SECOND DIVISION

[G.R. No. 124617. April 28, 2000]

PHILIPPINE AEOLUS AUTOMOTIVE UNITED CORPORATION and/or FRANCIS CHUA,

petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION and ROSALINDA C.
CORTEZ, respondents.
DECISION
BELLOSILLO, J.:
This petition seeks to set aside the Decision of 15 February 1996 and the Resolution of 28 March 1996 of public
respondent National Labor Relations Commission in NLRC NCR CA No. 009753-95 (NLRC NCR Case No. 00-12-0875994) which modified the decision of the Labor Arbiter finding petitioners not guilty of illegal dismissal.
Petitioner Philippine Aeolus Automotive United Corporation (PAAUC) is a corporation duly organized and existing under
Philippine laws, petitioner Francis Chua is its President while private respondent Rosalinda C. Cortez was a company
nurse1[1] of petitioner corporation until her termination on 7 November 1994. Jlexj
On 5 October 1994 a memorandum was issued by Ms. Myrna Palomares, Personnel Manager of petitioner corporation,
addressed to private respondent Rosalinda C. Cortez requiring her to explain within forty-eight (48) hours why no
disciplinary action should be taken against her (a) for throwing a stapler at Plant Manager William Chua, her superior, and
uttering invectives against him on 2 August 1994; (b) for losing the amount of P1,488.00 entrusted to her by Plant
Manager Chua to be given to Mr. Fang of the CLMC Department on 23 August 1994; and, (c) for asking a co-employee to
punch-in her time card thus making it appear that she was in the office in the morning of 6 September 1994 when in fact
she was not. The memorandum however was refused by private respondent although it was read to her and discussed
with her by a co-employee. She did not also submit the required explanation, so that while her case was pending
investigation the company placed her under preventive suspension for thirty (30) days effective 9 October 1994 to 7
November 1994. Lexjuris
On 20 October 1994, while Cortez was still under preventive suspension, another memorandum was issued by petitioner
corporation giving her seventy-two (72) hours to explain why no disciplinary action should be taken against her for
allegedly failing to process the ATM applications of her nine (9) co-employees with the Allied Banking Corporation. On 21
October 1994 private respondent also refused to receive the second memorandum although it was read to her by a coemployee. A copy of the memorandum was also sent by the Personnel Manager to private respondent at her last known
address by registered mail. Jurismis
Meanwhile, private respondent submitted a written explanation with respect to the loss of the P1,488.00 and the punchingin of her time card by a co-employee.
On 3 November 1994 a third memorandum was issued to private respondent, this time informing her of her termination
from the service effective 7 November 1994 on grounds of gross and habitual neglect of duties, serious misconduct and
fraud or willful breach of trust.2[2]
On 6 December 1994 private respondent filed with the Labor Arbiter a complaint for illegal dismissal, non-payment of
annual service incentive leave pay, 13th month pay and damages against PAAUC and its president Francis Chua. 3[3]
On 10 July 1995 the Labor Arbiter rendered a decision holding the termination of Cortez as valid and legal, at the same
time dismissing her claim for damages for lack of merit.4[4]

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On appeal to the NLRC, public respondent reversed on 15 February 1996 the decision of the Labor Arbiter and found
petitioner corporation guilty of illegal dismissal of private respondent Cortez. The NLRC ordered petitioner PAAUC to
reinstate respondent Cortez to her former position with back wages computed from the time of dismissal up to her actual
reinstatement.5[5]
On 11 March 1996 petitioners moved for reconsideration. On 28 March 1996 the motion was denied; 6[6] hence, this
petition for certiorari challenging the NLRC Decision and Resolution.
The crux of the controversy may be narrowed down to two (2) main issues: whether the NLRC gravely abused its
discretion in holding as illegal the dismissal of private respondent, and whether she is entitled to damages in the event that
the illegality of her dismissal is sustained. Jjjuris
The Labor Code as amended provides specific grounds by which an employer may validly terminate the services of an
employee,7[7] which grounds should be strictly construed since a persons employment constitutes "property" under the
context of the constitutional protection that "no person shall be deprived of life, liberty or property without due process of
law" and, as such, the burden of proving that there exists a valid ground for termination of employment rests upon the
employer.8[8] Likewise, in light of the employee's right to security of tenure, where a penalty less punitive than dismissal
will suffice, whatever missteps may have been committed by labor ought not to be visited with a consequence so severe. 9
[9]

A perusal of the termination letter indicates that private respondent was discharged from employment for "serious
misconduct, gross and habitual neglect of duties and fraud or willful breach of trust." Specifically -justice
1. On August 2, 1994, you committed acts constituting gross disrespect to your superior Mr. William Chua,
the Plant Manager.
2. On August 23, 1994, the Plant Manager entrusted you the amount of P1,488.00 to be sent to CLMC for
Mr. Fang but the money was allegedly lost in your possession and was not recovered.
3. On September 6, 1994, you caused someone else to punch-in your time card to show that you were at
work when in fact you were doing a personal errand for Richard Tan. As per time card you were in at 8:02
A.M. but you only arrived at 12:35 P.M.
4. On July 28, 1994, you received an amount of P900.00 from Miss Lucy Lao to open an ATM card of nine
(9) employees. On September 24, 1994, one of the employees complained by the name of Tirso Aquino
about the status of his ATM Card and upon query from the bank it was found out that no application and
no deposit for said person has been made. Likewise, it was found out that you did not open the ATM Card
and deposit the P800.00 for the 8 other employees. It turned out that said deposit was made after a month
later.10[10]
As to the first charge, respondent Cortez claims that as early as her first year of employment her Plant Manager, William
Chua, already manifested a special liking for her, so much so that she was receiving special treatment from him who
would oftentimes invite her "for a date," which she would as often refuse. On many occasions, he would make sexual
advances - touching her hands, putting his arms around her shoulders, running his fingers on her arms and telling her she
looked beautiful. The special treatment and sexual advances continued during her employment for four (4) years but she
never reciprocated his flirtations, until finally, she noticed that his attitude towards her changed. He made her understand
that if she would not give in to his sexual advances he would cause her termination from the service; and he made good
his threat when he started harassing her. She just found out one day that her table which was equipped with telephone
and intercom units and containing her personal belongings was transferred without her knowledge to a place with neither
telephone nor intercom, for which reason, an argument ensued when she confronted William Chua resulting in her being
charged with gross disrespect.11[11]

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Respondent Cortez explains, as regards the second charge, that the money entrusted to her for transmittal was not lost;
instead, she gave it to the company personnel in-charge for proper transmittal as evidenced by a receipt duly signed by
the latter.12[12]
With respect to the third imputation, private respondent admits that she asked someone to punch-in her time card because
at that time she was doing an errand for one of the company's officers, Richard Tan, and that was with the permission of
William Chua. She maintains that she did it in good faith believing that she was anyway only accommodating the request
of a company executive and done for the benefit of the company with the acquiescence of her boss, William Chua.
Besides, the practice was apparently tolerated as the employees were not getting any reprimand for doing so. 13[13]
As to the fourth charge regarding her alleged failure to process the ATM cards of her co-employees, private respondent
claims that she has no knowledge thereof and therefore denies it. After all, she was employed as a company nurse and
not to process ATM cards for her co-employees. Jksm
The Supreme Court, in a litany of decisions on serious misconduct warranting dismissal of an employee, has ruled that for
misconduct or improper behavior to be a just cause for dismissal (a) it must be serious; (b) must relate to the performance
of the employees duties; and, (c) must show that the employee has become unfit to continue working for the employer. 14
[14] The act of private respondent in throwing a stapler and uttering abusive language upon the person of the plant
manager may be considered, from a lay man's perspective, as a serious misconduct. However, in order to consider it a
serious misconduct that would justify dismissal under the law, it must have been done in relation to the performance of her
duties as would show her to be unfit to continue working for her employer. The acts complained of, under the
circumstances they were done, did not in any way pertain to her duties as a nurse. Her employment identification card
discloses the nature of her employment as a nurse and no other.15[15] Also, the memorandum informing her that she was
being preventively suspended pending investigation of her case was addressed to her as a nurse. 16[16]
As regards the third alleged infraction, i.e., the act of private respondent in asking a co-employee to punch-in her time
card, although a violation of company rules, likewise does not constitute serious misconduct. Firstly, it was done by her in
good faith considering that she was asked by an officer to perform a task outside the office, which was for the benefit of
the company, with the consent of the plant manager. Secondly, it was her first time to commit such infraction during her
five (5)-year service in the company. Finally, the company did not lose anything by reason thereof as the offense was
immediately known and corrected. Es m
On alleged infraction No. 4, as may be gleaned from and admitted in the memorandum of petitioners to private respondent
dated 20 October 199417[17] and the notice of termination dated 3 November 1994, the money entrusted to her was in fact
deposited in the respective accounts of the employees concerned, although belatedly. We agree with the submission of
the Solicitor General that -Es msc
The mere delay/failure to open an ATM account for nine employees is not sufficient, by itself, to support a
conclusion that Rosalinda is guilty of gross and habitual neglect of duties. First, petitioner did not show
that opening an ATM is one of her primary duties as company nurse. Second, petitioner failed to show
that Rosalinda intentionally, knowingly, and purposely delayed the opening of ATM accounts for
petitioners employees. It is of common knowledge that a bank imposes upon an applicant certain
requirements before an ATM account can be opened, i.e. properly filled up application forms, identification
cards, minimum deposit etc. In the instant case, petitioner did not prove that the delay was caused by
Rosalindas neglect or willful act (emphasis supplied).18[18]
Gross negligence implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care.
It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. 19[19] The negligence, to
warrant removal from service, should not merely be gross but also habitual. Likewise, the ground "willful breach by the
employee of the trust reposed in him by his employer" must be founded on facts established by the employer who must

