any DTI Office, the amount of money paid in consideration for the purchase of products sold in [Aowas] stores/outlets as a precondition to the claim of the gift/reward promised to be given to said complainants[; and] e) [Aowa] must pay a one time Administrative Fine of Three Hundred Thousand Pesos (P300,000.00), Philippine currency, either in cash or in the form of

Company or Managers check, at the DTI Cashiers Office, 4th Floor, Trade and Industry Building, 361 Sen. Gil Puyat Ave., Makati City. Let a copy of this Decision be furnished to all Heads of DTI Provincial and Area Offices who are hereby directed to disseminate copies hereof to the Heads of Business Permit Bureau/Division of the different municipalities or cities within their respective jurisdictions for their appropriate action. SO ORDERED.7 Aggrieved, Aowa sought recourse from the DTI Appeals Committee, ascribing grave abuse of discretion to the Adjudication Officer. On August 26, 2008, the DTI Appeals Committee dismissed Aowas appeal and sustained the Adjudication Officers decision. It held that the techniques and schemes employed by Aowa were fraudulent, as they were being used as a bait to lure customers into buying its products. The DTI Appeals Committee noted that Aowas act of giving gifts and prizes to its prospective customers in order to entice the latter to enter Aowas store and to purchase its products is a common thread in every complaint lodged against Aowa before the DTI.8 Unperturbed, Aowa filed a petition for certiorari under Rule 65 of the Rules of Civil Procedure before the CA. On June 23, 2009, the CA affirmed the findings and ruling of the DTI Appeals Committee. The CA heavily relied on the findings of the Adjudication Officer and the DTI Appeals Committee, showing that Aowa committed acts of misrepresentation against its customers, clearly violative of the Consumer Act. Likewise, the CA affirmed the lower agencies findings that Aowa indeed did not secure any Sales Promotion Permit for its promotional sales. 9 Unyielding, Aowa filed its motion for reconsideration, which the CA, however, denied in its Resolution10 dated September 29, 2009. Hence, this petition based on the following grounds: [I.] WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT RULED THAT THERE IS SUFFICIENT BASIS IN THE FILING OF THE FORMAL CHARGE AGAINST HEREIN PETITIONER NOTWITHSTANDING THE FACT THAT THE SAID FORMAL CHARGE WAS MERELY BASED ON CONSUMER COMPLAINTS WHICH HAVE ALL BEEN AMICABLY SETTLED AND DISMISSED. MOREOVER, THE HEREIN RESPONDENT DOES NOT HAVE ANY PERSONAL KNOWLEDGE OF THE CIRCUMSTANCES SURROUNDING ALL THE CONSUMER COMPLAINTS FILED AGAINST THE PETITIONER[;] [II.] WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT AFFIRMED THE HARSH AND EXCESSIVE DECISION OF THE DEPARTMENT OF TRADE AND INDUSTRY, APPEALS COMMITTEE ORDERING THE HEREIN PETITIONER TO PERMANENTLY CEASE AND DESIST FROM OPERATING ITS BUSINESS AND IN ADDITION TO PAY THE MAXIMUM FINE PROVIDED UNDER THE LAW NOTWITHSTANDING THE FACT THAT THE FORMAL CHARGE IS NOT SUPPORTED BY ANY CONCRETE, SUFFICIENT AND CONVINCING EVIDENCE[; AND] [III.] WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS RULING THAT THE ASSAILED RESOLUTIONS ORDER MAY BE ENFORCED NATIONWIDE DESPITE THE FACT THAT THE COMPLAINT PERTAINS TO CASES IN THE NATIONAL CAPITAL REGION ONLY[.] 11

Aowa claims that the complaints filed against it merely pertain to cases in the NCR, hence, there was no basis for the DTI to presume that the alleged offenses committed by petitioner are likewise practiced in other places in the country; that DTI never denied Aowas averment that the cases filed against it by customers were already and actually settled; that the mere filing of numerous complaints does not prove outright that an offense has been committed; and that the complaints were based on mere assumptions and not on established facts. Moreover, Aowas act of amicably settling the cases with the consumer-complainants manifests Aowas good faith and fair dealing with its patrons, not commensurate with the penalty of closure and the maximum fine imposed by the DTI. Finally, Aowa denies that it committed fraud and/or deceit in violation of the Consumer Act. Good faith must always be presumed. Aowa postulates that like other companies, its sales personnel are employed to convince potential customers to purchase the products they are selling, inclusive of enthusiasm in sales talk and overzealousness which cannot and should not be considered as deceit. Customers in this case were never deprived of their prerogative to refuse the offer of the sales agents of Aowa, as the terms and conditions of the sale were fully explained to all of its customers.12 On the other hand, the DTI, through the Office of the Solicitor General (OSG), claims that there is sufficient basis for the filing of the formal charge against petitioner; that through Assistant Secretary Ma. Theresa L. Pelayo, acting as Regional Caretaker, it filed the formal charge against Aowa based on the numerous complaints filed against the latter and pursuant to Article 15913 of the Consumer Act; that said complaints constituted prima facie violation of the Consumer Act; that, as such, Aowa has the burden to overcome the presumption by proof to the contrary; and that Aowa, however, failed to discharge the said burden. The OSG argues that, contrary to Aowas assertion, the amicable settlement allegedly entered by Aowa and its consumer-complainants is not a ground for the dismissal of the formal charge because Aowa, despite respondents issuance of a Preventive Measure Order14 (PMO) on July 31, 2009, continues to enter and engage in the same acts and/or transactions complained of. Consonant with the findings of the lower agencies and the CA, the OSG asseverates that Aowa, after it was afforded its right to due process, was correctly found liable for violation of the Consumer Act through misrepresentation, and for its failure to secure any Sales Promotion Permit from the DTI. Moreover, the directive of the Adjudication Officer of closure and imposition of the maximum fine of P300,000.00 is in accordance with law and its IRR. 15 Correlatively, Aowa assailed the validity of the PMO with the Regional Trial Court (RTC) of Makati City, Branch 143, docketed as Civil Case No. 09-723. The RTC, however, dismissed the case for lack of jurisdiction. Unyielding, in a Petition for Prohibition, Aowa went to the CA which, in its Resolution16 dated October 27, 2009, dismissed Aowas case for its failure to file the petition within the prescribed period. The said CA Resolution became final and executory on January 28, 2010. 17 In a Manifestation,18 the counsel of Aowa intimated that Aowa no longer intends to file a reply to the OSGs Comment, on the ground that the discussions made therein had already been addressed in the instant Petition. Counsel, however, also intimated that Aowa left its known office address without informing him of the location of its new office. The sole issue in this case is whether or not the CA committed any reversible error in affirming the findings and ruling of the Adjudication Officer and the DTI Appeals Committee. The Petition is bereft of merit. Contrary to Aowas postulations, the DTI has the authority and the mandate to act upon the complaints filed against Aowa. Article 2 of the Consumer Act clearly sets forth the policy of the State on consumer protection, viz.:

ART 2. Declaration of Basic Policy. It is the policy of the State to protect the interests of the consumer, promote his general welfare and to establish standards of conduct for business and industry. Towards this end, the State shall implement measures to achieve the following objectives: a) protection against hazards to health and safety; b) protection against deceptive, unfair and unconscionable sales acts and practices; c) provision of information and education to facilitate sound choice and the proper exercise of rights by the consumer; d) provision of adequate rights and means of redress; and e) involvement of consumer representatives in the formulation of social and economic policies. This policy is reiterated in Article 48 of the Consumer Act, which provides that "the State shall promote and encourage fair, honest and equitable relations among parties in consumer transactions and protect the consumer against deceptive, unfair and unconscionable sales acts or practices." Verily, as espoused by the OSG, the DTI validly invoked Article 159 of the Consumer Act in order to effectuate this policy of the State by filing a formal charge against Aowa. It is indubitable that the DTI is tasked to protect the consumer against deceptive, unfair, and unconscionable sales, acts, or practices, as defined in Articles 50 and 52 of the Consumer Act. 19 The law is clear. Articles 50 and 52 of the Consumer Act provide: ART. 50. Prohibition Against Deceptive Sales Acts or Practices. A deceptive act or practice by a seller or supplier in connection with a consumer transaction violates this Act whether it occurs before, during or after the transaction. An act or practice shall be deemed deceptive whenever the producer, manufacturer, supplier or seller, through concealment, false representation [or] fraudulent manipulation, induces a consumer to enter into a sales or lease transaction of any consumer product or service. Without limiting the scope of the above paragraph, the act or practice of a seller or supplier is deceptive when it represents that: a) a consumer product or service has the sponsorship, approval, performance, characteristics, ingredients, accessories, uses, or benefits it does not have; b) a consumer product or service is of a particular standard, quality, grade, style, or model when in fact it is not; c) a consumer product is new, original or unused, when in fact, it is in a deteriorated, altered, reconditioned, reclaimed or second-hand state; d) a consumer product or service is available to the consumer for a reason that is different from the fact; e) a consumer product or service has been supplied in accordance with the previous representation when in fact it is not; f) a consumer product or service can be supplied in a quantity greater than the supplier intends;

g) a service, or repair of a consumer product is needed when in fact it is not; h) a specific price advantage of a consumer product exists when in fact it does not; i) the sales act or practice involves or does not involve a warranty, a disclaimer of warranties, particular warranty terms or other rights, remedies or obligations if the indication is false; and j) the seller or supplier has a sponsorship, approval, or affiliation he does not have. xxxx ART. 52. Unfair or Unconscionable Sales Act or Practice. An unfair or unconscionable sales act or practice by a seller or supplier in connection with a consumer transaction violates this Chapter whether it occurs before, during or after the consumer transaction. An act or practice shall be deemed unfair or unconscionable whenever the producer, manufacturer, distributor, supplier or seller, by taking advantage of the consumer's physical or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or surroundings, induces the consumer to enter into a sales or lease transaction grossly inimical to the interests of the consumer or grossly one-sided in favor of the producer, manufacturer, distributor, supplier or seller. In determining whether an act or practice is unfair and unconscionable, the following circumstances shall be considered: a) that the producer, manufacturer, distributor, supplier or seller took advantage of the inability of the consumer to reasonably protect his interest because of his inability to understand the language of an agreement, or similar factors; b) that when the consumer transaction was entered into, the price grossly exceeded the price at which similar products or services were readily obtainable in similar transaction by like consumers; c) that when the consumer transaction was entered into, the consumer was unable to receive a substantial benefit from the subject of the transaction; d) that when the consumer transaction was entered into, the seller or supplier was aware that there was no reasonable probability or payment of the obligation in full by the consumer; and e) that the transaction that the seller or supplier induced the consumer to enter into was excessively one-sided in favor of the seller or supplier. It cannot be gainsaid that the DTI acted on the basis of about 273 consumer complaints against Aowa, averring a common and viral scheme in carrying out its business to the prejudice of consumers. Complaints filed by consumers residing not only within the NCR but also in the provinces20 continued to be filed even after the formal charge and the issuance of the PMO. In this regard, we quote with affirmation and accord respect to the factual findings of the CA, to wit: [Aowa], in employing the sales scheme described by customers in their complaints in order to entice customers to purchase [its] products clearly violated Article 52 of the Consumer Act of the Philippines. As found by public respondent DTI whose findings We heretofore adopt:

"It is undisputed that the techniques/scheme employed by [Aowa] were fraudulently (sic) considering that the same were being used as a bait to lure customers into buying it products. [Aowas] customary act of giving gifts and the so called prizes to its prospective customers in order to entice them to enter the store outlet and later convincing (sic) them to purchase the products [it is] selling are (sic) but common trends (sic) that occurred in every complaint lodged against [Aowa] before the DTI-NCR and regional offices. In such manner, it is evident that the said scheme is actually the means by which [Aowa] operates its business. Simply, it is intrinsically connected to the business itself of and had [Aowa] not employed those techniques, customers would not have transacted with it." In doing so, [Aowa], as seller, through its representatives stationed usually in malls, entice consumers into purchasing their products by taking advantage of the latters physical or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or surroundings. This is done by misrepresenting to the consumer that he/she has won a gift or is to receive some giveaways when in truth, these gifts can only be claimed or received upon purchase of an additional product or products, again misrepresented by [Aowa to] be of high quality. This is how [Aowa] operates its business, and not simply as a means of promotional sale. The act sought to be avoided and punished under the Consumer Act has clearly been committed by Aowa. 21 By reason of the special knowledge and expertise of the DTI over matters falling under its jurisdiction, it is in a better position to pass judgment on the issues, and its findings of fact in that regard, especially when affirmed by the CA, are generally accorded respect, if not finality, by this Court.22 Furthermore, Aowa failed to refute DTIs finding that it did not secure any permit for its alleged promotional sales. In sum, Aowa failed to show any reversible error on the part of the CA in affirming the ruling of the DTI as to warrant the modification much less the reversal of its assailed decision. A final note. In these trying times when fly-by-night establishments and syndicates proliferate all over the country, lurking and waiting to prey on innocent consumers, and ganging up on them like a pack of wolves with their sugar-coated sales talk and false representations disguised as "overzealous marketing strategies," it is the mandated duty of the Government, through its various agencies like the DTI, to be wary and ready to protect each and every consumer. To allow or even tolerate the marketing schemes such as these, under the pretext of promotional sales in contravention of the law and its existing rules and regulations, would result in consumers being robbed in broad daylight of their hard earned money. This Court shall not countenance these pernicious acts at the expense of consumers. WHEREFORE, the Petition is DENIED and the Court of Appeals Decision dated June 23, 2009 is AFFIRMED. Costs against petitioner. SO ORDERED. ANTONIO EDUARDO B. NACHURA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice

Associate Justice

JOSE CATRAL MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Rollo, pp. 11-32.

Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Vicente S.E. Veloso and Ricardo R. Rosario, concurring; id. at 36-52.
3

Id. at 54-58. Id. at 59-66. Supra note 2, at 37-39. Id. at 39-40. Supra note 4, at 65-66. Supra note 3. Supra note 2. Rollo, pp. 68-69. Supra note 1, at 20-21. Id. Article 159 of the Consumer Act provides, to wit:

10

11

12

13

ART. 159. Consumer Complaints. The concerned department may commence an investigation upon petition or upon letter-complaint from any consumer: Provided, That, upon a finding by the department of a prima facie violation of any provisions of this Act or any rule or regulation promulgated under its authority, it may motu proprio or upon verified complaint commence formal administrative action against any person who appears responsible therefore. The department shall establish procedures for systematically logging in, investigating and responding to consumer complaints into the development of consumer policies, rules and regulations, assuring as far as practicable simple and easy access on the part of the consumer to seek redress for his grievances.
14

Entitled "Department of Trade and Industry-National Capital Region, Hon. VicePresident Manuel Noli de Castro and Jesse Hermogenes T. Andres v. Aowa Electronics Philippines, Inc., Home Depot Macapagal Avenue, Pasay City," particularly docketed as Adm. Case No. 09-186; rollo, pp. 152-153.
15

Id. at 132-149. Id. at 176-177. Id. at 178. Id. at 193-195.

16

17

18

19

Islamic Da'wah Council of the Phils., Inc. v. Office of the Executive Secretary, 453 Phil. 440, 451-452 (2003).
20

Rollo, pp. 167-175. Supra note 2, at 45-46. Metal Forming Corp. v. Office of the President, 317 Phil. 853, 861 (1995).

21

22

Republic of the Philippines SUPREME COURT Baguio FIRST DIVISION G.R. No. 167057 April 11, 2012

NERWIN INDUSTRIES CORPORATION, Petitioner, vs. PNOC-ENERGY DEVELOPMENT CORPORATION, and ESTER R. GUERZON, Chairman, Bids and Awards Committee, Respondents. DECISION

BERSAMIN, J.: Republic Act No. 89751 expressly prohibits any court, except the Supreme Court, from issuing any temporary restraining order (TRO), preliminary injunction, or preliminary mandatory injunction to restrain, prohibit or compel the Government, or any of its subdivisions or officials, or any person or entity, whether public or private, acting under the Governments direction, from: (a) acquiring, clearing, and developing the right-ofway, site or location of any National Government project; (b) bidding or awarding of a contract or project of the National Government; (c) commencing, prosecuting, executing, implementing, or operating any such contract or project; (d) terminating or rescinding any such contract or project; and (e) undertaking or authorizing any other lawful activity necessary for such contract or project. Accordingly, a Regional Trial Court (RTC) that ignores the statutory prohibition and issues a TRO or a writ of preliminary injunction or preliminary mandatory injunction against a government contract or project acts contrary to law. Antecedents The following antecedents are culled from the assailed decision of the Court of Appeals (CA) promulgated on October 22, 2004,2 viz: In 1999, the National Electrification Administration ("NEA") published an invitation to pre-qualify and to bid for a contract, otherwise known as IPB No. 80, for the supply and delivery of about sixty thousand (60,000) pieces of woodpoles and twenty thousand (20,000) pieces of crossarms needed in the countrys Rural Electrification Project. The said contract consisted of four (4) components, namely: PIA, PIB and PIC or woodpoles and P3 or crossarms, necessary for NEAs projected allocation for Luzon, Visayas and Mindanao. In response to the said invitation, bidders, such as private respondent [Nerwin], were required to submit their application for eligibility together with their technical proposals. At the same time, they were informed that only those who would pass the standard pre-qualification would be invited to submit their financial bids. Following a thorough review of the bidders qualifications and eligibility, only four (4) bidders, including private respondent [Nerwin], qualified to participate in the bidding for the IPB-80 contract. Thereafter, the qualified bidders submitted their financial bids where private respondent [Nerwin] emerged as the lowest bidder for all schedules/components of the contract. NEA then conducted a pre-award inspection of private respondents [Nerwins] manufacturing plants and facilities, including its identified supplier in Malaysia, to determine its capability to supply and deliver NEAs requirements. In the Recommendation of Award for Schedules PIA, PIB, PIC and P3 - IBP No. 80 [for the] Supply and Delivery of Woodpoles and Crossarms dated October 4, 2000, NEA administrator Conrado M. Estrella III recommended to NEAs Board of Directors the approval of award to private respondent [Nerwin] of all schedules for IBP No. 80 on account of the following: a. Nerwin is the lowest complying and responsive bidder; b. The price difference for the four (4) schedules between the bid of Nerwin Industries (lowest responsive and complying bidder) and the second lowest bidder in the amount of $1.47 million for the poles and $0.475 million for the crossarms, is deemed substantial and extremely advantageous to the government. The price difference is equivalent to 7,948 pcs. of poles and 20.967 pcs. of crossarms;

c. The price difference for the three (3) schedules between the bids of Nerwin and the Tri-State Pole and Piling, Inc. approximately in the amount of $2.36 million for the poles and $0.475 million for the crossarms are equivalent to additional 12.872 pcs. of poles and 20.967 pcs. of crossarms; and d. The bidder and manufacturer are capable of supplying the woodpoles and specified in the bid documents and as based on the pre-award inspection conducted. However, on December 19, 2000, NEAs Board of Directors passed Resolution No. 32 reducing by 50% the material requirements for IBP No. 80 "given the time limitations for the delivery of the materials, xxx, and with the loan closing date of October 2001 fast approaching". In turn, it resolved to award the four (4) schedules of IBP No. 80 at a reduced number to private respondent [Nerwin]. Private respondent [Nerwin] protested the said 50% reduction, alleging that the same was a ploy to accommodate a losing bidder. On the other hand, the losing bidders Tri State and Pacific Synnergy appeared to have filed a complaint, citing alleged false or falsified documents submitted during the prequalification stage which led to the award of the IBP-80 project to private respondent [Nerwin]. Thus, finding a way to nullify the result of the previous bidding, NEA officials sought the opinion of the Government Corporate Counsel who, among others, upheld the eligibility and qualification of private respondent [Nerwin]. Dissatisfied, the said officials attempted to seek a revision of the earlier opinion but the Government Corporate Counsel declared anew that there was no legal impediment to prevent the award of IPB-80 contract to private respondent [Nerwin]. Notwithstanding, NEA allegedly held negotiations with other bidders relative to the IPB-80 contract, prompting private respondent [Nerwin] to file a complaint for specific performance with prayer for the issuance of an injunction, which injunctive application was granted by Branch 36 of RTC-Manila in Civil Case No. 01102000. In the interim, PNOC-Energy Development Corporation purporting to be under the Department of Energy, issued Requisition No. FGJ 30904R1 or an invitation to prequalify and to bid for wooden poles needed for its Samar Rural Electrification Project ("O-ILAW project"). Upon learning of the issuance of Requisition No. FGJ 30904R1 for the O-ILAW Project, Nerwin filed a civil action in the RTC in Manila, docketed as Civil Case No. 03106921 entitled Nerwin Industries Corporation v. PNOC-Energy Development Corporation and Ester R. Guerzon, as Chairman, Bids and Awards Committee, alleging that Requisition No. FGJ 30904R1 was an attempt to subject a portion of the items covered by IPB No. 80 to another bidding; and praying that a TRO issue to enjoin respondents proposed bidding for the wooden poles. Respondents sought the dismissal of Civil Case No. 03106921, stating that the complaint averred no cause of action, violated the rule that government infrastructure projects were not to be subjected to TROs, contravened the mandatory prohibition against non-forum shopping, and the corporate president had no authority to sign and file the complaint.3 On June 27, 2003, after Nerwin had filed its rejoinder to respondents reply, the RTC granted a TRO in Civil Case No. 03106921.4 On July 30, 2003, the RTC issued an order,5 as follows:

WHEREFORE, for the foregoing considerations, an order is hereby issued by this Court: 1. DENYING the motion to consolidate; 2. DENYING the urgent motion for reconsideration; 3. DISQUALIFYING Attys. Michael A. Medado, Datu Omar S. Sinsuat and Mariano H. Paps from appearing as counsel for the defendants; 4. DECLARING defendants in default; 5. GRANTING the motion for issuance of writ of preliminary injunction. Accordingly, let a writ of preliminary injunction issue enjoining the defendant PNOCEDC and its Chairman of Bids and Awards Committee Esther R. Guerzon from continuing the holding of the subject bidding upon the plaintiffs filing of a bond in the amount of P200,000.00 to answer for any damage or damages which the defendants may suffer should it be finally adjudged that petitioner is not entitled thereto, until final determination of the issue in this case by this Court. This order shall become effective only upon the posting of a bond by the plaintiffs in the amount of P200,000.00. Let a copy of this order be immediately served on the defendants and strict compliance herein is enjoined. Furnish the Office of the Government Corporate Counsel copy of this order. SO ORDERED. Respondents moved for the reconsideration of the order of July 30, 2003, and also to set aside the order of default and to admit their answer to the complaint. On January 13, 2004, the RTC denied respondents motions for reconsideration, to set aside order of default, and to admit answer. 6 Thence, respondents commenced in the Court of Appeals (CA) a special civil action for certiorari (CA-GR SP No. 83144), alleging that the RTC had thereby committed grave abuse of discretion amounting to lack or excess of jurisdiction in holding that Nerwin had been entitled to the issuance of the writ of preliminary injunction despite the express prohibition from the law and from the Supreme Court; in issuing the TRO in blatant violation of the Rules of Court and established jurisprudence; in declaring respondents in default; and in disqualifying respondents counsel from representing them.7 On October 22, 2004, the CA promulgated its decision, 8 to wit: WHEREFORE, the petition is GRANTED. The assailed Orders dated July 30 and December 29, 2003 are hereby ANNULED and SET ASIDE. Accordingly, Civil Case No. 03106921, private respondents complaint for issuance of temporary restraining order/writ of preliminary injunction before Branch 37 of the Regional Trial Court of Manila, is DISMISSED for lack of merit. SO ORDERED. Nerwin filed a motion for reconsideration, but the CA denied the motion on February 9, 2005.9

Issues Hence, Nerwin appeals, raising the following issues: I. Whether or not the CA erred in dismissing the case on the basis of Rep. Act 8975 prohibiting the issuance of temporary restraining orders and preliminary injunctions, except if issued by the Supreme Court, on government projects. II. Whether or not the CA erred in ordering the dismissal of the entire case on the basis of Rep. Act 8975 which prohibits the issuance only of a preliminary injunction but not injunction as a final remedy. III. Whether or not the CA erred in dismissing the case considering that it is also one for damages. Ruling The petition fails. In its decision of October 22, 2004, the CA explained why it annulled and set aside the assailed orders of the RTC issued on July 20, 2003 and December 29, 2003, and why it altogether dismissed Civil Case No. 03106921, as follows: It is beyond dispute that the crux of the instant case is the propriety of respondent Judges issuance of a preliminary injunction, or the earlier TRO, for that matter. Respondent Judge gravely abused his discretion in entertaining an application for TRO/preliminary injunction, and worse, in issuing a preliminary injunction through the assailed order enjoining petitioners sought bidding for its O-ILAW Project. The same is a palpable violation of RA 8975 which was approved on November 7, 2000, thus, already existing at the time respondent Judge issued the assailed Orders dated July 20 and December 29, 2003. Section 3 of RA 8975 states in no uncertain terms, thus: Prohibition on the Issuance of temporary Restraining Order, Preliminary Injunctions and Preliminary Mandatory Injunctions. No court, except the Supreme Court, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against the government, or any of its subdivisions, officials, or any person or entity, whether public or private, acting under the governments direction, to restrain, prohibit or compel the following acts: xxx (b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof; xxx This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but not limited to cases filed by bidders or those claiming to have rights through such bidders involving such contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. xxx