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clearly and convincingly prove by substantial evidence the facts and incidents upon which loss of confidence in the
employee may fairly be made to rest.20[20] All these requirements prescribed by law and jurisprudence are wanting in the
case at bar.
On the issue of moral and exemplary damages, the NLRC ruled that private respondent was not entitled to recover such
damages for her failure to prove that petitioner corporation had been motivated by malice or bad faith or that it acted in a
wanton, oppressive or malevolent manner in terminating her services. In disbelieving the explanation proffered by private
respondent that the transfer of her table was the response of a spurned lothario, public respondent quoted the Labor
Arbiter Complainants assertion that the cause of the altercation between her and the Plant Manager where she
threw a stapler to him and uttered invectives against him was her refusal to submit to his advances to her
which started from her early days of employment and lasted for almost four years, is hardly believable.
For indeed, if there was such harassment, why was there no complaints (sic) from her during that period?
Why did she stay there for so long? Besides, it could not have taken that period for the Plant Manager to
react. This assertion of the complainant deserves no credence at all. 21[21]
Public respondent in thus concluding appears baffled why it took private respondent more than four (4) years to expose
William Chua's alleged sexual harassment. It reasons out that it would have been more prepared to support her position if
her act of throwing the stapler and uttering invectives on William Chua were her immediate reaction to his amorous
overtures. In that case, according to public respondent, she would have been justified for such outburst because she
would have been merely protecting her womanhood, her person and her rights. Esmm is
We are not persuaded. The gravamen of the offense in sexual harassment is not the violation of the employee's sexuality
but the abuse of power by the employer. Any employee, male or female, may rightfully cry "foul" provided the claim is well
substantiated. Strictly speaking, there is no time period within which he or she is expected to complain through the proper
channels. The time to do so may vary depending upon the needs, circumstances, and more importantly, the emotional
threshold of the employee. Esmso
Private respondent admittedly allowed four (4) years to pass before finally coming out with her employer's sexual
impositions. Not many women, especially in this country, are made of the stuff that can endure the agony and trauma of a
public, even corporate, scandal. If petitioner corporation had not issued the third memorandum that terminated the
services of private respondent, we could only speculate how much longer she would keep her silence. Moreover, few
persons are privileged indeed to transfer from one employer to another. The dearth of quality employment has become a
daily "monster" roaming the streets that one may not be expected to give up one's employment easily but to hang on to it,
so to speak, by all tolerable means. Perhaps, to private respondent's mind, for as long as she could outwit her employer's
ploys she would continue on her job and consider them as mere occupational hazards. This uneasiness in her place of
work thrived in an atmosphere of tolerance for four (4) years, and one could only imagine the prevailing anxiety and
resentment, if not bitterness, that beset her all that time. But William Chua faced reality soon enough. Since he had no
place in private respondent's heart, so must she have no place in his office. So, he provoked her, harassed her, and finally
dislodged her; and for finally venting her pent-up anger for years, he "found" the perfect reason to terminate her. Mse sm
In determining entitlement to moral and exemplary damages, we restate the bases therefor. In moral damages, it suffices
to prove that the claimant has suffered anxiety, sleepless nights, besmirched reputation and social humiliation by reason of
the act complained of.22[22] Exemplary damages, on the other hand, are granted in addition to, inter alia, moral damages
"by way of example or correction for the public good" 23[23] if the employer "acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner."24[24]
Anxiety was gradual in private respondent's five (5)-year employment. It began when her plant manager showed an
obvious partiality for her which went out of hand when he started to make it clear that he would terminate her services if
she would not give in to his sexual advances. Sexual harassment is an imposition of misplaced "superiority" which is
enough to dampen an employee's spirit in her capacity for advancement. It affects her sense of judgment; it changes her
life. If for this alone private respondent should be adequately compensated. Thus, for the anxiety, the seen and unseen
hurt that she suffered, petitioners should also be made to pay her moral damages, plus exemplary damages, for the

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oppressive manner with which petitioners effected her dismissal from the service, and to serve as a forewarning to
lecherous officers and employers who take undue advantage of their ascendancy over their employees. Ex sm
All told, the penalty of dismissal is too excessive and not proportionate to the alleged infractions committed considering
that it does not appear that private respondent was an incorrigible offender or that she inflicted serious damage to the
company, nor would her continuance in the service be patently inimical to her employers interest. 25[25] Even the
suspension imposed upon her while her case was pending investigation appears to be unjustified and uncalled for.
WHEREFORE, the Decision of public respondent National Labor Relations Commssion finding the dismissal of private
respondent Rosalinda C. Cortez to be without just cause and ordering petitioners Philippine Aeolus Automotive United
Corporation and/or Francis Chua to pay her back wages computed from the time of her dismissal, which should be full
back wages, is AFFIRMED. However, in view of the strained relations between the adverse parties, instead of
reinstatement ordered by public respondent, petitioners should pay private respondent separation pay equivalent to one
(1) month salary for every year of service until finality of this judgment. In addition, petitioners are ordered to pay private
respondent P25,000.00 for moral damages and P10,000.00 for exemplary damages. Costs against petitioners. Kyle
SO ORDERED.

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MA. LOURDES T. DOMINGO,

Petitioner,

G.R. No. 155831

- versus ROGELIO I. RAYALA,

Respondent.
x-------------------------x
ROGELIO I. RAYALA,
Petitioner,

G.R. No. 155840

- versus OFFICE OF THE PRESIDENT;

RONALDO V. ZAMORA, in his capacity
as Executive Secretary; ROY V.
SENERES, in his capacity as
Chairman of the National Labor
Relations Commission (in lieu of
RAUL T. AQUINO, in his capacity as
Acting Chairman of the National
labor Relations Commission); and
MA. LOURDES T. DOMINGO,
Respondents.
x-------------------------x
The REPUBLIC OF THE PHILIPPINES,
represented by the OFFICE OF THE
PRESIDENT; and ALBERTO G.
ROMULO, in his capacity as Executive
Secretary,
Petitioners,

G.R. No. 158700

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CORONA,*
NACHURA, and
REYES, JJ.

- versus Promulgated:
February 18, 2008
ROGELIO I. RAYALA,
Respondent.
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

Sexual harassment is an imposition of misplaced superiority which is enough to dampen

an employees spirit and her capacity for advancement. It affects her sense of judgment;
it changes her life.26[1]
Before this Court are three Petitions for Review on Certiorari assailing the October 18,
2002 Resolution of the CAs Former Ninth Division27[2] in CA-G.R. SP No. 61026. The
Resolution modified the December 14, 2001 Decision28[3] of the Court of Appeals
Eleventh Division, which had affirmed the Decision of the Office of the President (OP)
dismissing from the service then National Labor Relations Commission (NLRC) Chairman
Rogelio I. Rayala (Rayala) for disgraceful and immoral conduct.
All three petitions stem from the same factual antecedents.
On November 16, 1998, Ma. Lourdes T. Domingo (Domingo), then Stenographic Reporter
III at the NLRC, filed a Complaint for sexual harassment against Rayala before Secretary
Bienvenido Laguesma of the Department of Labor and Employment (DOLE).
To support the Complaint, Domingo executed an Affidavit narrating the incidences of
sexual harassment complained of, thus:
xxxx
4.Sa simula ay pabulong na sinasabihan lang ako ni Chairman Rayala ng mga salitang
Lot, gumaganda ka yata?
5.
Sa ibang mga pagkakataon nilalapitan na ako ni Chairman at hahawakan ang aking
balikat sabay pisil sa mga ito habang ako ay nagta-type at habang nagbibigay siya ng
diktasyon. Sa mga pagkakataong ito, kinakabahan ako. Natatakot na baka mangyari sa
akin ang mga napapabalitang insidente na nangyari na noon tungkol sa mga sekretarya
niyang nagbitiw gawa ng mga mahahalay na panghihipo ni Chairman.
6.
Noong ika-10 ng Setyembre, 1998, nang ako ay nasa 8th Floor, may nagsabi sa akin
na kailangan akong bumaba sa 7th Floor kung nasaan ang aming opisina dahil sa may
koreksyon daw na gagawin sa mga papel na tinayp ko. Bumaba naman ako para gawin
ito. Habang ginagawa ko ito, lumabas si Chairman Rayala sa silid ni Mr. Alex Lopez.
Inutusan ako ni Chairman na sumunod sa kaniyang silid. Nang nasa silid na kami, sinabi
niya sa akin:
Chairman: Lot, I like you a lot. Naiiba ka sa lahat.
At pagkatapos ako ay kaniyang inusisa tungkol sa mga personal na bagay sa aking
buhay. Ang ilan dito ay tungkol sa aking mga magulang, kapatid, pag-aaral at kung may
boyfriend na raw ba ako.
Chairman: May boyfriend ka na ba?
Lourdes:
Dati nagkaroon po.
Chairman: Nasaan na siya?
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Lourdes:
Nag-asawa na ho.
Chairman: Bakit hindi kayo nagkatuluyan?
Lourdes:
Nainip po.
Chairman: Pagkatapos mo ng kurso mo ay kumuha ka ng Law at ako ang bahala sa iyo,
hanggang ako pa ang Chairman dito.
Pagkatapos ay kumuha siya ng pera sa kaniyang amerikana at inaabot sa akin.
Chairman: Kuhanin mo ito.
Lourdes:
Huwag na ho hindi ko kailangan.
Chairman: Hindi sige, kuhanin mo. Ayusin mo ang dapat ayusin.
Tinanggap ko po ang pera ng may pag-aalinlangan. Natatakot at kinakabahan na
kapag hindi ko tinanggap ang pera ay baka siya magagalit kasabay na rito ang pagtapon
sa akin kung saan-saan opisina o kaya ay tanggalin ako sa posisyon.
Chairman: Paglabas mo itago mo ang pera. Ayaw ko ng may makaka-alam nito. Just the
two of us.
Lourdes:
Bakit naman, Sir?
Chairman: Basta. Maraming tsismosa diyan sa labas. But I dont give them a damn. Hindi
ako mamatay sa kanila.
Tumayo na ako at lumabas. Pumanhik na ako ng 8th Floor at pumunta ako sa
officemate ko na si Agnes Magdaet. Ikinwento ko ang nangyari sa akin sa opisina ni
Chairman. Habang kinikwento ko ito kay Agnes ay binilang namin ang pera na
nagkakahalaga ng tatlong libong piso (PHP 3,000). Sinabi ni Agnes na isauli ko raw ang
pera, pero ang sabi ko ay natatakot ako baka magalit si Sir. Nagsabi agad kami kay EC
Perlita Velasco at sinalaysay ko ang nangyari. Sinabi niya na isauli ko ang pera at noong
araw ding iyon ay nagpasiya akong isauli na nga ito ngunit hindi ako nagkaroon ng
pagkakataon dahil marami siyang naging bisita. Isinauli ko nga ang pera noong Lunes,
Setyembre 14, 1998.
7.
Noong huling linggo ng Setyembre, 1998, ay may tinanong din sa akin si Chairman
Rayala na hindi ko masikmura, at sa aking palagay at tahasang pambabastos sa akin.
Chairman:
Lourdes:
Chairman:
Lourdes:
Chairman:
Lourdes:
Chairman:
Lourdes:
Chairman:

Lot, may ka live-in ka ba?

Sir, wala po.
Bakit malaki ang balakang mo?
Kayo, Sir ha! Masama sa amin ang may ka live-in.
Bakit, ano ba ang relihiyon ninyo?
Catholic, Sir. Kailangan ikasal muna.
Bakit ako, hindi kasal.
Sir, di magpakasal kayo.
Huh. Ibahin na nga natin ang usapan.

8.
Noong Oktubre 29, 1998, ako ay pumasok sa kwarto ni Chairman Rayala. Ito ay sa
kadahilanang ang fax machine ay nasa loob ng kaniyang kwarto. Ang nag-aasikaso nito,
si Riza Ocampo, ay naka-leave kaya ako ang nag-asikaso nito noong araw na iyon. Nang
mabigyan ko na ng fax tone yung kausap ko, pagharap ko sa kanan ay nakaharang sa
dadaanan ko si Chairman Rayala. Tinitingnan ako sa mata at ang titig niya ay umuusad
mula ulo hanggang dibdib tapos ay ngumiti na may mahalay na pakahulugan.

9.
Noong hapon naman ng pareho pa ring petsa, may nag-aapply na sekretarya sa
opisina, sinabi ko ito kay Chairman Rayala:
Lourdes:
Sir, si Pinky po yung applicant, mag-papainterview po yata sa inyo.
Chairman: Sabihin mo magpa-pap smear muna siya
Chairman: O sige, i-refer mo kay Alex. (Alex Lopez, Chief of Staff).
10. Noong Nobyembre 9, 1998, ako ay tinawag ni Chairman Rayala sa kaniyang opisina
upang kuhanin ko ang diktasyon niya para kay ELA Oscar Uy. Hindi pa kami nakakatapos
ng unang talata, may pumasok na bisita si Chairman, si Baby Pangilinan na sinamahan ni
Riza Ocampo. Pinalabas muna ako ni Chairman. Nang maka-alis na si Ms. Pangilinan,
pinapasok na niya ako ulit. Umupo ako. Lumapit sa likuran ko si Chairman, hinawakan
ang kaliwang balikat ko na pinipisil ng kanang kamay niya at sinabi:
Chairman: Saan na ba tayo natapos?
Palakad-lakad siya sa aking likuran habang nag-didikta. Huminto siya pagkatapos,
at nilagay niya ang kanang kamay niya sa aking kanang balikat at pinisil-pisil ito
pagkatapos ay pinagapang niya ito sa kanang bahagi ng aking leeg, at pinagapang
hanggang kanang tenga at saka kiniliti. Dito ko inalis ang kaniyang kamay sa
pamamagitan ng aking kaliwang kamay. At saka ko sinabi:
Lourdes:

Sir, yung kamay ninyo alisin niyo!

Natapos ko rin ang liham na pinagagawa niya pero halos hindi ko na maintindihan
ang na-isulat ko dahil sa takot at inis na nararamdaman ko.29[4]
After the last incident narrated, Domingo filed for leave of absence and asked to be
immediately transferred. Thereafter, she filed the Complaint for sexual harassment on
the basis of Administrative Order No. 250, the Rules and Regulations Implementing RA
7877 in the Department of Labor and Employment.
Upon receipt of the Complaint, the DOLE Secretary referred the Complaint to the OP,
Rayala being a presidential appointee. The OP, through then Executive Secretary Ronaldo
Zamora, ordered Secretary Laguesma to investigate the allegations in the Complaint and
create a committee for such purpose. On December 4, 1998, Secretary Laguesma issued
Administrative Order (AO) No. 280, Series of 1998,30[5] constituting a Committee on
Decorum and Investigation (Committee) in accordance with Republic Act (RA) 7877, the
Anti-Sexual Harassment Act of 1995.31[6]
The Committee heard the parties and received their respective evidence. On March 2,
2000, the Committee submitted its report and recommendation to Secretary Laguesma.
It found Rayala guilty of the offense charged and recommended the imposition of the
minimum penalty provided under AO 250, which it erroneously stated as suspension for
six (6) months.
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The following day, Secretary Laguesma submitted a copy of the Committee Report and
Recommendation to the OP, but with the recommendation that the penalty should be
suspension for six (6) months and one (1) day, in accordance with AO 250.
On May 8, 2000, the OP, through Executive Secretary Zamora, issued AO 119,32[7] the
pertinent portions of which read:
Upon a careful scrutiny of the evidence on record, I concur with the findings of the
Committee as to the culpability of the respondent [Rayala], the same having been
established by clear and convincing evidence. However, I disagree with the
recommendation that respondent be meted only the penalty of suspension for six (6)
months and one (1) day considering the circumstances of the case.
What aggravates respondents situation is the undeniable circumstance that he took
advantage of his position as the superior of the complainant. Respondent occupies the
highest position in the NLRC, being its Chairman. As head of said office, it was incumbent
upon respondent to set an example to the others as to how they should conduct
themselves in public office, to see to it that his subordinates work efficiently in
accordance with Civil Service Rules and Regulations, and to provide them with healthy
working atmosphere wherein co-workers treat each other with respect, courtesy and
cooperation, so that in the end the public interest will be benefited (City Mayor of
Zamboanga vs. Court of Appeals, 182 SCRA 785 [1990]).
What is more, public service requires the utmost integrity and strictest discipline (Gano
vs. Leonen, 232 SCRA 99 [1994]). Thus, a public servant must exhibit at all times the
highest sense of honesty and integrity, and utmost devotion and dedication to duty (Sec.
4 (g), RA 6713), respect the rights of others and shall refrain from doing acts contrary to
law, and good morals (Sec. 4(c)). No less than the Constitution sanctifies the principle
that a public office is a public trust, and enjoins all public officers and employees to serve
with the highest degree of responsibility, integrity, loyalty and efficiency (Section 1,
Article XI, 1987 Constitution).
Given these established standards, I see respondents acts not just [as] a failure to give
due courtesy and respect to his co-employees (subordinates) or to maintain good
conduct and behavior but defiance of the basic norms or virtues which a government
official must at all times uphold, one that is contrary to law and public sense of morality.
Otherwise stated, respondent to whom stricter standards must apply being the highest
official [of] the NLRC had shown an attitude, a frame of mind, a disgraceful conduct,
which renders him unfit to remain in the service.
WHEREFORE, in view of the foregoing, respondent Rogelio I. Rayala, Chairman, National
Labor Relations Commission, is found guilty of the grave offense of disgraceful and
immoral conduct and is hereby DISMISSED from the service effective upon receipt of
this Order.
SO ORDER[ED].

32

Rayala filed a Motion for Reconsideration, which the OP denied in a Resolution 33[8] dated
May 24, 2000. He then filed a Petition for Certiorari and Prohibition with Prayer for
Temporary Restraining Order under Rule 65 of the Revised Rules on Civil Procedure
before this Court on June 14, 2000.34[9] However, the same was dismissed in a Resolution
dated June 26, 2000 for disregarding the hierarchy of courts.35[10] Rayala filed a Motion
for
Reconsideration36[11] on August 15, 2000. In its Resolution37[12] dated September 4,
2000, the Court recalled its June 26 Resolution and referred the petition to the Court of
Appeals (CA) for appropriate action.
The CA rendered its Decision38[13] on December 14, 2001. It held that there was
sufficient evidence on record to create moral certainty that Rayala committed the acts he
was charged with. It said:
The complainant narrated her story complete with details. Her straightforward and
uninhibited testimony was not emasculated by the declarations of Commissioner Rayala
or his witnesses. x x x
Moreover, Commissioner Rayala has not proven any vicious motive for Domingo and her
witnesses to invent their stories. It is very unlikely that they would perjure themselves
only to accommodate the alleged conspiracy to oust petitioner from office. Save for his
empty conjectures and speculations, Rayala failed to substantiate his contrived
conspiracy. It is a hornbook doctrine that conspiracy must be proved by positive and
convincing evidence (People v. Noroa, 329 SCRA 502 [2000]). Besides, it is improbable
that the complainant would concoct a story of sexual harassment against the highest
official of the NLRC and thereby expose herself to the possibility of losing her job, or be
the subject of reprisal from her superiors and perhaps public ridicule if she was not telling
the truth.
It also held that Rayalas dismissal was proper. The CA pointed out that Rayala was
dismissed for disgraceful and immoral conduct in violation of RA 6713, the Code of
Conduct and Ethical Standards for Public Officials and Employees. It held that the OP was
correct in concluding that Rayalas acts violated RA 6713:
Indeed, [Rayala] was a public official, holding the Chairmanship of the National Labor
Relations Commission, entrusted with the sacred duty of administering justice.
Occupying as he does such an exalted position, Commissioner Rayala must pay a high
price for the honor bestowed upon him. He must comport himself at all times in such a
manner that the conduct of his everyday life should be beyond reproach and free from
any impropriety. That the acts complained of were committed within the sanctuary of
[his] office compounded the objectionable nature of his wrongdoing. By daring to violate
the complainant within the solitude of his chambers, Commissioner Rayala placed the

33
34
35
36
37
38

integrity of his office in disrepute. His disgraceful and immoral conduct warrants his
removal from office.39[14]
Thus, it dismissed the petition, to wit:
IN VIEW OF ALL THE FOREGOING, the instant petition is hereby DISMISSED and
Administrative Order No. 119 as well [as] the Resolution of the Office of the President in
O.P. Case No. 00-E-9118 dated May 24, 2000 are AFFIRMED IN TOTO. No cost.
SO ORDERED.40[15]
Rayala timely filed a Motion for Reconsideration. Justices Vasquez and Tolentino voted to
affirm the December 14 Decision. However, Justice Reyes dissented mainly because AO
250 states that the penalty imposable is suspension for six (6) months and one (1) day. 41
[16] Pursuant to the internal rules of the CA, a Special Division of Five was constituted.42
[17] In its October 18, 2002 Resolution, the CA modified its earlier Decision:
ACCORDINGLY, the Decision dated December [14], 2001 is MODIFIED to the effect that
the penalty of dismissal is DELETED and instead the penalty of suspension from service
for the maximum period of one (1) year is HEREBY IMPOSED upon the petitioner. The rest
of the challenged decision stands.
SO ORDERED.
Domingo filed a Petition for Review43[18] before this Court, which we denied in our
February 19, 2003 Resolution for having a defective verification. She filed a Motion for
Reconsideration, which the Court granted; hence, the petition was reinstated.
Rayala likewise filed a Petition for Review44[19] with this Court essentially arguing that he
is not guilty of any act of sexual harassment.
Meanwhile, the Republic filed a Motion for Reconsideration of the CAs October 18, 2002
Resolution. The CA denied the same in its June 3, 2003 Resolution, the dispositive portion
of which reads:
ACCORDINGLY, by a majority vote, public respondents Motion for Reconsideration, (sic)
is DENIED.
SO ORDERED.