The said proscription is not entirely new. RA 8975 merely supersedes PD 1818 which earlier underscored the prohibition to courts from issuing restraining orders or preliminary injunctions in cases involving infrastructure or National Resources Development projects of, and public utilities operated by, the government. This law was, in fact, earlier upheld to have such a mandatory nature by the Supreme Court in an administrative case against a Judge. Moreover, to bolster the significance of the said prohibition, the Supreme Court had the same embodied in its Administrative Circular No. 11-2000 which reiterates the ban on issuance of TRO or writs of Preliminary Prohibitory or Mandatory Injunction in cases involving Government Infrastructure Projects. Pertinent is the ruling in National Housing Authority vs. Allarde "As regards the definition of infrastructure projects, the Court stressed in Republic of the Phil. vs. Salvador Silverio and Big Bertha Construction: The term infrastructure projects means construction, improvement and rehabilitation of roads, and bridges, railways, airports, seaports, communication facilities, irrigation, flood control and drainage, water supply and sewerage systems, shore protection, power facilities, national buildings, school buildings, hospital buildings and other related construction projects that form part of the government capital investment." Thus, there is nothing from the law or jurisprudence, or even from the facts of the case, that would justify respondent Judges blatant disregard of a "simple, comprehensible and unequivocal mandate (of PD 1818) prohibiting the issuance of injunctive writs relative to government infrastructure projects." Respondent Judge did not even endeavor, although expectedly, to show that the instant case falls under the single exception where the said proscription may not apply, i.e., when the matter is of extreme urgency involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. Respondent Judge could not have legally declared petitioner in default because, in the first place, he should not have given due course to private respondents complaint for injunction. Indubitably, the assailed orders were issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Perforce, this Court no longer sees the need to resolve the other grounds proffered by petitioners.10 The CAs decision was absolutely correct. The RTC gravely abused its discretion, firstly, when it entertained the complaint of Nerwin against respondents notwithstanding that Nerwin was thereby contravening the express provisions of Section 3 and Section 4 of Republic Act No. 8975 for its seeking to enjoin the bidding out by respondents of the OILAW Project; and, secondly, when it issued the TRO and the writ of preliminary prohibitory injunction. Section 3 and Section 4 of Republic Act No. 8975 provide: Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary Mandatory Injunctions . No court, except the Supreme Court, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against the government, or any of its subdivisions, officials or any person or entity, whether public or private, acting under the governments direction, to restrain, prohibit or compel the following acts: (a) Acquisition, clearance and development of the right-of-way and/or site or location of any national government project; (b) Bidding or awarding of contract/project of the national government as defined under Section 2 hereof;

(c) Commencement, prosecution, execution, implementation, operation of any such contract or project; (d) Termination or rescission of any such contract/project; and (e) The undertaking or authorization of any other lawful activity necessary for such contract/project. This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but not limited to cases filed by bidders or those claiming to have rights through such bidders involving such contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall accrue in favor of the government if the court should finally decide that the applicant was not entitled to the relief sought. If after due hearing the court finds that the award of the contract is null and void, the court may, if appropriate under the circumstances, award the contract to the qualified and winning bidder or order a rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws. Section 4. Nullity of Writs and Orders. - Any temporary restraining order, preliminary injunction or preliminary mandatory injunction issued in violation of Section 3 hereof is void and of no force and effect. The text and tenor of the provisions being clear and unambiguous, nothing was left for the RTC to do except to enforce them and to exact upon Nerwin obedience to them. The RTC could not have been unaware of the prohibition under Republic Act No. 8975 considering that the Court had itself instructed all judges and justices of the lower courts, through Administrative Circular No. 11-2000, to comply with and respect the prohibition against the issuance of TROs or writs of preliminary prohibitory or mandatory injunction involving contracts and projects of the Government. It is of great relevance to mention at this juncture that Judge Vicente A. Hidalgo, the Presiding Judge of Branch 37 of the RTC, the branch to which Civil Case No. 03106921 had been raffled, was in fact already found administratively liable for gross misconduct and gross ignorance of the law as the result of his issuance of the assailed TRO and writ of preliminary prohibitory injunction. The Court could only fine him in the amount ofP40,000.00 last August 6, 2008 in view of his intervening retirement from the service. That sanction was meted on him in A.M. No. RTJ-08-2133 entitled Sinsuat v. Hidalgo,11 where this Court stated: The Court finds that, indeed, respondent is liable for gross misconduct. As the CA explained in its above-stated Decision in the petition for certiorari, respondent failed to heed the mandatory ban imposed by P.D. No. 1818 and R.A. No. 8975 against a government infrastructure project, which the rural electrification project certainly was. He thereby likewise obstinately disregarded this Courts various circulars enjoining courts from issuing TROs and injunctions against government infrastructure projects in line with the proscription under R.A. No. 8975. Aproposare Gov. Garcia v. Hon. Burgos and National Housing Authority v. Hon. Allarde wherein this Court stressed that P.D. No. 1818 expressly deprives courts of jurisdiction to issue injunctive writs against the implementation or execution of a government infrastructure project. Reiterating the prohibitory mandate of P.D. No. 1818, the Court in Atty. Caguioa v. Judge Lavia faulted a judge for grave misconduct for issuing a TRO against a government infrastructure project thus:

xxx It appears that respondent is either feigning a misunderstanding of the law or openly manifesting a contumacious indifference thereto. In any case, his disregard of the clear mandate of PD 1818, as well as of the Supreme Court Circulars enjoining strict compliance therewith, constitutes grave misconduct and conduct prejudicial to the proper administration of justice. His claim that the said statute is inapplicable to his January 21, 1997 Order extending the dubious TRO is but a contrived subterfuge to evade administrative liability. In resolving matters in litigation, judges should endeavor assiduously to ascertain the facts and the applicable laws. Moreover, they should exhibit more than just a cursory acquaintance with statutes and procedural rules. Also, they are expected to keep abreast of and be conversant with the rules and the circulars which the Supreme Court has adopted and which affect the disposition of cases before them. Although judges have in their favor the presumption of regularity and good faith in the performance of their judicial functions, a blatant disregard of the clear and unmistakable terms of the law obviates this presumption and renders them susceptible to administrative sanctions . (Emphasis and underscoring supplied) The pronouncements in Caguioa apply as well to respondent. The questioned acts of respondent also constitute gross ignorance of the law for being patently in disregard of simple, elementary and well-known rules which judges are expected to know and apply properly. IN FINE, respondent is guilty of gross misconduct and gross ignorance of the law, which are serious charges under Section 8 of Rule 140 of the Rules of Court. He having retired from the service, a fine in the amount ofP40,000 is imposed upon him, the maximum amount fixed under Section 11 of Rule 140 as an alternative sanction to dismissal or suspension.12 Even as the foregoing outcome has rendered any further treatment and discussion of Nerwins other submissions superfluous and unnecessary, the Court notes that the RTC did not properly appreciate the real nature and true purpose of the injunctive remedy. This failing of the RTC presses the Court to use this decision to reiterate the norms and parameters long standing jurisprudence has set to control the issuance of TROs and writs of injunction, and to now insist on conformity to them by all litigants and lower courts. Only thereby may the grave misconduct committed in Civil Case No. 03106921 be avoided.1wphi1 A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment or final order, requiring a party or a court, agency or person, to refrain from a particular act or acts.13 It is an ancillary or preventive remedy resorted to by a litigant to protect or preserve his rights or interests during the pendency of the case. As such, it is issued only when it is established that: (a) The applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; or (b) The commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) A party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. 14 The existence of a right to be protected by the injunctive relief is indispensable. In City Government of Butuan v. Consolidated Broadcasting System (CBS), Inc., 15 the Court elaborated on this requirement, viz: As with all equitable remedies, injunction must be issued only at the instance of a party who possesses sufficient interest in or title to the right or the property sought to be protected. It is proper only when the applicant appears to be entitled to the relief demanded in the complaint, which must aver the existence of the right and the violation of the right, or whose averments must in the minimum constitute a prima facie showing of a right to the final relief sought. Accordingly, the conditions for the issuance of the injunctive writ are: (a) that the right to be protected exists prima facie; (b) that the act sought to be enjoined is violative of that right; and (c) that there is an urgent and paramount necessity for the writ to prevent serious damage. An injunction will not issue to protect a right not in esse, or a right which is merely contingent and may never arise; or to restrain an act which does not give rise to a cause of action; or to prevent the perpetration of an act prohibited by statute. Indeed, a right, to be protected by injunction, means a right clearly founded on or granted by law or is enforceable as a matter of law.16 Conclusive proof of the existence of the right to be protected is not demanded, however, for, as the Court has held in Saulog v. Court of Appeals, 17 it is enough that: xxx for the court to act, there must be an existing basis of facts affording a present right which is directly threatened by an act sought to be enjoined. And while a clear showing of the right claimed is necessary, its existence need not be conclusively established . In fact, the evidence to be submitted to justify preliminary injunction at the hearing thereon need not be conclusive or complete but need only be a "sampling" intended merely to give the court an idea of the justification for the preliminary injunction pending the decision of the case on the merits. This should really be so since our concern here involves only the propriety of the preliminary injunction and not the merits of the case still pending with the trial court. Thus, to be entitled to the writ of preliminary injunction, the private respondent needs only to show that it has theostensible right to the final relief prayed for in its complaint xxx.18 In this regard, the Rules of Court grants a broad latitude to the trial courts considering that conflicting claims in an application for a provisional writ more often than not involve and require a factual determination that is not the function of the appellate courts.19 Nonetheless, the exercise of such discretion must be sound, that is, the issuance of the writ, though discretionary, should be upon the grounds and in the manner provided by law.20When that is done, the exercise of sound discretion by the issuing court in injunctive matters must not be interfered with except when there is manifest abuse.21 Moreover, judges dealing with applications for the injunctive relief ought to be wary of improvidently or unwarrantedly issuing TROs or writs of injunction that tend to dispose of the merits without or before trial. Granting an application for the relief in disregard of that tendency is judicially impermissible,22 for it is never the function of a TRO or preliminary injunction to determine the merits of a case, 23 or to decide controverted facts.24 It is but a preventive remedy whose only mission is to prevent threatened wrong,25 further injury,26 and irreparable harm27or injustice28 until the rights of the parties

can be settled. Judges should thus look at such relief only as a means to protect the ability of their courts to render a meaningful decision. 29 Foremost in their minds should be to guard against a change of circumstances that will hamper or prevent the granting of proper reliefs after a trial on the merits. 30 It is well worth remembering that the writ of preliminary injunction should issue only to prevent the threatened continuous and irremediable injury to the applicant before the claim can be justly and thoroughly studied and adjudicated.31 WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals; and ORDERS petitioner to pay the costs of suit. The Court Administrator shall disseminate this decision to the lower courts for their guidance. SO ORDERED. LUCAS P. BERSAMIN Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson TERESITA J. LEONARDO-DE CASTRO Associate Justice ARTURO D. BRION* Associate Justice

MARTIN S. VILLARAMA, JR. Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Vice Associate Justice Mariano C. Del Castillo who concurred with the decision of the Court of Appeals, pursuant to the raffle of April 11, 2012.
1

An Act to Ensure the Expeditious Implementation and Completion of Government Infrastructure Projects by Prohibiting Lower Courts from issuing Temporary Restraining Orders, Preliminary Injunctions or Preliminary Mandatory Injunctions, Providing Penalties for Violations thereof, and for Other Purposes.
2

Rollo, pp. 11-21; penned by Associate Justice Magdangal M. De Leon, and concurred in by Associate Justices Romeo A. Brawner (later Presiding Justice) and Associate Justice Mariano C. Del Castillo (now a Member of this Court).

Id., p. 14. Id., pp. 14-15. Id., p. 15. Id., p. 16. Id., p. 60. Supra, note 2.

Rollo pp. 67-69; penned by Associate Justice Magdangal De Leon, and concurred in by Associate Justice Brawner and Associate Justice Del Castillo.
10

Bold underscoring is part of original text. 561 SCRA 38.

11

12

Sinsuat v. Hidalgo, A.M. No. RTJ-08-2133, August 6, 2008, 561 SCRA 38, 4850.
13

Sec. 1, Rule 58, 1997 Rules of Civil Procedure. Sec. 3, Rule 58, 1997 Rules of Civil Procedure. G.R. No. 157315, December 1, 2010, 636 SCRA 320.

14

15

16

City Government of Butuan v. Consolidated Broadcasting System (BS), Inc ., G.R. No. 157315, December 1, 2010, 636 SCRA 320, 336-337 (Bold emphasis supplied).
17

Saulog v. Court of Appeals, G.R. No. 119769, September 18, 1996, 262 SCRA 51.
18

Id., p. 60 (Bold emphasis supplied).