39
40
41
42
43
44

The Republic then filed its own Petition for Review.45[20]

On June 28, 2004, the Court directed the consolidation of the three (3) petitions.
G.R. No. 155831
Domingo assails the CAs resolution modifying the penalty imposed by the Office of the
President. She raises this issue:
The Court of Appeals erred in modifying the penalty for the respondent from dismissal to
suspension from service for the maximum period of one year. The President has the
prerogative to determine the proper penalty to be imposed on an erring Presidential
appointee. The President was well within his power when he fittingly used that
prerogative in deciding to dismiss the respondent from the service.46[21]
She argues that the power to remove Rayala, a presidential appointee, is lodged with the
President who has control of the entire Executive Department, its bureaus and offices.
The OPs decision was arrived at after affording Rayala due process. Hence, his dismissal
from the service is a prerogative that is entirely with the President.47[22]
As to the applicability of AO No. 250, she argues that the same was not intended to cover
cases against presidential appointees. AO No. 250 refers only to the instances wherein
the DOLE Secretary is the disciplining authority, and thus, the AO does not circumscribe
the power of the President to dismiss an erring presidential appointee.
G.R. No. 155840
In his petition, Rayala raises the following issues:
I.
CONTRARY TO THE FINDINGS OF THE COURT OF APPEALS, THE
ACTS OF HEREIN PETITIONER DO NOT CONSTITUTE SEXUAL HARASSMENT AS
LAID DOWN BY THE En Banc RULING IN THE CASE OF AQUINO vs. ACOSTA, ibid.,
AS WELL AS IN THE APPLICATION OF EXISTING LAWS.
II.
CONTRARY TO THE FINDINGS OF THE HONORABLE COURT OF
APPEALS, INTENT IS AN INDISPENSABLE ELEMENT IN A CASE FOR SEXUAL
HARASSMENT. THE HONORABLE COURT ERRED IN ITS FINDING THAT IT IS AN
OFFENSE THAT IS MALUM PROHIBITUM.
III.
THE INVESTIGATION COMMITTEE, THE OFFICE OF THE PRESIDENT,
AND NOW, THE HONORABLE COURT OF APPEALS, HAS MISAPPLIED AND
EXPANDED THE DEFINITION OF SEXUAL HARASSMENT IN THE WORKPLACE
UNDER R.A. No. 7877, BY APPLYING DOLE A.O. 250, WHICH RUNS COUNTER TO
THE RECENT PRONOUNCEMENTS OF THIS HONORABLE SUPREME COURT.48[23]

45
46
47
48

Invoking Aquino v. Acosta,49[24] Rayala argues that the case is the definitive ruling on
what constitutes sexual harassment. Thus, he posits that for sexual harassment to exist
under RA 7877, there must be: (a) demand, request, or requirement of a sexual favor; (b)
the same is made a pre-condition to hiring, re-employment, or continued employment; or
(c) the denial thereof results in discrimination against the employee.
Rayala asserts that Domingo has failed to allege and establish any sexual favor, demand,
or request from petitioner in exchange for her continued employment or for her
promotion. According to Rayala, the acts imputed to him are without malice or ulterior
motive. It was merely Domingos perception of malice in his alleged acts a product of her
own imagination50[25] that led her to file the sexual harassment complaint.
Likewise, Rayala assails the OPs interpretation, as upheld by the CA, that RA 7877 is
malum prohibitum such that the defense of absence of malice is unavailing. He argues
that sexual harassment is considered an offense against a particular person, not against
society as a whole. Thus, he claims that intent is an essential element of the offense
because the law requires as a conditio sine qua non that a sexual favor be first sought by
the offender in order to achieve certain specific results. Sexual harassment is committed
with the perpetrators deliberate intent to commit the offense.51[26]
Rayala next argues that AO 250 expands the acts proscribed in RA 7877. In particular, he
assails the definition of the forms of sexual harassment:
Rule IV
FORMS OF SEXUAL HARASSMENT
Section 1. Forms of Sexual Harassment. Sexual harassment may be committed in any
of the following forms:
a)Overt sexual advances;
b)

Unwelcome or improper gestures of affection;

c)
Request or demand for sexual favors including but not limited to going out on
dates, outings or the like for the same purpose;
d)
Any other act or conduct of a sexual nature or for purposes of sexual gratification
which is generally annoying, disgusting or offensive to the victim.52[27]
He posits that these acts alone without corresponding demand, request, or requirement
do not constitute sexual harassment as contemplated by the law.53[28] He alleges that
the rule-making power granted to the employer in Section 4(a) of RA 7877 is limited only
to procedural matters. The law did not delegate to the employer the power to
49
50
51
52
53

promulgate rules which would provide other or additional forms of sexual harassment, or
to come up with its own definition of sexual harassment.54[29]
G.R. No. 158700
The Republic raises this issue:
Whether or not the President of the Philippines may validly dismiss respondent
Rayala as Chairman of the NLRC for committing acts of sexual harassment. 55
[30]
The Republic argues that Rayalas acts constitute sexual harassment under AO 250. His
acts constitute unwelcome or improper gestures of affection and are acts or conduct of a
sexual nature, which are generally annoying or offensive to the victim.56[31]
It also contends that there is no legal basis for the CAs reduction of the penalty imposed
by the OP. Rayalas dismissal is valid and warranted under the circumstances. The power
to remove the NLRC Chairman solely rests upon the President, limited only by the
requirements under the law and the due process clause.
The Republic further claims that, although AO 250 provides only a one (1) year
suspension, it will not prevent the OP from validly imposing the penalty of dismissal on
Rayala. It argues that even though Rayala is a presidential appointee, he is still subject to
the Civil Service Law. Under the Civil Service Law, disgraceful and immoral conduct, the
acts imputed to Rayala, constitute grave misconduct punishable by dismissal from the
service.57[32] The Republic adds that Rayalas position is invested with public trust and
his acts violated that trust; thus, he should be dismissed from the service.
This argument, according to the Republic, is also supported by Article 215 of the Labor
Code, which states that the Chairman of the NLRC holds office until he reaches the age of
65 only during good behavior.58[33] Since Rayalas security of tenure is conditioned upon
his good behavior, he may be removed from office if it is proven that he has failed to live
up to this standard.
All the issues raised in these three cases can be summed up in two ultimate questions,
namely:
(1)
(2)

Did Rayala commit sexual harassment?

If he did, what is the applicable penalty?

Initially, however, we must resolve a procedural issue raised by Rayala. He accuses the
Office of the Solicitor General (OSG), as counsel for the Republic, of forum shopping
because it filed a motion for reconsideration of the decision in CA-G.R. SP No. 61026 and
then filed a comment in G.R. No. 155840 before this Court.
54
55
56
57
58

We do not agree.
Forum shopping is an act of a party, against whom an adverse judgment or order has
been rendered in one forum, of seeking and possibly securing a favorable opinion in
another forum, other than by appeal or special civil action for certiorari.59[34] It consists
of filing multiple suits involving the same parties for the same cause of action, either
simultaneously or successively, for the purpose of obtaining a favorable judgment.60[35]
There is forum shopping when the following elements concur: (1) identity of the parties
or, at least, of the parties who represent the same interest in both actions; (2) identity of
the rights asserted and relief prayed for, as the latter is founded on the same set of
facts; and (3) identity of the two preceding particulars such that any judgment rendered
in the other action will amount to res judicata in the action under consideration or will
constitute litis pendentia.61[36]
Reviewing the antecedents of these consolidated cases, we note that the CA rendered
the assailed Resolution on October 18, 2002. The Republic filed its Motion for
Reconsideration on November 22, 2002. On the other hand, Rayala filed his petition
before this Court on November 21, 2002. While the Republics Motion for Reconsideration
was pending resolution before the CA, on December 2, 2002, it was directed by this Court
to file its Comment on Rayalas petition, which it submitted on June 16, 2003.
When the CA denied the Motion for Reconsideration, the Republic filed its own Petition for
Review with this Court on July 3, 2003. It cited in its Certification and Verification of a
Non-Forum Shopping (sic), that there was a case involving the same facts pending before
this Court denominated as G.R. No. 155840. With respect to Domingos petition, the same
had already been dismissed on February 19, 2003. Domingos petition was reinstated on
June 16, 2003 but the resolution was received by the OSG only on July 25, 2003, or after
it had filed its own petition.62[37]
Based on the foregoing, it cannot be said that the OSG is guilty of forum shopping. We
must point out that it was Rayala who filed the petition in the CA, with the Republic as
the adverse party. Rayala himself filed a motion for reconsideration of the CAs December
21, 2001 Decision, which led to a more favorable ruling, i.e., the lowering of the penalty
from dismissal to one-year suspension. The parties adversely affected by this ruling
(Domingo and the Republic) had the right to question the same on motion for
reconsideration. But Domingo directly filed a Petition for Review with this Court, as did
Rayala. When the Republic opted to file a motion for reconsideration, it was merely
exercising a right. That Rayala and Domingo had by then already filed cases before the
SC did not take away this right. Thus, when this Court directed the Republic to file its
Comment on Rayalas petition, it had to comply, even if it had an unresolved motion for
reconsideration with the CA, lest it be cited for contempt.
Accordingly, it cannot be said that the OSG file[d] multiple suits involving the same
parties for the same cause of action, either simultaneously or successively, for the
purpose of obtaining a favorable judgment.
59
60
61
62

We now proceed to discuss the substantive issues.

It is noteworthy that the five CA Justices who deliberated on the case were unanimous in
upholding the findings of the Committee and the OP. They found the assessment made
by the Committee and the OP to be a meticulous and dispassionate analysis of the
testimonies of the complainant (Domingo), the respondent (Rayala), and their respective
witnesses. 63[38] They differed only on the appropriate imposable penalty.
That Rayala committed the acts complained of and was guilty of sexual harassment is,
therefore, the common factual finding of not just one, but three independent bodies: the
Committee, the OP and the CA. It should be remembered that when supported by
substantial evidence, factual findings made by quasi-judicial and administrative bodies
are accorded great respect and even finality by the courts.64[39] The principle, therefore,
dictates that such findings should bind us.65[40]
Indeed, we find no reason to deviate from this rule. There appears no valid ground for
this Court to review the factual findings of the CA, the OP, and the Investigating
Committee. These findings are now conclusive on the Court. And quite significantly,
Rayala himself admits to having committed some of the acts imputed to him.
He insists, however, that these acts do not constitute sexual harassment, because
Domingo did not allege in her complaint that there was a demand, request, or
requirement of a sexual favor as a condition for her continued employment or for her
promotion to a higher position.66[41] Rayala urges us to apply to his case our ruling in
Aquino v. Acosta.67[42]
We find respondents insistence unconvincing.
Basic in the law of public officers is the three-fold liability rule, which states that the
wrongful acts or omissions of a public officer may give rise to civil, criminal and
administrative liability. An action for each can proceed independently of the others.68[43]
This rule applies with full force to sexual harassment.
The law penalizing sexual harassment in our jurisdiction is RA 7877. Section 3 thereof
defines work-related sexual harassment in this wise:
Sec. 3. Work, Education or Training-related Sexual Harassment Defined. Work, education
or training-related sexual harassment is committed by an employer, manager,
supervisor, agent of the employer, teacher, instructor, professor, coach, trainor, or any
other person who, having authority, influence or moral ascendancy over another in a
work or training or education environment, demands, requests or otherwise requires any
sexual favor from the other, regardless of whether the demand, request or requirement
for submission is accepted by the object of said Act.
63
64
65
66
67
68

(a)In a work-related or employment environment, sexual harassment is committed when:

(1)
The sexual favor is made as a condition in the hiring or in the employment, reemployment or continued employment of said individual, or in granting said individual
favorable compensation, terms, conditions, promotions, or privileges; or the refusal to
grant the sexual favor results in limiting, segregating or classifying the employee which
in a way would discriminate, deprive or diminish employment opportunities or otherwise
adversely affect said employee;
(2)
The above acts would impair the employees rights or privileges under existing
labor laws; or
(3)
The above acts would result in an intimidating, hostile, or offensive environment for
the employee.
This section, in relation to Section 7 on penalties, defines the criminal aspect of the
unlawful act of sexual harassment. The same section, in relation to Section 6, authorizes
the institution of an independent civil action for damages and other affirmative relief.
Section 4, also in relation to Section 3, governs the procedure for administrative
cases, viz.:
Sec. 4. Duty of the Employer or Head of Office in a Work-related, Education or Training
Environment. It shall be the duty of the employer or the head of the work-related,
educational or training environment or institution, to prevent or deter the commission of
acts of sexual harassment and to provide the procedures for the resolution, settlement or
prosecution of acts of sexual harassment. Towards this end, the employer or head of
office shall:
(a)
Promulgate appropriate rules and regulations in consultation with and jointly
approved by the employees or students or trainees, through their duly designated
representatives, prescribing the procedure for the investigation or sexual harassment
cases and the administrative sanctions therefor.
Administrative sanctions shall not be a bar to prosecution in the proper courts for
unlawful acts of sexual harassment.
The said rules and regulations issued pursuant to this section (a) shall include, among
others, guidelines on proper decorum in the workplace and educational or training
institutions.
(b)
Create a committee on decorum and investigation of cases on sexual
harassment. The committee shall conduct meetings, as the case may be, with other
officers and employees, teachers, instructors, professors, coaches, trainors and students
or trainees to increase understanding and prevent incidents of sexual harassment. It
shall also conduct the investigation of the alleged cases constituting sexual harassment.
In the case of a work-related environment, the committee shall be composed of at least
one (1) representative each from the management, the union, if any, the employees from
the supervisory rank, and from the rank and file employees.

In the case of the educational or training institution, the committee shall be composed of
at least one (1) representative from the administration, the trainors, teachers,
instructors, professors or coaches and students or trainees, as the case maybe.
The employer or head of office, educational or training institution shall disseminate or
post a copy of this Act for the information of all concerned.
The CA, thus, correctly ruled that Rayalas culpability is not to be determined solely on
the basis of Section 3, RA 7877, because he is charged with the administrative offense,
not the criminal infraction, of sexual harassment.69[44] It should be enough that the CA,
along with the Investigating Committee and the Office of the President, found substantial
evidence to support the administrative charge.
Yet, even if we were to test Rayalas acts strictly by the standards set in Section 3, RA
7877, he would still be administratively liable. It is true that this provision calls for a
demand, request or requirement of a sexual favor. But it is not necessary that the
demand, request or requirement of a sexual favor be articulated in a categorical oral or
written statement. It may be discerned, with equal certitude, from the acts of the
offender. Holding and squeezing Domingos shoulders, running his fingers across her neck
and tickling her ear, having inappropriate conversations with her, giving her money
allegedly for school expenses with a promise of future privileges, and making statements
with unmistakable sexual overtones all these acts of Rayala resound with deafening
clarity the unspoken request for a sexual favor.
Likewise, contrary to Rayalas claim, it is not essential that the demand, request or
requirement be made as a condition for continued employment or for promotion to a
higher position. It is enough that the respondents acts result in creating an intimidating,
hostile or offensive environment for the employee.70[45] That the acts of Rayala
generated an intimidating and hostile environment for Domingo is clearly shown by the
common factual finding of the Investigating Committee, the OP and the CA that Domingo
reported the matter to an officemate and, after the last incident, filed for a leave of
absence and requested transfer to another unit.
Rayalas invocation of Aquino v. Acosta71[46] is misplaced, because the factual setting in
that case is different from that in the case at bench. In Aquino, Atty. Susan Aquino, Chief
of the Legal and Technical Staff of the Court of Tax Appeals (CTA), charged then CTA
Presiding Judge (now Presiding Justice) Ernesto Acosta of sexual harassment. She
complained of several incidents when Judge Acosta allegedly kissed her, embraced her,
and put his arm around her shoulder. The case was referred to CA Justice Josefina G.
Salonga for investigation. In her report, Justice Salonga found that the complainant failed
to show by convincing evidence that the acts of Judge Acosta in greeting her with a kiss
on the cheek, in a `beso-beso fashion, were carried out with lustful and lascivious desires
or were motivated by malice or ill motive. It is clear from the circumstances that most of
the kissing incidents were done on festive and special occasions, and they took place in
the presence of other people and the same was by reason of the exaltation or happiness
of the moment. Thus, Justice Salonga concluded:
69
70
71

In all the incidents complained of, the respondent's pecks on the cheeks of the
complainant should be understood in the context of having been done on the occasion of
some festivities, and not the assertion of the latter that she was singled out by Judge
Acosta in his kissing escapades. The busses on her cheeks were simply friendly and
innocent, bereft of malice and lewd design. The fact that respondent judge kisses other
people on the cheeks in the 'beso-beso' fashion, without malice, was corroborated by
Atty. Florecita P. Flores, Ms. Josephine Adalem and Ms. Ma. Fides Balili, who stated that
they usually practice 'beso-beso' or kissing on the cheeks, as a form of greeting on
occasions when they meet each other, like birthdays, Christmas, New Year's Day and
even Valentine's Day, and it does not matter whether it is Judge Acosta's birthday or their
birthdays. Theresa Cinco Bactat, a lawyer who belongs to complainant's department,
further attested that on occasions like birthdays, respondent judge would likewise greet
her with a peck on the cheek in a 'beso-beso' manner. Interestingly, in one of several
festive occasions, female employees of the CTA pecked respondent judge on the cheek
where Atty. Aquino was one of Judge Acosta's well wishers.
In sum, no sexual harassment had indeed transpired on those six occasions. Judge
Acosta's acts of bussing Atty. Aquino on her cheek were merely forms of greetings, casual
and customary in nature. No evidence of intent to sexually harass complainant was
apparent, only that the innocent acts of 'beso-beso' were given malicious connotations
by the complainant. In fact, she did not even relate to anyone what happened to her.
Undeniably, there is no manifest sexual undertone in all those incidents.72[47]
This Court agreed with Justice Salonga, and Judge Acosta was exonerated.
To repeat, this factual milieu in Aquino does not obtain in the case at bench. While in
Aquino, the Court interpreted the acts (of Judge Acosta) as casual gestures of friendship
and camaraderie, done during festive or special occasions and with other people present,
in the instant case, Rayalas acts of holding and squeezing Domingos shoulders, running
his fingers across her neck and tickling her ear, and the inappropriate comments, were
all made in the confines of Rayalas office when no other members of his staff were
around. More importantly, and a circumstance absent in Aquino, Rayalas acts, as already
adverted to above, produced a hostile work environment for Domingo, as shown by her
having reported the matter to an officemate and, after the last incident, filing for a leave
of absence and requesting transfer to another unit.
Rayala also argues that AO 250 does not apply to him. First, he argues that AO 250 does
not cover the NLRC, which, at the time of the incident, was under the DOLE only for
purposes of program and policy coordination. Second, he posits that even assuming AO
250 is applicable to the NLRC, he is not within its coverage because he is a presidential
appointee.
We find, however, that the question of whether or not AO 250 covers Rayala is of no real
consequence. The events of this case unmistakably show that the administrative charges
against Rayala were for violation of RA 7877; that the OP properly assumed jurisdiction
over the administrative case; that the participation of the DOLE, through the Committee
created by the Secretary, was limited to initiating the investigation process, reception of
evidence of the parties, preparation of the investigation report, and recommending the
72