19

Urbanes, Jr. v. Court of Appeals, G.R. No. 117964, March 28, 2001,355 SCRA 537, 548.
20

Republic Telecommunications Holdings, Inc. v. Court of Appeals , G.R. No. 135074, January 29, 1999, 302 SCRA 403, 409.
21

Searth Commodities Corp. v. Court of Appeals, G.R. No. 64220, March 31, 1992, 207 SCRA 622, 628; S & A Gaisano, Inc. v. Judge Hidalgo; G.R. No. 80397, December 10, 1990, 192 SCRA 224, 229; Genoblazo v. Court of Appeals, G.R. No. 79303, June 20, 1989, 174 SCRA 124, 133.
22

Searth Commodities Corporation v. Court of Appeals, G.R. No. 64220, March 31, 1992, 207 SCRA 622, 629-630; Rivas v. Securities and Exchange Commission, G.R. No. 53772, October 4, 1990,190 SCRA 295, 305; Government Service Insurance System v. Florendo, G.R. No. 48603, September 29, 1989, 178 SCRA 76, 88-89; Ortigas v. Co. Ltd. Partnership v. Court of Appeals, No. L-79128, June 16, 1988, 162 SCRA 165, 169.
23

43 CJS Injunctions 5, citing B. W. Photo Utilities v. Republic Molding Corporation, C. A. Cal., 280 F. 2d 806; Duckworth v. James, C. A. Va. 267 F. 2d

224; Westinghouse Electric Corporation v. Free Sewing Machine Co., C. A. Ill, 256 F. 2d 806.
24

43 CJS Injunctions 5, citing Lonergan v. Crucible Steel Co. of America, 229 N. E. 2d 536, 37 Ill. 2d 599; Compton v. Paul K. Harding Realty Co., 285 N.E. 2d 574, 580.
25

Doeskin Products, Inc. v. United Paper Co., C. A. Ill., 195 F. 2d 356; Benson Hotel Corp. v. Woods, C. C. A. Minn., 168 F. 2d 694; Spickerman v. Sproul, 328 P. 2d 87, 138 Colo. 13; United States v. National Plastikwear Fashions, 368 F. 2d 845.
26

Career Placement of White Plains, Inc. v. Vaus, 354 N. Y. S. 2d 764, 77 Misc. 2d 788;Toushin v. City of Chicago, 320 N. E. 2d 202, 23 Ill. App. 3d 797; H. K. H. Development Corporation v. Metropolitan Sanitary District of Greater Chicago, 196 N. E., 2d 494, 47 Ill. App. 46.
27

Exhibitors Poster Exchange, Inc. v. National Screen Service Corp., C. A. La., 441 F. 2d 560; Marine Cooks & Stewards, AFL v. Panama S. S. Co., C. A. Wash., 362 U.S. 365.
28

City of Cleveland v. Division 268 of Amalgamated Association of St. Elec. Ry. & Motor Coach Emp. Of America, 81. N. E. 2d 310, 84 Ohio App. 43; Slott v. Plastic Fabricators, Inc., 167 A. 2d 306, 402 Pa. 433.
29

Meis v. Sanitas Service Corporation, C. A. Tex., 511 F. 2d 655; Gobel v. Laing, 12 Ohio App. 2d 93.
30

United States v. Adlers Creamery, C. C. A. N. Y., 107 F. 2d 987; American Mercury v. Kiely, C. C. A. N. Y., 19 F. 2d 295.
31

Republic v. Silerio, G.R. No. 108869, May 6, 1997, 272 SCRA 280, 287.

Republic of the Philippines SUPREME COURT Baguio THIRD DIVISION G.R. No. 170290 April 11, 2012

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, vs. CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A., Respondents. DECISION MENDOZA, J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the October 27, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 61316, entitled "Citibank, N.A. and Bank of America, S.T. & N.A. v. Philippine Deposit Insurance Corporation." The Facts Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.2 Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. & N.A. (BA)is a national banking association, both of which are duly organized and existing under the laws of the United States of America and duly licensed to do business in the Philippines, with offices in Makati City. 3 In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course of its banking business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. 4 These funds, which were lodged in the books of Citibank under the account "Their Account-Head Office/Branches-Foreign Currency," were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. 5 As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.6 Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign branches a total of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books under the account "Due to Head Office/Branches."7 Because BA also excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments for dollar deposits. 8 Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a petition for declaratory relief before the Court of First Instance (now the Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979, respectively. 9 In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements they received from their head office and other foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were improper and erroneous.10 The cases were then consolidated.11 On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision12 in favor of Citibank and BA, ruling that the subject money placements were not deposits and did not give rise to insurable deposit liabilities, and that the deficiency assessments issued by PDIC were improper and erroneous. Therefore, Citibank and BA were not liable to pay the same. The RTC reasoned out that the money placements subject of the petitions were not assessable for insurance purposes under the PDIC Charter because said placements were deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and Regulations, 13 such deposits are excluded from the computation of deposit liabilities. Section 3(f) of the PDIC Charter likewise excludes from the definition of the term "deposit" any obligation of a bank payable at the office of the bank located outside the Philippines. The RTC further stated that there was no depositor-depository relationship between the respondents and their head office or other branches. As a result, such deposits were

not included as third-party deposits that must be insured. Rather, they were considered inter-branch deposits which were excluded from the assessment base, in accordance with the practice of the United States Federal Deposit Insurance Corporation(FDIC) after which PDIC was patterned. Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27, 2005 Decision. In so ruling, the CA found that the money placements were received as part of the banks internal dealings by Citibank and BA as agents of their respective head offices. This showed that the head office and the Philippine branch were considered as the same entity. Thus, no bank deposit could have arisen from the transactions between the Philippine branch and the head office because there did not exist two separate contracting parties to act as depositor and depositary. 14 Secondly, the CA called attention to the purpose for the creation of PDIC which was to protect the deposits of depositors in the Philippines and not the deposits of the same bank through its head office or foreign branches.15 Thirdly, because there was no law or jurisprudence on the treatment of inter-branch deposits between the Philippine branch of a foreign bank and its head office and other branches for purposes of insurance, the CA was guided by the procedure observed by the FDIC which considered inter-branch deposits as non-assessable.16 Finally, the CA cited Section 3(f) of R.A. No. 3591, which specifically excludes obligations payable at the office of the bank located outside the Philippines from the definition of a deposit or an insured deposit. Since the subject money placements were made in the respective head offices of Citibank and BA located outside the Philippines, then such placements could not be subject to assessment under the PDIC Charter.17 Hence, this petition. The Issues PDIC raises the issue of whether or not the subject dollar deposits are assessable for insurance purposes under the PDIC Charter with the following assigned errors: A. The appellate court erred in ruling that the subject dollar deposits are money placements, thus, they are not subject to the provisions of Republic Act No. 6426 otherwise known as the "Foreign Currency Deposit Act of the Philippines." B. The appellate court erred in ruling that the subject dollar deposits are not covered by the PDIC insurance.18 Respondents similarly identify only one issue in this case: Whether or not the money placements subject matter of these petitions are assessable for insurance purposes under the PDIC Act. 19 The sole question to be resolved in this case is whether the funds placed in the Philippine branch by the head office and foreign branches of Citibank and BA are insurable deposits under the PDIC Charter and, as such, are subject to assessment for insurance premiums. The Courts Ruling The Court rules in the negative.

A branch has no separate legal personality; Purpose of the PDIC PDIC argues that the head offices of Citibank and BA and their individual foreign branches are separate and independent entities. It insists that under American jurisprudence, a banks head office and its branches have a principal-agent relationship only if they operate in the same jurisdiction. In the case of foreign branches, however, no such relationship exists because the head office and said foreign branches are deemed to be two distinct entities.20 Under Philippine law, specifically, Section 3(b) of R.A. No. 3591, which defines the terms "bank" and "banking institutions," PDIC contends that the law treats a branch of a foreign bank as a separate and independent banking unit.21 The respondents, on the other hand, initially point out that the factual findings of the RTC and the CA, with regard to the nature of the money placements, the capacity in which the same were received by the respondents and the exclusion of inter-branch deposits from assessment, can no longer be disturbed and should be accorded great weight by this Court.22 They also argue that the money placements are not deposits. They postulate that for a deposit to exist, there must be at least two parties a depositor and a depository each with a legal personality distinct from the other. Because the respondents respective head offices and their branches form only a single legal entity, there is no creditor-debtor relationship and the funds placed in the Philippine branch belong to one and the same bank. A bank cannot have a deposit with itself.23 This Court is of the opinion that the key to the resolution of this controversy is the relationship of the Philippine branches of Citibank and BA to their respective head offices and their other foreign branches. The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and independent legal personality to conduct business in the country. In the alternative, it may create a branch in the Philippines, which would not be a legally independent unit, and simply obtain a license to do business in the Philippines. 24 In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines. Their Philippine branches are, as the name implies, merely branches, without a separate legal personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter. For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence.1wphi1 In the leading case of Sokoloff v. The National City Bank of New York,25 where the Supreme Court of New York held: Where a bank maintains branches, each branch becomes a separate business entity with separate books of account. A depositor in one branch cannot issue checks or drafts upon another branch or demand payment from such other branch, and in many other respects the branches are considered separate corporate entities and as distinct from one another as any other bank.Nevertheless, when considered with relation to the parent bank they are not independent agencies; they are, what their name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities whereby the parent bank carries on its business, and are established for its own particular purposes, and their business

conduct and policies are controlled by the parent bank and their property and assets belong to the parent bank, although nominally held in the names of the particular branches. Ultimate liability for a debt of a branch would rest upon the parent bank. [Emphases supplied] This ruling was later reiterated in the more recent case of United States v. BCCI Holdings Luxembourg26 where the United States Court of Appeals, District of Columbia Circuit, emphasized that "while individual bank branches may be treated as independent of one another, each branch, unless separately incorporated, must be viewed as a part of the parent bank rather than as an independent entity." In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch, to wit: Republic Act No. 8791: Sec. 75. Head Office Guarantee. In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws. Republic Act No. 7721: Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of R.A. No. 3591 (The PDIC Charter) which provides: Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the "Corporation" which shall insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter granted. The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent and continuing insurance coverage on all insured deposits. R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment of the PDIC: Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain faith and confidence in the country's banking system, and protect it from illegal schemes and machinations. Towards this end, the government must extend all means and mechanisms necessary for the Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the interests of the depositing public by way of providing

permanent and continuing insurance coverage on all insured deposits, and in helping develop a sound and stable banking system at all times. The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has already been sufficiently established by US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the head office and the branch are two separate entities and that the funds placed by the head office and its foreign branches with the Philippine branch are considered deposits within the meaning of the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office, would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses it may incur occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such a preposterous circumstance when they created PDIC. Finally, the Court agrees with the CA ruling that there is nothing in the definition of a "bank" and a "banking institution" in Section 3(b) of the PDIC Charter 27 which explicitly states that the head office of a foreign bank and its other branches are separate and distinct from their Philippine branches. There is no need to complicate the matter when it can be solved by simple logic bolstered by law and jurisprudence. Based on the foregoing, it is clear that the head office of a bank and its branches are considered as one under the eyes of the law. While branches are treated as separate business units for commercial and financial reporting purposes, in the end, the head office remains responsible and answerable for the liabilities of its branches which are under its supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements made by their home office and other branches. Deposit insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the funds and the one which made the placements are one and the same legal entity. Funds not a deposit under the definition of the PDIC Charter; Excluded from assessment PDIC avers that the funds are dollar deposits and not money placements. Citing R.A. No. 6848, it defines money placement as a deposit which is received with authority to invest. Because there is no evidence to indicate that the respondents were authorized to invest the subject dollar deposits, it argues that the same cannot be considered money placements.28 PDIC then goes on to assert that the funds received by Citibank and BA are deposits, as contemplated by Section 3(f) of R.A. No. 3591, for the following reasons: (1) the dollar deposits were received by Citibank and BA in the course of their banking operations from their respective head office and foreign branches and were recorded in their books as "Account-Head Office/Branches-Time Deposits" pursuant to Central Bank Circular No. 343 which implements R.A. No. 6426; (2) the dollar deposits were credited as dollar time accounts and were covered by Certificates of Dollar Time Deposit which were interest-bearing and payable upon maturity, and (3) the respondents maintain 100% foreign currency cover for their deposit liability arising from the dollar time deposits as required by Section 4 of R.A. No. 6426. 29 To refute PDICs allegations, the respondents explain the inter-branch transactions which necessitate the creation of the accounts or placements subject of this case. When the Philippine branch needs to procure foreign currencies, it will coordinate with a branch in another country which handles foreign currency purchases. Both branches have existing accounts with their head office and when a money placement is made in relation to the acquisition of foreign currency from the international market, the amount

is credited to the account of the Philippine branch with its head office while the same is debited from the account of the branch which facilitated the purchase. This is further documented by the issuance of a certificate of time deposit with a stated interest rate and maturity date. The interest rate represents the cost of obtaining the funds while the maturity date represents the date on which the placement must be returned. On the maturity date, the amount previously credited to the account of the Philippine branch is debited, together with the cost for obtaining the funds, and credited to the account of the other branch. The respondents insist that the interest rate and maturity date are simply the basis for the debit and credit entries made by the head office in the accounts of its branches to reflect the inter-branch accommodation. 30 As regards the maintenance of currency cover over the subject money placements, the respondents point out that they maintain foreign currency cover in excess of what is required by law as a matter of prudent banking practice.31 PDIC attempts to define money placement in order to impugn the respondents claim that the funds received from their head office and other branches are money placements and not deposits, as defined under the PDIC Charter. In the process, it loses sight of the important issue in this case, which is the determination of whether the funds in question are subject to assessment for deposit insurance as required by the PDIC Charter. In its struggle to find an adequate definition of "money placement," PDIC desperately cites R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines. Reliance on the said law is unfounded because nowhere in the law is the term "money placement" defined. Additionally, R.A. No. 6848 refers to the establishment of an Islamic bank subject to the rulings of Islamic Sharia to assist in the development of the Autonomous Region of Muslim Mindanao (ARMM), 32 making it utterly irrelevant to the case at bench. Since Citibank and BA are neither Islamic banks nor are they located anywhere near the ARMM, then it should be painfully obvious that R.A. No. 6848 cannot aid us in deciding this case. Furthermore, PDIC heavily relies on the fact that the respondents documented the money placements with certificates of time deposit to simply conclude that the funds involved are deposits, as contemplated by the PDIC Charter, and are consequently subject to assessment for deposit insurance. It is this kind of reasoning that creates non-existent obscurities in the law and obstructs the prompt resolution of what is essentially a straightforward issue, thereby causing this case to drag on for more than three decades.1wphi1 Noticeably, PDIC does not dispute the veracity of the internal transactions of the respondents which gave rise to the issuance of the certificates of time deposit for the funds the subject of the present dispute. Neither does it question the findings of the RTC and the CA that the money placements were made, and were payable, outside of the Philippines, thus, making them fall under the exclusions to deposit liabilities. PDIC also fails to impugn the truth of the testimony of John David Shaffer, then a Fiscal Agent and Head of the Assessment Section of the FDIC, that inter-branch deposits were excluded from the assessment base. Therefore, the determination of facts of the lower courts shall be accepted at face value by this Court, following the well-established principle that factual findings of the trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court, and will generally not be reviewed on appeal. 33 As explained by the respondents, the transfer of funds, which resulted from the interbranch transactions, took place in the books of account of the respective branches in their head office located in the United States. Hence, because it is payable outside of the Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter: Sec. 3(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is

obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of said bank or deposit in another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be deposit liabilities of the Bank; Provided, that any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposits ; Provided further, that any insured bank which is incorporated under the laws of the Philippines may elect to include for insurance its deposit obligation payable only at such branch. [Emphasis supplied] The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC, after which PDIC was modelled, is also persuasive. Inter-branch deposits refer to funds of one branch deposited in another branch and both branches are part of the same parent company and it is the practice of the FDIC to exclude such inter-branch deposits from a banks total deposit liabilities subject to assessment. 34 All things considered, the Court finds that the funds in question are not deposits within the definition of the PDIC Charter and are, thus, excluded from assessment. WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of Appeals in CA-G.R. CV No. 61316 is AFFIRMED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: PRESBITERO J. VELASCO, JR. Associate Justice Chairperson DIOSDADO M. PERALTA Associate Justice ROBERTO A. ABAD Associate Justice