appropriate action to be taken by the OP. AO 250 had never really been applied to
Rayala. If it was used at all, it was to serve merely as an auxiliary procedural guide to aid
the Committee in the orderly conduct of the investigation.
Next, Rayala alleges that the CA erred in holding that sexual harassment is an offense
malum prohibitum. He argues that intent is an essential element in sexual harassment,
and since the acts imputed to him were done allegedly without malice, he should be
absolved of the charges against him.
We reiterate that what is before us is an administrative case for sexual harassment.
Thus, whether the crime of sexual harassment is malum in se or malum prohibitum is
immaterial.
We also reject Rayalas allegations that the charges were filed because of a conspiracy to
get him out of office and thus constitute merely political harassment. A conspiracy must
be proved by clear and convincing evidence. His bare assertions cannot stand against
the evidence presented by Domingo. As we have already ruled, the acts imputed to
Rayala have been proven as fact. Moreover, he has not proven any ill motive on the part
of Domingo and her witnesses which would be ample reason for her to conjure stories
about him. On the contrary, ill motive is belied by the fact that Domingo and her
witnesses all employees of the NLRC at that time stood to lose their jobs or suffer
unpleasant consequences for coming forward and charging their boss with sexual
harassment.
Furthermore, Rayala decries the alleged violation of his right to due process. He accuses
the Committee on Decorum of railroading his trial for violation of RA 7877. He also scored
the OPs decision finding him guilty of disgraceful and immoral conduct under the Revised
Administrative Code and not for violation of RA 7877. Considering that he was not tried
for disgraceful and immoral conduct, he argues that the verdict is a sham and total
nullity.
We hold that Rayala was properly accorded due process. In previous cases, this Court
held that:
[i]n administrative proceedings, due process has been recognized to include the
following: (1) the right to actual or constructive notice of the institution of proceedings
which may affect a respondents legal rights; (2) a real opportunity to be heard personally
or with the assistance of counsel, to present witnesses and evidence in ones favor, and
to defend ones rights; (3) a tribunal vested with competent jurisdiction and so
constituted as to afford a person charged administratively a reasonable guarantee of
honesty as well as impartiality; and (4) a finding by said tribunal which is supported by
substantial evidence submitted for consideration during the hearing or contained in the
records or made known to the parties affected.73[48]
The records of the case indicate that Rayala was afforded all these procedural due
process safeguards. Although in the beginning he questioned the authority of the
Committee to try him,74[49] he appeared, personally and with counsel, and participated
in the proceedings.
73
74

On the other point raised, this Court has held that, even in criminal cases, the
designation of the offense is not controlling, thus:
What is controlling is not the title of the complaint, nor the designation of the offense
charged or the particular law or part thereof allegedly violated, these being mere
conclusions of law made by the prosecutor, but the description of the crime charged and
the particular facts therein recited. The acts or omissions complained of must be alleged
in such form as is sufficient to enable a person of common understanding to know what
offense is intended to be charged, and enable the court to pronounce proper judgment.
No information for a crime will be sufficient if it does not accurately and clearly allege the
elements of the crime charged. Every element of the offense must be stated in the
information. What facts and circumstances are necessary to be included therein must be
determined by reference to the definitions and essentials of the specified crimes. The
requirement of alleging the elements of a crime in the information is to inform the
accused of the nature of the accusation against him so as to enable him to suitably
prepare his defense.75[50]
It is noteworthy that under AO 250, sexual harassment amounts to disgraceful and
immoral conduct.76[51] Thus, any finding of liability for sexual harassment may also be
the basis of culpability for disgraceful and immoral conduct.
With the foregoing disquisitions affirming the finding that Rayala committed sexual
harassment, we now determine the proper penalty to be imposed.
Rayala attacks the penalty imposed by the OP. He alleges that under the pertinent Civil
Service Rules, disgraceful and immoral conduct is punishable by suspension for a period
of six (6) months and one (1) day to one (1) year. He also argues that since he is charged
administratively, aggravating or mitigating circumstances cannot be appreciated for
purposes of imposing the penalty.
Under AO 250, the penalty for the first offense is suspension for six (6) months and one
(1) day to one (1) year, while the penalty for the second offense is dismissal. 77[52] On the
other hand, Section 22(o), Rule XVI of the Omnibus Rules Implementing Book V of the
Administrative Code of 198778[53] and Section 52 A(15) of the Revised Uniform Rules on
Administrative Cases in the Civil Service79[54] both provide that the first offense of
disgraceful and immoral conduct is punishable by suspension of six (6) months and one
(1) day to one (1) year. A second offense is punishable by dismissal.
Under the Labor Code, the Chairman of the NLRC shall hold office during good
behavior until he or she reaches the age of sixty-five, unless sooner removed for
cause as provided by law or becomes incapacitated to discharge the duties of the
office.80[55]

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76
77
78
79
80

In this case, it is the President of the Philippines, as the proper disciplining authority, who
would determine whether there is a valid cause for the removal of Rayala as NLRC
Chairman. This power, however, is qualified by the phrase for cause as provided by law.
Thus, when the President found that Rayala was indeed guilty of disgraceful and immoral
conduct, the Chief Executive did not have unfettered discretion to impose a penalty other
than the penalty provided by law for such offense. As cited above, the imposable penalty
for the first offense of either the administrative offense of sexual harassment or for
disgraceful and immoral conduct is suspension of six (6) months and one (1) day to one
(1) year. Accordingly, it was error for the Office of the President to impose upon Rayala
the penalty of dismissal from the service, a penalty which can only be imposed upon
commission of a second offense.
Even if the OP properly considered the fact that Rayala took advantage of his high
government position, it still could not validly dismiss him from the service. Under the
Revised Uniform Rules on Administrative Cases in the Civil Service,81[56] taking undue
advantage of a subordinate may be considered as an aggravating circumstance 82[57] and
where only aggravating and no mitigating circumstances are present, the maximum
penalty shall be imposed.83[58] Hence, the maximum penalty that can be imposed on
Rayala is suspension for one (1) year.
Rayala holds the exalted position of NLRC Chairman, with the rank equivalent to a CA
Justice. Thus, it is not unavailing that rigid standards of conduct may be demanded of
him. In Talens-Dabon v. Judge Arceo,84[59] this Court, in upholding the liability of therein
respondent Judge, said:
The actuations of respondent are aggravated by the fact that complainant is one of his
subordinates over whom he exercises control and supervision, he being the executive
judge. He took advantage of his position and power in order to carry out his lustful and
lascivious desires. Instead of he being in loco parentis over his subordinate employees,
respondent was the one who preyed on them, taking advantage of his superior position.
In yet another case, this Court declared:
As a managerial employee, petitioner is bound by more exacting work ethics. He failed to
live up to his higher standard of responsibility when he succumbed to his moral
perversity. And when such moral perversity is perpetrated against his subordinate, he
provides a justifiable ground for his dismissal for lack of trust and confidence. It is the
right, nay, the duty of every employer to protect its employees from oversexed
superiors.85[60]
It is incumbent upon the head of office to set an example on how his employees should
conduct themselves in public office, so that they may work efficiently in a healthy
working atmosphere. Courtesy demands that he should set a good example. 86[61]
81
82
83
84
85
86

Rayala has thrown every argument in the book in a vain effort to effect his exoneration.
He even puts Domingos character in question and casts doubt on the morality of the
former President who ordered, albeit erroneously, his dismissal from the service.
Unfortunately for him, these are not significant factors in the disposition of the case. It is
his character that is in question here and sadly, the inquiry showed that he has been
found wanting.
WHEREFORE, the foregoing premises considered, the October 18, 2002 Resolution of
the Court of Appeals in CA-G.R. SP No. 61026 is AFFIRMED. Consequently, the petitions
in G.R. Nos. 155831, 155840, and 158700 are DENIED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 169449
March 26, 2010
TERESITA G. NARVASA, Petitioner,
vs.
BENJAMIN A. SANCHEZ, JR.,1 Respondent.
RESOLUTION
Per Curiam:
This is a petition for review on certiorari2 of the April 25, 2005 decision3 and August 4,
2005 resolution4 of the Court of Appeals (CA) in CA-G.R. SP No. 81107.
X
by TurboMac
The parties to this case are employees of the Municipality of Diadi, Nueva Vizcaya (the
LGU). Petitioner Teresita G. Narvasa is a senior bookkeeper while respondent Benjamin A.
Sanchez, Jr. is the municipal assessor.
The instant case stemmed from three cases of sexual harassment filed separately
against respondent by petitioner along with Mary Gay P. de la Cruz and Zenaida M.
Gayaton, who are also employees of the LGU.
In her affidavit-complaint, De la Cruz claimed5 that, sometime in February 2000,
respondent handed her a note saying, "Gay, I like you." Offended by respondents
inappropriate remark, de la Cruz admonished him for giving her such a note and told him
that she would give the note to his wife. Respondent then grabbed the note from her and
tore it into pieces. However, this first incident was followed by a message sent to De la
Cruz sometime in March 2002 in which he said, "Ka date ko si Mary Gay ang tamis ng
halik mo."
On the other hand, Gayaton narrated6 that, on April 5, 2002, respondent whispered to
her during a retirement program, "Oy flawless, pumanaw ka met ditan"7 while twice
pinching her upper left arm near the shoulder in a slow manner.
A few days later, Gayaton received a text message while she was passing respondents
car in front of the municipal hall. The message said, "Pauwi ka na ba sexy?" Gayaton
later verified through respondents clerk, Alona Agas, that the sender of the message
was respondent.
On or about April 22 to 25, 2002, Gayaton received several messages from respondent
stating: (1) "I like you"; (2) "Have a date with me"; (3) "Dont tell to (sic) others that I told
that I like you because nakakahiya"; (4) "Puso mo to pag bigay moto sakin, I would be
very happy" and (5) "I slept and dreamt nice things about you."
Finally, as far as petitioners complaint was concerned, she asserted8 that, on November
18, 2000, during a field trip of officers and members of the St. Joseph Multi-Purpose
Cooperative to the Grotto Vista Resort in Bulacan, respondent pulled her towards him