BIENVENIDO L. REYES* Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. PRESBITERO J. VELASCO, JR. Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated as additional member of the Third Division in lieu of Associate Justice Estela M. Perlas-Bernabe, per Special Order No. 1210 dated March 23, 2012.
1

Rollo, pp. 34-46; penned by Associate Justice Aurora Santiago-Lagman and concurred in by Associate Justice Ruben T. Reyes (retired member of this Court) and Associate Justice Rebecca de Guia-Salvador of the Fourth Division.
2

Id. at 13-14. Id. at 47 and 56. Id. at 35 and 83. Id. at 35 and 244. Id. at 79. Id. at 36 and 84. Id. at 83-84. Id. at 36. Id. at 55 and 62. Id at 36. Id. at 78-93; penned by Judge Aurelio C. Trampe.

10

11

12

13

"Section 3.05 Exclusions from Deposit Liabilities. For assessment purposes, the following items may be excluded in computing the total deposit liabilities: xxx b. Deposit liabilities of a bank which are payable at an office of the bank located outside the Philippines unless the insured bank which is incorporated under the laws of the Philippines and which maintains a branch outside the Philippines has elected to include for insurance its deposit obligations payable only at such branch in which case such deposit liabilities should be included as part of the total deposit liabilities."
14

Rollo, pp. 41-42. Id. at 42. Id. at 43. Id. at 45. Id. at 21, 247-248.

15

16

17

18

19

Id. at 283. Id. at 254-255. Id. at 260. Id. at 285-286. Id. at 290.

20

21

22

23

24

Campos, Jose Jr. and Campos, Maria Clara L., The Corporation Code: Comments, Notes and Selected Cases, Vol. II, p. 484.
25

130 Misc. 66, 224 N.Y.S. 102 (Sup. Ct. 1927), affd without opinion, 223 A.D. 754, 227 N.Y.S. 907, affd 250 N.Y.S. 69.
26

48 F.3d 551, 554 (D.C.Cir.1995), aff'd 833 F.Supp. 32 (D.D.C.1993), cert. denied sub nom. Liquidation Commission for BCCI (Overseas) Ltd., Macau v. United States, 516 U.S. 1008, 116 S.Ct. 563, 133 L.Ed.2d 489 (1995).
27

The term "Bank" and "Banking Institution" shall be synonymous and interchangeable and shall include banks, commercial banks, savings banks, mortgage banks, rural banks, development banks, cooperative banks, stock savings and loan associations and branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines (as amended by Republic Act No. 7400 and 9302).
28

Rollo, p. 252. Id. at 256-257. Id. at 297-300. Id. at 302.

29

30

31

32

Republic Act No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines (1990), Section 3.
33

Eterton Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation , G.R. No. 179812, July 6, 2010, 624 SCRA 148, Republic of the Philippines SUPREME COURT Baguio FIRST DIVISION G.R. No. 185918 April 18, 2012

LOCKHEED DETECTIVE AND WATCHMAN AGENCY, INC., Petitioner, vs. UNIVERSITY OF THE PHILIPPINES, Respondent. DECISION VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the August 20, 2008 Amended Decision 1 and December 23, 2008 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 91281. The antecedent facts of the case are as follows: Petitioner Lockheed Detective and Watchman Agency, Inc. (Lockheed) entered into a contract for security services with respondent University of the Philippines (UP). In 1998, several security guards assigned to UP filed separate complaints against Lockheed and UP for payment of underpaid wages, 25% overtime pay, premium pay for rest days and special holidays, holiday pay, service incentive leave pay, night shift differentials, 13th month pay, refund of cash bond, refund of deductions for the Mutual Benefits Aids System (MBAS), unpaid wages from December 16-31, 1998, and attorneys fees. On February 16, 2000, the Labor Arbiter rendered a decision as follows: WHEREFORE, premises considered, respondents Lockheed Detective and Watchman Agency, Inc. and UP as job contractor and principal, respectively, are hereby declared to be solidarily liable to complainants for the following claims of the latter which are found meritorious. Underpaid wages/salaries, premium pay for work on rest day and special holiday, holiday pay, 5 days service incentive leave pay, 13th month pay for 1998, refund of cash bond (deducted at P50.00 per month from January to May 1996, P100.00 per month from June 1996 and P200.00 from November 1997), refund of deduction for Mutual Benefits Aids System at the rate of P50.00 a month, and attorneys fees; in the total amount of P1,184,763.12 broken down as follows per attached computation of the Computation and [E]xamination Unit of this Commission, which computation forms part of this Decision: 1. JOSE SABALAS 2. TIRSO DOMASIAN 3. JUAN TAPEL 4. DINDO MURING 5. ALEXANDER ALLORDE 6. WILFREDO ESCOBAR 8. ANTHONY GONZALES 9. SAMUEL ESCARIO 10. PEDRO FAILORINA 11. MATEO TANELA 12. JOB SABALAS 13. ANDRES DACANAYAN 14. EDDIE OLIVAR P77,983.62 76,262.70 80,546.03 80,546.03 80,471.78 80,160.63 76,869.97 80,509.78 80,350.87 70,590.58 59,362.40 77,403.73 77,403.73 P1,077,057.38 plus 10% attorneys fees 107,705.74

7. FERDINAND VELASQUEZ 78,595.53

GRAND TOTAL AWARD

P1,184,763.12

Third party respondent University of the Philippines is hereby declared to be liable to Third Party Complainant and cross claimant Lockheed Detective and Watchman Agency for the unpaid legislated salary increases of the latters security guards for the years 1996 to 1998, in the total amount of P13,066,794.14, out of which amount the amounts due complainants here shall be paid. The other claims are hereby DISMISSED for lack of merit (night shift differential and 13th month pay) or for having been paid in the course of this proceedings (salaries for December 15-31, 1997 in the amount of P40,140.44). The claims of Erlindo Collado, Rogelio Banjao and Amor Banjao are hereby DISMISSED as amicably settled for and in consideration of the amounts of P12,315.72, P12,271.77 and P12,819.33, respectively. SO ORDERED.3 Both Lockheed and UP appealed the Labor Arbiters decision. By Decision 4 dated April 12, 2002, the NLRC modified the Labor Arbiters decision. The NLRC held: WHEREFORE, the decision appealed from is hereby modified as follows: 1. Complainants claims for premium pay for work on rest day and special holiday, and 5 days service incentive leave pay, are hereby dismissed for lack of basis. 2. The respondent University of the Philippines is still solidarily liable with Lockheed in the payment of the rest of the claims covering the period of their service contract. The Financial Analyst is hereby ordered to recompute the awards of the complainants in accordance with the foregoing modifications. SO ORDERED.5 The complaining security guards and UP filed their respective motions for reconsideration. On August 14, 2002, however, the NLRC denied said motions. As the parties did not appeal the NLRC decision, the same became final and executory on October 26, 2002.6 A writ of execution was then issued but later quashed by the Labor Arbiter on November 23, 2003 on motion of UP due to disputes regarding the amount of the award. Later, however, said order quashing the writ was reversed by the NLRC by Resolution7 dated June 8, 2004, disposing as follows: WHEREFORE, premises considered, we grant this instant appeal. The Order dated 23 November 2003 is hereby reversed and set aside. The Labor Arbiter is directed to issue a Writ of Execution for the satisfaction of the judgment award in favor of Third-Party complainants. SO ORDERED.8 UP moved to reconsider the NLRC resolution. On December 28, 2004, the NLRC upheld its resolution but with modification that the satisfaction of the judgment award in favor of Lockheed will be only against the funds of UP which are not identified as public funds.

The NLRC order and resolution having become final, Lockheed filed a motion for the issuance of an alias writ of execution. The same was granted on May 23, 2005. 9 On July 25, 2005, a Notice of Garnishment10 was issued to Philippine National Bank (PNB) UP Diliman Branch for the satisfaction of the award of P12,142,522.69 (inclusive of execution fee). In a letter11 dated August 9, 2005, PNB informed UP that it has received an order of release dated August 8, 2005 issued by the Labor Arbiter directing PNB UP Diliman Branch to release to the NLRC Cashier, through the assigned NLRC Sheriff Max L. Lago, the judgment award/amount of P12,142,522.69. PNB likewise reminded UP that the bank only has 10 working days from receipt of the order to deliver the garnished funds and unless it receives a notice from UP or the NLRC before the expiry of the 10day period regarding the issuance of a court order or writ of injunction discharging or enjoining the implementation and execution of the Notice of Garnishment and Writ of Execution, the bank shall be constrained to cause the release of the garnished funds in favor of the NLRC. On August 16, 2005, UP filed an Urgent Motion to Quash Garnishment. 12 UP contended that the funds being subjected to garnishment at PNB are government/public funds. As certified by the University Accountant, the subject funds are covered by Savings Account No. 275-529999-8, under the name of UP System Trust Receipts, earmarked for Student Guaranty Deposit, Scholarship Fund, Student Fund, Publications, Research Grants, and Miscellaneous Trust Account. UP argued that as public funds, the subject PNB account cannot be disbursed except pursuant to an appropriation required by law. The Labor Arbiter, however, dismissed the urgent motion for lack of merit on August 30, 2005.13 On September 2, 2005, the amount of P12,062,398.71 was withdrawn by the sheriff from UPs PNB account.14 On September 12, 2005, UP filed a petition for certiorari before the CA based on the following grounds: I. The concept of "solidary liability" by an indirect employer notwithstanding, respondent NLRC gravely abused its discretion in a manner amounting to lack or excess of jurisdiction by misusing such concept to justify the garnishment by the executing Sheriff of public/government funds belonging to UP. II. Respondents NLRC and Arbiter LORA acted without jurisdiction or gravely abused their discretion in a manner amounting to lack or excess of jurisdiction when, by means of an Alias Writ of Execution against petitioner UP, they authorized respondent Sheriff to garnish UPs public funds. Similarly, respondent LORA gravely abused her discretion when she resolved petitioners Motion to Quash Notice of Garnishment addressed to, and intended for, the NLRC, and when she unilaterally and arbitrarily disregarded an official Certification that the funds garnished are public/government funds, and thereby allowed respondent Sheriff to withdraw the same from PNB. III.