and attempted to kiss her. Petitioner resisted and was able to escape the clutches of
respondent to rejoin the group that they were travelling with. Respondent apologized to
petitioner thrice regarding that incident.1avvphi1
X
by TurboMac
Based on the investigation conducted by the LGUs Committee on Decorum and
Investigation (CODI), respondent was found guilty of all three charges by Municipal Mayor
Marvic S. Padilla. For the offenses committed against De la Cruz and Gayaton,
respondent was meted the penalties of reprimand for his first offense of light harassment
and 30 days suspension for his first offense of less grave sexual harassment. His
transgression against petitioner, however, was deemed to be grave sexual harassment
for which he was dismissed from the government service.
On appeal, the Civil Service Commission (CSC) passed only on the decision in the case
filed by petitioner since, under the CSC rules, the penalty of reprimand and/or suspension
of not more than 30 days cannot be appealed. The CSC dismissed the appeal but
modified Mayor Padillas order by holding respondent guilty of grave misconduct instead
of grave sexual harassment.9 The same penalty of dismissal from the service, however,
was meted out to respondent.
Respondents next recourse was to the CA which partially granted his appeal. The CA
modified the CSC resolution, finding respondent guilty only of simple misconduct. 10
Accordingly, the penalty was lowered to suspension for one month and one day.
Petitioner comes to this Court to appeal the downgrading of respondents offense to
simple misconduct.
The core issue for our resolution is whether the acts committed by respondent against
petitioner (since the CSC resolution only touched upon petitioners complaint) constitute
simple misconduct or grave misconduct.
Misconduct means intentional wrongdoing or deliberate violation of a rule of law or
standard of behavior.11 To constitute an administrative offense, misconduct should relate
to or be connected with the performance of the official functions and duties of a public
officer.12 In grave misconduct, as distinguished from simple misconduct, the elements of
corruption, clear intent to violate the law or flagrant disregard of an established rule
must be manifest.13
Respondents acts of grabbing petitioner and attempting to kiss her were, no doubt,
intentional. Worse, the incident occurred months after he had made similar but subtler
overtures to De la Cruz, who made it clear that his sexual advances were not welcome.
Considering that the acts respondent committed against petitioner were much more
aggressive, it was impossible that the offensive nature of his actions could have escaped
him. It does not appear that petitioner and respondent were carrying on an amorous
relationship that might have justified his attempt to kiss petitioner while they were
separated from their companions. Worse, as petitioner and respondent were both
married (to other persons), respondent not only took his marital status lightly, he also
ignored petitioners married state, and good character and reputation.
We disagree with the CA that neither corruption, clear intent to violate the law or flagrant
disregard of an established rule attended the incident in question. RA14 7877, the AntiSexual Harassment Act of 1995, took effect on March 5, 1995. Respondent was charged
with knowledge of the existence of this law and its contents, more so because he was a
public servant. His act of grabbing petitioner and attempting to kiss her without her
consent was an unmistakable manifestation of his intention to violate laws that
specifically prohibited sexual harassment in the work environment. Assuming arguendo
that respondent never intended to violate RA 7877, his attempt to kiss petitioner was a
flagrant disregard of a customary rule that had existed since time immemorial that

intimate physical contact between individuals must be consensual. Respondents

defiance of custom and lack of respect for the opposite sex were more appalling because
he was a married man. Respondents act showed a low regard for women and disrespect
for petitioners honor and dignity.
The CA, however, interpreted respondents repeated apologies to petitioner as an
indication of the absence of intention on his part to commit so grave a wrong as that
committed. On the contrary, such persistent attempts to make peace with petitioner
indicated how well respondent was aware of the gravity of the transgression he had
committed. Respondent certainly knew of the heavy penalty that awaited him if
petitioner complained of his aggressive behavior, as she, in fact, did.
Section 53 of Rule IV of the Uniform Rules on Administrative Cases provides a list of the
circumstances which may be considered in the determination of penalties to be
imposed.15 The CA considered respondents more than ten years of government service
and claim of being awarded Most Outstanding Municipal Assessor of Region II for three
years as mitigating circumstances. Again, we disagree.
Length of service as a factor in determining the imposable penalty in administrative
cases is a double-edged sword.16 In fact, respondents long years of government service
should be seen as a factor which aggravated the wrong that he committed. Having been
in the government service for so long, he, more than anyone else, should have known
that public service is a public trust;17 that public service requires utmost integrity and
strictest discipline, and, as such, a public servant must exhibit at all times the highest
sense of honesty and integrity.18 Sadly, respondents actions did not reflect the integrity
and discipline that were expected of public servants. He failed to live up to the image of
the outstanding and exemplary public official that he was. He sullied government service
instead.
Furthermore, we note that this is the third time that respondent is being penalized for
acts of sexual harassment. We are also alarmed by the increasing boldness in the way
respondent displayed his unwelcome affection for the women of his fancy. He is a
perverted predator preying on his female colleagues and subordinates. Respondents
continued misbehavior cannot, therefore, be allowed to go unchecked.
WHEREFORE, the petition is hereby GRANTED. Resolution No. 031176 issued by the
Civil Service Commission finding respondent Benjamin A. Sanchez, Jr. guilty of grave
misconduct is REINSTATED. Respondent Benjamin A. Sanchez, Jr. is ordered DISMISSED
from the service with forfeiture of retirement benefits except accrued leave credits, if
any, and with prejudice to re-employment in any branch or instrumentality of the
government, including government-owned and controlled corporations. This is without
prejudice to any criminal complaints that may be filed against him.
No costs.
SO ORDERED
REPUBLIC OF THE PHILIPPINES,
represented by the SOCIAL
SECURITY COMMISSION and
SOCIAL SECURITY SYSTEM,
Petitioners,

- versus -

G.R. No. 172101

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
AZCUNA,
CHICO-NAZARIO, and
REYES, JJ.

Promulgated:
ASIAPRO COOPERATIVE,
Respondent.
November 23, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision 87[1] and
Resolution88[2] of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006
and 20 March 2006, respectively, which annulled and set aside the Orders of the Social
Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17 February 2004 89[3] and
16 September 2004,90[4] respectively, thereby dismissing the petition-complaint dated
12 June 2003 filed by herein petitioner Social Security System (SSS) against herein
respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial
body authorized by law to resolve disputes arising under Republic Act No. 1161, as
amended by Republic Act No. 8282.91[5] Petitioner SSS is a government corporation
created by virtue of Republic Act No. 1161, as amended. On the other hand, herein
respondent Asiapro Cooperative (Asiapro) is a multi-purpose cooperative created
pursuant to Republic Act No. 693892[6] and duly registered with the Cooperative
Development Authority (CDA) on 23 November 1999 with Registration Certificate No. 0623-2460.93[7]
The antecedents of this case are as follows:
Respondent Asiapro, as a cooperative, is composed of owners-members. Under its bylaws, owners-members are of two categories, to wit: (1) regular member, who is entitled
to all the rights and privileges of membership; and (2) associate member, who has no
right to vote and be voted upon and shall be entitled only to such rights and privileges
provided in its by-laws.94[8] Its primary objectives are to provide savings and credit
facilities and to develop other livelihood services for its owners-members. In the
discharge of the aforesaid primary objectives, respondent cooperative entered into
several Service Contracts95[9] with Stanfilco - a division of DOLE Philippines, Inc. and a
company based in Bukidnon. The owners-members do not receive compensation or
wages from the respondent cooperative. Instead, they receive a share in the service
87
88
89
90
91
92
93
94
95

surplus96[10] which the respondent cooperative earns from different areas of trade it
engages in, such as the income derived from the said Service Contracts with Stanfilco.
The owners-members get their income from the service surplus generated by the quality
and amount of services they rendered, which is determined by the Board of Directors of
the respondent cooperative.
In order to enjoy the benefits under the Social Security Law of 1997, the ownersmembers of the respondent cooperative, who were assigned to Stanfilco requested the
services of the latter to register them with petitioner SSS as self-employed and to remit
their contributions as such. Also, to comply with Section 19-A of Republic Act No. 1161,
as amended by Republic Act No. 8282, the SSS contributions of the said ownersmembers were equal to the share of both the employer and the employee.
On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao
Division, Atty. Eddie A. Jara, sent a letter97[11] to the respondent cooperative, addressed
to its Chief Executive Officer (CEO) and General Manager Leo G. Parma, informing the
latter that based on the Service Contracts it executed with Stanfilco, respondent
cooperative is actually a manpower contractor supplying employees to Stanfilco and for
that reason, it is an employer of its owners-members working with Stanfilco. Thus,
respondent cooperative should register itself with petitioner SSS as an employer and
make the corresponding report and remittance of premium contributions in accordance
with the Social Security Law of 1997. On 9 October 2002,98[12] respondent cooperative,
through its counsel, sent a reply to petitioner SSSs letter asserting that it is not an
employer because its owners-members are the cooperative itself; hence, it cannot be its
own employer. Again, on 21 October 2002,99[13] petitioner SSS sent a letter to
respondent cooperative ordering the latter to register as an employer and report its
owners-members as employees for compulsory coverage with the petitioner SSS.
Respondent cooperative continuously ignored the demand of petitioner SSS.
Accordingly, petitioner SSS, on 12 June 2003, filed a Petition100[14] before petitioner SSC
against the respondent cooperative and Stanfilco praying that the respondent
cooperative or, in the alternative, Stanfilco be directed to register as an employer and to
report respondent cooperatives owners-members as covered employees under the
compulsory coverage of SSS and to remit the necessary contributions in accordance with
the Social Security Law of 1997. The same was docketed as SSC Case No. 6-15507-03.
Respondent cooperative filed its Answer with Motion to Dismiss alleging that no
employer-employee relationship exists between it and its owners-members, thus,
petitioner SSC has no jurisdiction over the respondent cooperative. Stanfilco, on the
other hand, filed an Answer with Cross-claim against the respondent cooperative.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed
by the respondent cooperative. The respondent cooperative moved for the
reconsideration of the said Order, but it was likewise denied in another Order issued by
the SSC dated 16 September 2004.