Respondents gravely abused their discretion in a manner amounting to lack or excess of jurisdiction when they, despite prior knowledge, effected the execution that caused paralyzation and dislocation to petitioners governmental functions. 15 On March 12, 2008, the CA rendered a decision 16 dismissing UPs petition for certiorari. Citing Republic v. COCOFED,17 which defines public funds as moneys belonging to the State or to any political subdivisions of the State, more specifically taxes, customs, duties and moneys raised by operation of law for the support of the government or the discharge of its obligations, the appellate court ruled that the funds sought to be garnished do not seem to fall within the stated definition. On reconsideration, however, the CA issued the assailed Amended Decision. It held that without departing from its findings that the funds covered in the savings account sought to be garnished do not fall within the classification of public funds, it reconsiders the dismissal of the petition in light of the ruling in the case of National Electrification Administration v. Morales18 which mandates that all money claims against the government must first be filed with the Commission on Audit (COA). Lockheed moved to reconsider the amended decision but the same was denied in the assailed CA Resolution dated December 23, 2008. The CA cited Manila International Airport Authority v. Court of Appeals19 which held that UP ranks with MIAA, a government instrumentality exercising corporate powers but not organized as a stock or non-stock corporation. While said corporations are government instrumentalities, they are loosely called government corporate entities but not government-owned and controlled corporations in the strict sense. Hence this petition by Lockheed raising the following arguments: 1. RESPONDENT UP IS A GOVERNMENT ENTITY WITH A SEPARATE AND DISTINCT PERSONALITY FROM THE NATIONAL GOVERNMENT AND HAS ITS OWN CHARTER GRANTING IT THE RIGHT TO SUE AND BE SUED. IT THEREFORE CANNOT AVAIL OF THE IMMUNITY FROM SUIT OF THE GOVERNMENT. NOT HAVING IMMUNITY FROM SUIT, RESPONDENT UP CAN BE HELD LIABLE AND EXECUTION CAN THUS ENSUE. 2. MOREOVER, IF THE COURT LENDS IT ASSENT TO THE INVOCATION OF THE DOCTRINE OF STATE IMMUNITY, THIS WILL RESULT [IN] GRAVE INJUSTICE. 3. FURTHERMORE, THE PROTESTATIONS OF THE RESPONDENT ARE TOO LATE IN THE DAY, AS THE EXECUTION PROCEEDINGS HAVE ALREADY BEEN TERMINATED.20 Lockheed contends that UP has its own separate and distinct juridical entity from the national government and has its own charter. Thus, it can be sued and be held liable. Moreover, Executive Order No. 714 entitled "Fiscal Control and Management of the Funds of UP" recognizes that "as an institution of higher learning, UP has always granted full management and control of its affairs including its financial affairs."21 Therefore, it cannot shield itself from its private contractual liabilities by simply invoking the public character of its funds. Lockheed also cites several cases wherein it was ruled that funds of public corporations which can sue and be sued were not exempt from garnishment. Lockheed likewise argues that the rulings in the NEA and MIAA cases are inapplicable. It contends that UP is not similarly situated with NEA because the jurisdiction of COA over the accounts of UP is only on a post-audit basis. As to the MIAA case, the liability of MIAA pertains to the real estate taxes imposed by the City of Paranaque while the

obligation of UP in this case involves a private contractual obligation. Lockheed also argues that the declaration in MIAA specifically citing UP was mere obiter dictum. Lockheed moreover submits that UP cannot invoke state immunity to justify and perpetrate an injustice. UP itself admitted its liability and thus it should not be allowed to renege on its contractual obligations. Lockheed contends that this might create a ruinous precedent that would likely affect the relationship between the public and private sectors. Lastly, Lockheed contends that UP cannot anymore seek the quashal of the writ of execution and notice of garnishment as they are already fait accompli. For its part, UP contends that it did not invoke the doctrine of state immunity from suit in the proceedings a quo and in fact, it did not object to being sued before the labor department. It maintains, however, that suability does not necessarily mean liability. UP argues that the CA correctly applied the NEA ruling when it held that all money claims must be filed with the COA. As to alleged injustice that may result for invocation of state immunity from suit, UP reiterates that it consented to be sued and even participated in the proceedings below. Lockheed cannot now claim that invocation of state immunity, which UP did not invoke in the first place, can result in injustice. On the fait accompli argument, UP argues that Lockheed cannot wash its hands from liability for the consummated garnishment and execution of UPs trust fund in the amount of P12,062,398.71. UP cites that damage was done to UP and the beneficiaries of the fund when said funds, which were earmarked for specific educational purposes, were misapplied, for instance, to answer for the execution fee of P120,123.98 unilaterally stipulated by the sheriff. Lockheed, being the party which procured the illegal garnishment, should be held primarily liable. The mere fact that the CA set aside the writ of garnishment confirms the liability of Lockheed to reimburse and indemnify in accordance with law. The petition has no merit. We agree with UP that there was no point for Lockheed in discussing the doctrine of state immunity from suit as this was never an issue in this case. Clearly, UP consented to be sued when it participated in the proceedings below. What UP questions is the hasty garnishment of its funds in its PNB account. This Court finds that the CA correctly applied the NEA case. Like NEA, UP is a juridical personality separate and distinct from the government and has the capacity to sue and be sued. Thus, also like NEA, it cannot evade execution, and its funds may be subject to garnishment or levy. However, before execution may be had, a claim for payment of the judgment award must first be filed with the COA. Under Commonwealth Act No. 327,22 as amended by Section 26 of P.D. No. 1445, 23 it is the COA which has primary jurisdiction to examine, audit and settle "all debts and claims of any sort" due from or owing the Government or any of its subdivisions, agencies and instrumentalities, including government-owned or controlled corporations and their subsidiaries. With respect to money claims arising from the implementation of Republic Act No. 6758,24 their allowance or disallowance is for COA to decide, subject only to the remedy of appeal by petition for certiorari to this Court. 251wphi1 We cannot subscribe to Lockheeds argument that NEA is not similarly situated with UP because the COAs jurisdiction over the latter is only on post-audit basis. A reading of the pertinent Commonwealth Act provision clearly shows that it does not make any distinction as to which of the government subdivisions, agencies and instrumentalities,

including government-owned or controlled corporations and their subsidiaries whose debts should be filed before the COA. As to the fait accompli argument of Lockheed, contrary to its claim that there is nothing that can be done since the funds of UP had already been garnished, since the garnishment was erroneously carried out and did not go through the proper procedure (the filing of a claim with the COA), UP is entitled to reimbursement of the garnished funds plus interest of 6% per annum, to be computed from the time of judicial demand to be reckoned from the time UP filed a petition for certiorari before the CA which occurred right after the withdrawal of the garnished funds from PNB. WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. Petitioner Lockheed Detective and Watchman Agency, Inc. is ordered to REIMBURSE respondent University of the Philippines the amount ofP12,062,398.71 plus interest of 6% per annum, to be computed from September 12, 2005 up to the finality of this Decision, and 12% interest on the entire amount from date of finality of this Decision until fully paid. No pronouncement as to costs. SO ORDERED. MARTIN S. VILLARAMA, JR. Associate Justice WE CONCUR: TERESITA J. LEONARDO-DE CASTRO Acting Chairperson DIOSDADO M. PERALTA* Associate Justice LUCAS P. BERSAMIN Associate Justice

BIENVENIDO L. REYES** Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
*

Designated additional member per Raffle dated April 2, 2012. Designated additional member per Raffle dated April 16, 2012.

**

Rollo, pp. 47-50. Penned by Associate Justice Arcangelita M. Romilla-Lontok with Associate Justices Mariano C. Del Castillo (now a member of this Court) and Romeo F. Barza concurring.

Id. at 52-53. CA rollo, pp. 23-24. Id. at 22-38. Id. at 37. Id. at 44, citing NLRC records, p. 868. Id. at 39-56. Id. at 55. Id. at 57-64. Id. at 65. Id. at 74. Id. at 66-73. Id. at 79-81. Id. at 10. Id. Id. at 122-134. G.R. Nos. 147062-64, December 14, 2001, 372 SCRA 462, 481. G.R. No. 154200, June 24, 2007, 528 SCRA 79, 90-91. G.R. No. 155650, July 20, 2006, 495 SCRA 591, 618-619. Rollo, p. 17. Id. at 24-25.

10

11

12

13

14

15

16

17

18

19

20

21

22

An Act Fixing the Time Within Which the Auditor General Shall Render His Decisions and Prescribing the Manner of Appeal Therefrom.
23

Ordaining And Instituting A Government Auditing Code Of The Philippines. Section 26 thereof provides: Section 26. General jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. The said jurisdiction extends to all government-owned or

controlled corporations, including their subsidiaries, and other selfgoverning boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund or those partly funded by the government.
24

Compensation and Position Classification Act of 1989. National Electrification Administration v. Morales, supra note 18, at 89-91.

25

Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 179488 April 23, 2012

COSCO PHILIPPINES SHIPPING, INC., Petitioner, vs. KEMPER INSURANCE COMPANY, Respondent. DECISION PERALTA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the Decision1 and Resolution2 of the Court of Appeals (CA), in

CA-G.R. CV No. 75895, entitled Kemper Insurance Company v. Cosco Philippines Shipping, Inc. The CA Decision reversed and set aside the Order dated March 22, 2002 of the Regional Trial Court (RTC), Branch 8, Manila, which granted the Motion to Dismiss filed by petitioner Cosco Philippines Shipping, Inc., and ordered that the case be remanded to the trial court for further proceedings. The antecedents are as follows: Respondent Kemper Insurance Company is a foreign insurance company based in Illinois, United States of America (USA) with no license to engage in business in the Philippines, as it is not doing business in the Philippines, except in isolated transactions; while petitioner is a domestic shipping company organized in accordance with Philippine laws. In 1998, respondent insured the shipment of imported frozen boneless beef (owned by Genosi, Inc.), which was loaded at a port in Brisbane, Australia, for shipment to Genosi, Inc. (the importer-consignee) in the Philippines. However, upon arrival at the Manila port, a portion of the shipment was rejected by Genosi, Inc. by reason of spoilage arising from the alleged temperature fluctuations of petitioner's reefer containers. Thus, Genosi, Inc. filed a claim against both petitioner shipping company and respondent Kemper Insurance Company. The claim was referred to McLarens Chartered for investigation, evaluation, and adjustment of the claim. After processing the claim documents, McLarens Chartered recommended a settlement of the claim in the amount of $64,492.58, which Genosi, Inc. (the consignee-insured) accepted. Thereafter, respondent paid the claim of Genosi, Inc. (the insured) in the amount of $64,492.58. Consequently, Genosi, Inc., through its General Manager, Avelino S. Mangahas, Jr., executed a Loss and Subrogation Receipt 3dated September 22, 1999, stating that Genosi, Inc. received from respondent the amount of $64,492.58 as the full and final satisfaction compromise, and discharges respondent of all claims for losses and expenses sustained by the property insured, under various policy numbers, due to spoilage brought about by machinery breakdown which occurred on October 25, November 7 and 10, and December 5, 14, and 18, 1998; and, in consideration thereof, subrogates respondent to the claims of Genosi, Inc. to the extent of the said amount. Respondent then made demands upon petitioner, but the latter failed and refused to pay the said amount. Hence, on October 28, 1999, respondent filed a Complaint for Insurance Loss and Damages4 against petitioner before the trial court, docketed as Civil Case No. 9995561, entitled Kemper Insurance Company v. Cosco Philippines Shipping, Inc . Respondent alleged that despite repeated demands to pay and settle the total amount of US$64,492.58, representing the value of the loss, petitioner failed and refused to pay the same, thereby causing damage and prejudice to respondent in the amount of US$64,492.58; that the loss and damage it sustained was due to the fault and negligence of petitioner, specifically, the fluctuations in the temperature of the reefer container beyond the required setting which was caused by the breakdown in the electronics controller assembly; that due to the unjustified failure and refusal to pay its just and valid claims, petitioner should be held liable to pay interest thereon at the legal rate from the date of demand; and that due to the unjustified refusal of the petitioner to pay the said amount, it was compelled to engage the services of a counsel whom it agreed to pay 25% of the whole amount due as attorney's fees. Respondent prayed that after due hearing, judgment be rendered in its favor and that petitioner be ordered to pay the amount of US$64,492.58, or its equivalent in Philippine currency at the prevailing foreign exchange rate, or a total of P2,594,513.00, with interest thereon at the legal rate from date of demand, 25% of the whole amount due as attorney's fees, and costs.

In its Answer5 dated November 29, 1999, petitioner insisted, among others, that respondent had no capacity to sue since it was doing business in the Philippines without the required license; that the complaint has prescribed and/or is barred by laches; that no timely claim was filed; that the loss or damage sustained by the shipments, if any, was due to causes beyond the carrier's control and was due to the inherent nature or insufficient packing of the shipments and/or fault of the consignee or the hired stevedores or arrastre operator or the fault of persons whose acts or omissions cannot be the basis of liability of the carrier; and that the subject shipment was discharged under required temperature and was complete, sealed, and in good order condition. During the pre-trial proceedings, respondent's counsel proffered and marked its exhibits, while petitioner's counsel manifested that he would mark his client's exhibits on the next scheduled pre-trial. However, on November 8, 2001, petitioner filed a Motion to Dismiss,6 contending that the same was filed by one Atty. Rodolfo A. Lat, who failed to show his authority to sue and sign the corresponding certification against forum shopping. It argued that Atty. Lat's act of signing the certification against forum shopping was a clear violation of Section 5, Rule 7 of the 1997 Rules of Court. In its Order7 dated March 22, 2002, the trial court granted petitioner's Motion to Dismiss and dismissed the case without prejudice, ruling that it is mandatory that the certification must be executed by the petitioner himself, and not by counsel. Since respondent's counsel did not have a Special Power of Attorney (SPA) to act on its behalf, hence, the certification against forum shopping executed by said counsel was fatally defective and constituted a valid cause for dismissal of the complaint. Respondent's Motion for Reconsideration8 was denied by the trial court in an Order9 dated July 9, 2002. On appeal by respondent, the CA, in its Decision 10 dated March 23, 2007, reversed and set aside the trial court's order. The CA ruled that the required certificate of non-forum shopping is mandatory and that the same must be signed by the plaintiff or principal party concerned and not by counsel; and in case of corporations, the physical act of signing may be performed in behalf of the corporate entity by specifically authorized individuals. However, the CA pointed out that the factual circumstances of the case warranted the liberal application of the rules and, as such, ordered the remand of the case to the trial court for further proceedings. Petitioner's Motion for Reconsideration11 was later denied by the CA in the Resolution12 dated September 3, 2007. Hence, petitioner elevated the case to this Court via Petition for Review on Certiorari under Rule 45 of the Rules of Court, with the following issues: THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT ATTY. RODOLFO LAT WAS PROPERLY AUTHORIZED BY THE RESPONDENT TO SIGN THE CERTIFICATE AGAINST FORUM SHOPPING DESPITE THE UNDISPUTED FACTS THAT: A) THE PERSON WHO EXECUTED THE SPECIAL POWER OF ATTORNEY (SPA) APPOINTING ATTY. LAT AS RESPONDENT'S ATTORNEY-IN-FACT WAS MERELY AN UNDERWRITER OF THE RESPONDENT WHO HAS NOT SHOWN PROOF THAT HE WAS AUTHORIZED BY THE BOARD OF DIRECTORS OF RESPONDENT TO DO SO. B) THE POWERS GRANTED TO ATTY. LAT REFER TO [THE AUTHORITY TO REPRESENT DURING THE] PRE-TRIAL [STAGE] AND

DO NOT COVER THE SPECIFIC POWER TO SIGN THE CERTIFICATE.13 Petitioner alleged that respondent failed to submit any board resolution or secretary's certificate authorizing Atty. Lat to institute the complaint and sign the certificate of nonforum shopping on its behalf. Petitioner submits that since respondent is a juridical entity, the signatory in the complaint must show proof of his or her authority to sign on behalf of the corporation. Further, the SPA14 dated May 11, 2000, submitted by Atty. Lat, which was notarized before the Consulate General of Chicago, Illinois, USA, allegedly authorizing him to represent respondent in the pre-trial and other stages of the proceedings was signed by one Brent Healy (respondent's underwriter), who lacks authorization from its board of directors. In its Comment, respondent admitted that it failed to attach in the complaint a concrete proof of Atty. Lat's authority to execute the certificate of non-forum shopping on its behalf. However, there was subsequent compliance as respondent submitted an authenticated SPA empowering Atty. Lat to represent it in the pre-trial and all stages of the proceedings. Further, it averred that petitioner is barred by laches from questioning the purported defect in respondent's certificate of non-forum shopping. The main issue in this case is whether Atty. Lat was properly authorized by respondent to sign the certification against forum shopping on its behalf. The petition is meritorious. We have consistently held that the certification against forum shopping must be signed by the principal parties.15If, for any reason, the principal party cannot sign the petition, the one signing on his behalf must have been duly authorized. 16 With respect to a corporation, the certification against forum shopping may be signed for and on its behalf, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. 17 A corporation has no power, except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. 18 In Philippine Airlines, Inc. v. Flight Attendants and Stewards Association of the Philippines (FASAP),19 we ruled that only individuals vested with authority by a valid board resolution may sign the certificate of non-forum shopping on behalf of a corporation. We also required proof of such authority to be presented. The petition is subject to dismissal if a certification was submitted unaccompanied by proof of the signatory's authority. In the present case, since respondent is a corporation, the certification must be executed by an officer or member of the board of directors or by one who is duly authorized by a resolution of the board of directors; otherwise, the complaint will have to be dismissed.20 The lack of certification against forum shopping is generally not curable by mere amendment of the complaint, but shall be a cause for the dismissal of the case without prejudice.21 The same rule applies to certifications against forum shopping signed by a person on behalf of a corporation which are unaccompanied by proof that said signatory is authorized to file the complaint on behalf of the corporation. 22 There is no proof that respondent, a private corporation, authorized Atty. Lat, through a board resolution, to sign the verification and certification against forum shopping on its

behalf. Accordingly, the certification against forum shopping appended to the complaint is fatally defective, and warrants the dismissal of respondent's complaint for Insurance Loss and Damages (Civil Case No. 99-95561) against petitioner. In Republic v. Coalbrine International Philippines, Inc., 23 the Court cited instances wherein the lack of authority of the person making the certification of non-forum shopping was remedied through subsequent compliance by the parties therein. Thus, [w]hile there were instances where we have allowed the filing of a certification against non-forum shopping by someone on behalf of a corporation without the accompanying proof of authority at the time of its filing, we did so on the basis of a special circumstance or compelling reason. Moreover, there was a subsequent compliance by the submission of the proof of authority attesting to the fact that the person who signed the certification was duly authorized. In China Banking Corporation v. Mondragon International Philippines, Inc., the CA dismissed the petition filed by China Bank, since the latter failed to show that its bank manager who signed the certification against non-forum shopping was authorized to do so. We reversed the CA and said that the case be decided on the merits despite the failure to attach the required proof of authority, since the board resolution which was subsequently attached recognized the pre-existing status of the bank manager as an authorized signatory. In Abaya Investments Corporation v. Merit Philippines, where the complaint before the Metropolitan Trial Court of Manila was instituted by petitioner's Chairman and President, Ofelia Abaya, who signed the verification and certification against non-forum shopping without proof of authority to sign for the corporation, we also relaxed the rule. We did so taking into consideration the merits of the case and to avoid a re-litigation of the issues and further delay the administration of justice, since the case had already been decided by the lower courts on the merits. Moreover, Abaya's authority to sign the certification was ratified by the Board.24 Contrary to the CA's finding, the Court finds that the circumstances of this case do not necessitate the relaxation of the rules. There was no proof of authority submitted, even belatedly, to show subsequent compliance with the requirement of the law. Neither was there a copy of the board resolution or secretary's certificate subsequently submitted to the trial court that would attest to the fact that Atty. Lat was indeed authorized to file said complaint and sign the verification and certification against forum shopping, nor did respondent satisfactorily explain why it failed to comply with the rules. Thus, there exists no cogent reason for the relaxation of the rule on this matter. Obedience to the requirements of procedural rules is needed if we are to expect fair results therefrom, and utter disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction.25 Moreover, the SPA dated May 11, 2000, submitted by respondent allegedly authorizing Atty. Lat to appear on behalf of the corporation, in the pre-trial and all stages of the proceedings, signed by Brent Healy, was fatally defective and had no evidentiary value. It failed to establish Healy's authority to act in behalf of respondent, in view of the absence of a resolution from respondent's board of directors or secretary's certificate proving the same. Like any other corporate act, the power of Healy to name, constitute, and appoint Atty. Lat as respondent's attorney-in-fact, with full powers to represent respondent in the proceedings, should have been evidenced by a board resolution or secretary's certificate. Respondent's allegation that petitioner is estopped by laches from raising the defect in respondent's certificate of non-forum shopping does not hold water.

In Tamondong v. Court of Appeals,26 we held that if a complaint is filed for and in behalf of the plaintiff who is not authorized to do so, the complaint is not deemed filed. An unauthorized complaint does not produce any legal effect. Hence, the court should dismiss the complaint on the ground that it has no jurisdiction over the complaint and the plaintiff.27 Accordingly, since Atty. Lat was not duly authorized by respondent to file the complaint and sign the verification and certification against forum shopping, the complaint is considered not filed and ineffectual, and, as a necessary consequence, is dismissable due to lack of jurisdiction. Jurisdiction is the power with which courts are invested for administering justice; that is, for hearing and deciding cases. In order for the court to have authority to dispose of the case on the merits, it must acquire jurisdiction over the subject matter and the parties. Courts acquire jurisdiction over the plaintiffs upon the filing of the complaint, and to be bound by a decision, a party should first be subjected to the court's jurisdiction.28 Clearly, since no valid complaint was ever filed with the RTC, Branch 8, Manila, the same did not acquire jurisdiction over the person of respondent. 1wphi1 Since the court has no jurisdiction over the complaint and respondent, petitioner is not estopped from challenging the trial court's jurisdiction, even at the pre-trial stage of the proceedings. This is so because the issue of jurisdiction may be raised at any stage of the proceedings, even on appeal, and is not lost by waiver or by estoppel. 29 In Regalado v. Go,30 the Court held that laches should be clearly present for the Sibonghanoy31 doctrine to apply, thus: Laches is defined as the "failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier, it is negligence or omission to assert a right within a reasonable length of time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it." The ruling in People v. Regalario that was based on the landmark doctrine enunciated in Tijam v. Sibonghanoy on the matter of jurisdiction by estoppel is the exception rather than the rule. Estoppel by laches may be invoked to bar the issue of lack of jurisdiction only in cases in which the factual milieu is analogous to that in the cited case. In such controversies, laches should have been clearly present; that is, lack of jurisdiction must have been raised so belatedly as to warrant the presumption that the party entitled to assert it had abandoned or declined to assert it. In Sibonghanoy, the defense of lack of jurisdiction was raised for the first time in a motion to dismiss filed by the Surety almost 15 years after the questioned ruling had been rendered. At several stages of the proceedings, in the court a quo as well as in the Court of Appeals, the Surety invoked the jurisdiction of the said courts to obtain affirmative relief and submitted its case for final adjudication on the merits. It was only when the adverse decision was rendered by the Court of Appeals that it finally woke up to raise the question of jurisdiction.32 The factual setting attendant in Sibonghanoy is not similar to that of the present case so as to make it fall under the doctrine of estoppel by laches. Here, the trial court's jurisdiction was questioned by the petitioner during the pre-trial stage of the proceedings, and it cannot be said that considerable length of time had elapsed for laches to attach. WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals, dated March 23, 2007 and September 3, 2007, respectively, in CA-G.R. CV No. 75895 are REVERSED and SET ASIDE. The Orders of the Regional Trial Court,

dated March 22, 2002 and July 9, 2002, respectively, in Civil Case No. 99-95561, are REINSTATED. SO ORDERED. DIOSDADO M. PERALTA Associate Justice WE CONCUR: PRESBITERO J. VELASCO, JR. Associate Justice Chairperson ROBERTO A. ABAD Associate Justice JOSE CATRAL MENDOZA Associate Justice

ESTELA M. PERLAS-BERNABE Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. PRESBITERO J. VELASCO, JR. Associate Justice Third Division, Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Penned by Associate Justice Japar B. Dimaampao, with Associate Justices Conrado M. Vasquez, Jr. and Mario L. Guaria III, concurring; rollo, pp. 31-38.
2

Id. at 40-41. Records, p. 10. Id. at 1-4. Id. at 13-19. Id. at 119-122.

Id. at 141-142. Id. at 145-147. Id. at 171-172. CA rollo, pp. 74-81. Id. at 86-95. Id. at 105-106. Rollo, p. 15. Records, pp. 148-149.

10

11

12

13

14

15

Athena Computers, Inc. v. Reyes, G.R. No. 156905, September 5, 2007, 532 SCRA 343, 351;Development Bank of the Philippines v. Court of Appeals, G.R. No. 147217, October 7, 2004, 440 SCRA 200, 205.
16

Eagle Ridge Golf & Country Club v. Court of Appeals, G.R. No. 178989, March 18, 2010, 616 SCRA 116, 132.
17

Athena Computers, Inc. v. Reyes, G.R. No. 156905, September 5, 2007, 532 SCRA 343, 351.
18

Republic v. Coalbrine International Philippines, Inc., G.R. No. 161838, April 7, 2010, 617 SCRA 491, 498.
19

G.R. No. 143088, January 24, 2006, 479 SCRA 605, 608.

20

Tamondong v. Court of Appeals, G.R. No. 158397, November 26, 2004, 444 SCRA 509, 520-521.
21

Section 5 of Rule 7 of the 1997 Rules of Civil Procedure provides: SEC. 5. Certification against forum shopping . The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice , unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct

contempt, as well as a cause for administrative sanctions. (Emphasis supplied.)

22

Republic v. Coalbrine International Philippines, Inc., supra note 18, at 499. Supra note 18. Id. at 500-501. (Citations omitted.)

23

24

25

Clavecilla v. Quitain, G.R. No. 147989, February 20, 2006, 482 SCRA 623, 631.
26

Supra note 20, cited in Negros Merchant's Enterprises, Inc. v. China Banking Corporation, G.R. No. 150918, August 17, 2007, 530 SCRA 478, 487.
27

Id. at 519.

28

Perkin Elmer Singapore Pte. Ltd. v. Dakila Trading Corporation, G.R. No. 172242, August 14, 2007, 530 SCRA 170, 186.
29

Figueroa v. People, G.R. No. 147406, July 14, 2008, 558 SCRA 63, 81. G.R. No. 167988, February 6, 2007, 514 SCRA 616.

30

31

In Tijam v. Sibonghanoy, 131 Phil. 556 (1968), the Court held that a party may be barred by laches from invoking lack of jurisdiction at a late hour for the purpose of annulling everything done in the case with the active participation of said party invoking the plea of lack of jurisdiction.
32

Id. at 635-636.

Republic of the Philippines SUPREME COURT Baguio SECOND DIVISION G.R. No. 174118 April 11, 2012

THE ROMAN CATHOLIC CHURCH, represented by the Archbishop of Caceres, Petitioner, vs. REGINO PANTE, Respondent. DECISION BRION, J.: Through a petition for review on certiorari, 1 the petitioner Roman Catholic Church (Church) seeks to set aside the May 18, 2006 decision 2 and the August 11, 2006 resolution3 of the Court of Appeals (CA) in CA-G.R.-CV No. 65069. The CA reversed

the July 30, 1999 decision4 of the Regional Trial Court (RTC) of Naga City, Branch 24, in Civil Case No. 94-3286. THE FACTUAL ANTECEDENTS The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot that measured 2x16 meters located in Barangay Dinaga, Canaman, Camarines Sur.5 On September 25, 1992, the Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to Sell and to Buy 6) on the belief that the latter was an actual occupant of the lot. The contract between them fixed the purchase price at P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance payable in three years or until September 25, 1995. On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi (spouses Rubi) a 215-square meter lot that included the lot previously sold to Pante. The spouses Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking Pante and his familys access from their family home to the municipal road. As no settlement could be reached between the parties, Pante instituted with the RTC an action to annul the sale between the Church and the spouses Rubi, insofar as it included the lot previously sold to him. 7 The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante. The Church alleged that its consent to the contract was obtained by fraud when Pante, in bad faith, misrepresented that he had been an actual occupant of the lot sold to him, when in truth, he was merely using the 32-square meter lot as a passageway from his house to the town proper. It contended that it was its policy to sell its lots only to actual occupants. Since the spouses Rubi and their predecessors-ininterest have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful buyers. During pre-trial, the following admissions and stipulations of facts were made: 1. The lot claimed by Pante is a strip of land measuring only 2x16 meters; 2. The lot had been sold by the Church to Pante on September 25, 1992; 3. The lot was included in the sale to the spouses Rubi by the Church; and 4. Pante expressly manifested and represented to the Church that he had been actually occupying the lot he offered to buy. 8 In a decision dated July 30, 1999,9 the RTC ruled in favor of the Church, finding that the Churchs consent to the sale was secured through Pantes misrepresentation that he was an occupant of the 32-square meter lot. Contrary to his claim, Pante was only using the lot as a passageway; the Churchs policy, however, was to sell its lots only to those who actually occupy and reside thereon. As the Churchs consent was secured through its mistaken belief that Pante was a qualified "occupant," the RTC annulled the contract between the Church and Pante, pursuant to Article 1390 of the Civil Code. 10 The RTC further noted that full payment of the purchase price was made only on September 23, 1995, when Pante consigned the balance of P10,905.00 with the RTC, after the Church refused to accept the tendered amount. It considered the three-year delay in completing the payment fatal to Pantes claim over the subject lot; it ruled that if Pante had been prompt in paying the price, then the Church would have been estopped from selling the lot to the spouses Rubi. In light of Pantes delay and his admission that

the subject lot had been actually occupied by the spouses Rubis predecessors, the RTC upheld the sale in favor of the spouses Rubi. Pante appealed the RTCs decision with the CA. In a decision dated May 18, 2006, 11 the CA granted Pantes appeal and reversed the RTCs ruling. The CA characterized the contract between Pante and the Church as a contract of sale, since the Church made no express reservation of ownership until full payment of the price is made. In fact, the contract gave the Church the right to repurchase in case Pante fails to pay the installments within the grace period provided; the CA ruled that the right to repurchase is unnecessary if ownership has not already been transferred to the buyer. Even assuming that the contract had been a contract to sell, the CA declared that Pante fulfilled the condition precedent when he consigned the balance within the three-year period allowed under the parties agreement; upon full payment, Pante fully complied with the terms of his contract with the Church. After recognizing the validity of the sale to Pante and noting the subsequent sale to the spouses Rubi, the CA proceeded to apply the rules on double sales in Article 1544 of the Civil Code: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.] Since neither of the two sales was registered, the CA upheld the full effectiveness of the sale in favor of Pante who first possessed the lot by using it as a passageway since 1963. The Church filed the present petition for review on certiorari under Rule 45 of the Rules of Court to contest the CAs ruling. THE PETITION The Church contends that the sale of the lot to Pante is voidable under Article 1390 of the Civil Code, which states: Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. [Emphasis ours.] It points out that, during trial, Pante already admitted knowing that the spouses Rubi have been residing on the lot. Despite this knowledge, Pante misrepresented himself as an occupant because he knew of the Churchs policy to sell lands only to occupants or

residents thereof. It thus claims that Pantes misrepresentation effectively vitiated its consent to the sale; hence, the contract should be nullified. For the Church, the presence of fraud and misrepresentation that would suffice to annul the sale is the primary issue that the tribunals below should have resolved. Instead, the CA opted to characterize the contract between the Church and Pante, considered it as a contract of sale, and, after such characterization, proceeded to resolve the case in Pantes favor. The Church objects to this approach, on the principal argument that there could not have been a contract at all considering that its consent had been vitiated. THE COURTS RULING The Court resolves to deny the petition. No misrepresentation existed vitiating the sellers consent and invalidating the contract Consent is an essential requisite of contracts 12 as it pertains to the meeting of the offer and the acceptance upon the thing and the cause which constitute the contract. 13 To create a valid contract, the meeting of the minds must be free, voluntary, willful and with a reasonable understanding of the various obligations the parties assumed for themselves.14 Where consent, however, is given through mistake, violence, intimidation, undue influence, or fraud, the contract is deemed voidable. 15 However, not every mistake renders a contract voidable. The Civil Code clarifies the nature of mistake that vitiates consent: Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. [Emphasis ours.] For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur: 1. the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and 2. the identity or qualification must have been the principal consideration for the celebration of the contract.16 In the present case, the Church contends that its consent to sell the lot was given on the mistaken impression arising from Pantes fraudulent misrepresentation that he had been the actual occupant of the lot. Willful misrepresentation existed because of its policy to sell its lands only to their actual occupants or residents. Thus, it considers the buyers actual occupancy or residence over the subject lot a qualification necessary to induce it to sell the lot. Whether the facts, established during trial, support this contention shall determine if the contract between the Church and Pante should be annulled. In the process of weighing the evidentiary value of these established facts, the courts should consider both the parties objectives and the subjective aspects of the transaction, specifically, the parties circumstances their condition, relationship, and other attributes and their conduct at the time of and subsequent to the contract. These considerations will show what

influence the alleged error exerted on the parties and their intelligent, free, and voluntary consent to the contract.17 Contrary to the Churchs contention, the actual occupancy or residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-square meter lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a 2x16-meter strip of rural land used as a passageway from Pantes house to the municipal road. We find well-taken Pantes argument that, given the size of the lot, it could serve no other purpose than as a mere passageway; it is unthinkable to consider that a 2x16meter strip of land could be mistaken as anyones residence. In fact, the spouses Rubi were in possession of the adjacent lot, but they never asserted possession over the 2x16-meter lot when the 1994 sale was made in their favor; it was only then that they constructed the concrete fence blocking the passageway. We find it unlikely that Pante could successfully misrepresent himself as the actual occupant of the lot; this was a fact that the Church (which has a parish chapel in the same barangay where the lot was located) could easily verify had it conducted an ocular inspection of its own property. The surrounding circumstances actually indicate that the Church was aware that Pante was using the lot merely as a passageway. The above view is supported by the sketch plan, 18 attached to the contract executed by the Church and Pante, which clearly labeled the 2x16-meter lot as a "RIGHT OF WAY"; below these words was written the name of "Mr. Regino Pante." Asked during crossexamination where the sketch plan came from, Pante answered that it was from the Archbishops Palace; neither the Church nor the spouses Rubi contradicted this statement.19 The records further reveal that the sales of the Churchs lots were made after a series of conferences with the occupants of the lots.20 The then parish priest of Canaman, Fr. Marcaida, was apparently aware that Pante was not an actual occupant, but nonetheless, he allowed the sale of the lot to Pante, subject to the approval of the Archdioceses Oeconomous. Relying on Fr. Marcaidas recommendation and finding nothing objectionable, Fr. Ragay (the Archdioceses Oeconomous) approved the sale to Pante. The above facts, in our view, establish that there could not have been a deliberate, willful, or fraudulent act committed by Pante that misled the Church into giving its consent to the sale of the subject lot in his favor. That Pante was not an actual occupant of the lot he purchased was a fact that the Church either ignored or waived as a requirement. In any case, the Church was by no means led to believe or do so by Pantes act; there had been no vitiation of the Churchs consent to the sale of the lot to Pante. From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church. Without securing a court ruling on the validity of its contract with Pante, the Church sold the subject property to the spouses Rubi. Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled by a proper court action. From the time the sale to Pante was made and up until it sold the subject property to the spouses Rubi, the Church made no move to reject the contract with Pante; it did not even return the down payment he paid. The Churchs bad faith in selling the lot to Rubi without annulling its contract with Pante negates its claim for damages.

In the absence of any vitiation of consent, the contract between the Church and Pante stands valid and existing. Any delay by Pante in paying the full price could not nullify the contract, since (as correctly observed by the CA) it was a contract of sale. By its terms, the contract did not provide a stipulation that the Church retained ownership until full payment of the price.21 The right to repurchase given to the Church in case Pante fails to pay within the grace period provided22 would have been unnecessary had ownership not already passed to Pante. The rule on double sales The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the application of the rules in Article 1544 of the Civil Code: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. [Emphasis ours.] As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who, between the two, was first in possession of the property in good faith.1wphi1 Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery.23 Under either mode of delivery, the facts show that Pante was the first to acquire possession of the lot. Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee.24 Pante claimed that he had been using the lot as a passageway, with the Churchs permission, since 1963.1wphi1 After purchasing the lot in 1992, he continued using it as a passageway until he was prevented by the spouses Rubis concrete fence over the lot in 1994. Pantes use of the lot as a passageway after the 1992 sale in his favor was a clear assertion of his right of ownership that preceded the spouses Rubis claim of ownership. Pante also stated that he had placed electric connections and water pipes on the lot, even before he purchased it in 1992, and the existence of these connections and pipes was known to the spouses Rubi.25 Thus, any assertion of possession over the lot by the spouses Rubi (e.g., the construction of a concrete fence) would be considered as made in bad faith because works had already existed on the lot indicating possession by another. "[A] buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property."26 Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that: Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the contract executed between the Church and Pante was duly notarized, converting the deed into a public instrument.27 In Navera v. Court of Appeals,28 the Court ruled that: [A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second vendee, and if the latter, by virtue of this second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully acquired by the first vendee. Thus, under either mode of delivery, Pante acquired prior possession of the lot. WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of the Court of Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman Catholic Church. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson JOSE PORTUGAL PEREZ Associate Justice MARIA LOURDES P. A. SERENO Associate Justice

BIENVENIDO L. REYES Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes

Filed under Rule 45 of the Rules of Court.

Rollo, pp. 24-36. Penned by Associate Justice Vicente Q. Roxas, with the concurrence of Associate Justices Godardo A. Jacinto and Juan Q. Enriquez, Jr.
3

Id. at 38. Id. at 39-46. Penned by Judge Corazon A. Tordilla.

The lot was described as Lot 3, Block 2, and part of Original Certificate of Title No. 206; id. at 47.
6

Id. at 47-49.

Docketed as Civil Case No. 94-3286, and filed before the RTC of Naga City, Branch 24.
8

Rollo, p. 28. Supra note 4, at 46. The dispositive portion read: WHEREFORE, judgment is hereby rendered annulling the contract to sell and buy and upholding the deed of absolute sale in favor of the defendants Rubi. Since the [down payment] of P1,120.00 had been paid to the Roman Catholic Church as early as June 8, 1992, said defendant is hereby ordered to return the said amount to the plaintiff with interest thereon of 12% per annum. Plaintiff may also withdraw his deposit of P10,905.00 from the Office of the Clerk of Court as soon as this decision becomes final.

10

CIVIL CODE, Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: 1) Those where one of the parties is incapable of giving consent to a contract; 2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
11

Supra note 2. CIVIL CODE, Article 1318. Id., Article 1319.

12

13

14

Melencio Sta. Maria, Jr., Obligations and Contracts: Text and Cases (2003 ed.), p. 339.
15

CIVIL CODE, Article 1330.

16

Desiderio Jurado, Comments and Jurisprudence on Obligations and Contracts (2002 ed.), p. 426.
17

See Sps. Theis v. Court of Appeals, 335 Phil. 632 (1997).

18

Annex B of Pantes Complaint, RTC Records, p. 11. TSN of March 24, 1995, p. 53. Rollo, p. 44.

19

20

21

Anama v. Court of Appeals, 466 Phil. 64 (2004). See also Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064, June 1, 2011.
22

Rollo, p. 48.

23

See Catain v. Rios, et al., 136 Phil. 601, 603 (1969), citing Bautista v. Sioson, 39 Phil. 615 (1919); and Lichauco v. Berenguer, 39 Phil. 643 (1919).
24

CIVIL CODE, Article 1497. TSN, July 2, 1996, p. 26.

25

26

Occea v. Esponilla, G.R. No. 156973, June 4, 2004, 431 SCRA 116, 124-125, citing Sps. Castro v. Miat, G.R. No. 143297, February 11, 2003, 445 SCRA 282.
27

See Dailisan v. Court of Appeals, G.R. No. 176448, July 28, 2008, 560 SCRA 351, 356; and Calma v. Santos, G.R. No. 161027, June 22, 2009, 590 SCRA 359, 371.
28

263 Phil. 526, 538 (1990), citing Quimson v. Rosete, 87 Phil. 159 (1950); Sanchez v. Ramos, 40 Phil. 614 (1919); and Florendo v. Foz, 20 Phil. 388 (1911).