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97
98
99
100

Intending to appeal the above Orders, respondent cooperative filed a Motion for
Extension of Time to File a Petition for Review before the Court of Appeals. Subsequently,
respondent cooperative filed a Manifestation stating that it was no longer filing a Petition
for Review. In its place, respondent cooperative filed a Petition for Certiorari before the
Court of Appeals, docketed as CA-G.R. SP No. 87236, with the following assignment of
errors:
I.
The Orders dated 17 February 2004 and 16 September 2004
of [herein petitioner] SSC were issued with grave abuse of discretion amounting to a (sic)
lack or excess of jurisdiction in that:
A.
[Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction
over the petition a quo, considering that it failed to first resolve the issue of the existence
of an employer-employee relationship between [respondent] cooperative and its ownersmembers.
B.
While indeed, the [petitioner] SSC has jurisdiction over all disputes arising
under the SSS Law with respect to coverage, benefits, contributions, and related matters,
it is respectfully submitted that [petitioner] SSC may only assume jurisdiction in cases
where there is no dispute as to the existence of an employer-employee relationship.
C.
Contrary to the holding of the [petitioner] SSC, the legal issue of employeremployee relationship raised in [respondents] Motion to Dismiss can be preliminarily
resolved through summary hearings prior to the hearing on the merits. However, any
inquiry beyond a preliminary determination, as what [petitioner SSC] wants to
accomplish, would be to encroach on the jurisdiction of the National Labor Relations
Commission [NLRC], which is the more competent body clothed with power to resolve
issues relating to the existence of an employment relationship.
II.
At any rate, the [petitioner] SSC has no jurisdiction to take
cognizance of the petition a quo.
A.
[Respondent] is not an employer within the contemplation of the Labor Law
but is a multi-purpose cooperative created pursuant to Republic Act No. 6938 and
composed of owners-members, not employees.
B.
The rights and obligations of the owners-members of [respondent]
cooperative are derived from their Membership Agreements, the Cooperatives By-Laws,
and Republic Act No. 6938, and not from any contract of employment or from the Labor
Laws. Moreover, said owners-members enjoy rights that are not consistent with being
mere employees of a company, such as the right to participate and vote in decisionmaking for the cooperative.
C.
As found by the Bureau of Internal Revenue [BIR], the owners-members of
[respondent] cooperative are not paid any compensation income. 101[15] (Emphasis
supplied.)
On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed
by the respondent cooperative. The decretal portion of the Decision reads:
WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004]
and [16 September 2004], are ANNULLED and SET ASIDE and a new one is entered
101

DISMISSING the petition-complaint dated [12 June 2003] of [herein petitioner] Social
Security System.102[16]
Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it
was denied by the appellate court in its Resolution dated 20 March 2006.
Hence, this Petition.
In its Memorandum, petitioners raise the issue of whether or not the Court of
Appeals erred in not finding that the SSC has jurisdiction over the subject
matter and it has a valid basis in denying respondents Motion to Dismiss. The
said issue is supported by the following arguments:
I.
The [petitioner SSC] has jurisdiction over the
petition-complaint filed before it by the [petitioner SSS] under R.A. No. 8282.
II.
Respondent [cooperative] is estopped from
questioning the jurisdiction of petitioner SSC after invoking its jurisdiction by
filing an [A]nswer with [M]otion to [D]ismiss before it.
III.
The [petitioner SSC] did not act with grave abuse of
discretion in denying respondent [cooperatives] [M]otion to [D]ismiss.
IV.
The existence of an employer-employee relationship
is a question of fact where presentation of evidence is necessary.
V.
There is an employer-employee relationship
between [respondent cooperative] and its [owners-members].
Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS as it involved an issue of whether or not a worker is entitled to compulsory
coverage under the SSS Law. Petitioners avow that Section 5 of Republic Act No. 1161, as
amended by Republic Act No. 8282, expressly confers upon petitioner SSC the power to
settle disputes on compulsory coverage, benefits, contributions and penalties thereon or
any other matter related thereto. Likewise, Section 9 of the same law clearly provides
that SSS coverage is compulsory upon all employees. Thus, when petitioner SSS filed a
petition-complaint against the respondent cooperative and Stanfilco before the petitioner
SSC for the compulsory coverage of respondent cooperatives owners-members as well as
for collection of unpaid SSS contributions, it was very obvious that the subject matter of
the aforesaid petition-complaint was within the expertise and jurisdiction of the SSC.
Petitioners similarly assert that granting arguendo that there is a prior need to determine
the existence of an employer-employee relationship between the respondent cooperative
and its owners-members, said issue does not preclude petitioner SSC from taking
cognizance of the aforesaid petition-complaint. Considering that the principal relief
sought in the said petition-complaint has to be resolved by reference to the Social
Security Law and not to the Labor Code or other labor relations statutes, therefore,
jurisdiction over the same solely belongs to petitioner SSC.

102

Petitioners further claim that the denial of the respondent cooperatives Motion to Dismiss
grounded on the alleged lack of employer-employee relationship does not constitute
grave abuse of discretion on the part of petitioner SSC because the latter has the
authority and power to deny the same. Moreover, the existence of an employeremployee relationship is a question of fact where presentation of evidence is necessary.
Petitioners also maintain that the respondent cooperative is already estopped from
assailing the jurisdiction of the petitioner SSC because it has already filed its Answer
before it, thus, respondent cooperative has already submitted itself to the jurisdiction of
the petitioner SSC.
Finally, petitioners contend that there is an employer-employee relationship between the
respondent cooperative and its owners-members. The respondent cooperative is the
employer of its owners-members considering that it undertook to provide services to
Stanfilco, the performance of which is under the full and sole control of the respondent
cooperative.
On the other hand, respondent cooperative alleges that its owners-members own the
cooperative, thus, no employer-employee relationship can arise between them. The
persons of the employer and the employee are merged in the owners-members
themselves. Likewise, respondent cooperatives owners-members even requested the
respondent cooperative to register them with the petitioner SSS as self-employed
individuals. Hence, petitioner SSC has no jurisdiction over the petition-complaint filed
before it by petitioner SSS.
Respondent cooperative further avers that the Court of Appeals correctly ruled that
petitioner SSC acted with grave abuse of discretion when it assumed jurisdiction over the
petition-complaint without determining first if there was an employer-employee
relationship between the respondent cooperative and its owners-members. Respondent
cooperative claims that the question of whether an employer-employee relationship
exists between it and its owners-members is a legal and not a factual issue as the facts
are undisputed and need only to be interpreted by the applicable law and jurisprudence.
Lastly, respondent cooperative asserts that it cannot be considered estopped from
assailing the jurisdiction of petitioner SSC simply because it filed an Answer with Motion
to Dismiss, especially where the issue of jurisdiction is raised at the very first instance
and where the only relief being sought is the dismissal of the petition-complaint for lack
of jurisdiction.
From the foregoing arguments of the parties, the issues may be summarized into:
I.
Whether the petitioner SSC has jurisdiction over
the petition-complaint filed before it by petitioner SSS against the respondent
cooperative.
II.
Whether the respondent cooperative is estopped
from assailing the jurisdiction of petitioner SSC since it had already filed an
Answer with Motion to Dismiss before the said body.
Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well
as in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to
coverage, benefits, contributions and penalties thereon or any other matter related
thereto, shall be cognizable by the Commission, x x x. (Emphasis supplied.)
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:
Section 1. Jurisdiction. Any dispute arising under the Social Security Act with respect to
coverage, entitlement of benefits, collection and settlement of contributions and
penalties thereon, or any other matter related thereto, shall be cognizable by the
Commission after the SSS through its President, Manager or Officer-in-charge of the
Department/Branch/Representative Office concerned had first taken action thereon in
writing. (Emphasis supplied.)
It is clear then from the aforesaid provisions that any issue regarding the compulsory
coverage of the SSS is well within the exclusive domain of the petitioner SSC. It is
important to note, though, that the mandatory coverage under the SSS Law is premised
on the existence of an employer-employee relationship103[17] except in cases of
compulsory coverage of the self-employed.
It is axiomatic that the allegations in the complaint, not the defenses set up in
the Answer or in the Motion to Dismiss, determine which court has jurisdiction
over an action; otherwise, the question of jurisdiction would depend almost
entirely upon the defendant.104[18] Moreover, it is well-settled that once jurisdiction is
acquired by the court, it remains with it until the full termination of the case.105[19] The
said principle may be applied even to quasi-judicial bodies.
In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC
against the respondent cooperative and Stanfilco alleges that the owners-members of
the respondent cooperative are subject to the compulsory coverage of the SSS because
they are employees of the respondent cooperative. Consequently, the respondent
cooperative being the employer of its owners-members must register as employer and
report its owners-members as covered members of the SSS and remit the necessary
premium contributions in accordance with the Social Security Law of 1997. Accordingly,
based on the aforesaid allegations in the petition-complaint filed before the petitioner
SSC, the case clearly falls within its jurisdiction. Although the Answer with Motion to
Dismiss filed by the respondent cooperative challenged the jurisdiction of the petitioner
SSC on the alleged lack of employer-employee relationship between itself and its ownersmembers, the same is not enough to deprive the petitioner SSC of its jurisdiction over
the petition-complaint filed before it. Thus, the petitioner SSC cannot be faulted for
initially assuming jurisdiction over the petition-complaint of the petitioner SSS.
Nonetheless, since the existence of an employer-employee relationship between the
respondent cooperative and its owners-members was put in issue and considering that
the compulsory coverage of the SSS Law is predicated on the existence of such
103
104
105

relationship, it behooves the petitioner SSC to determine if there is really an employeremployee relationship that exists between the respondent cooperative and its ownersmembers.
The question on the existence of an employer-employee relationship is not within the
exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of
the Labor Code enumerating the jurisdiction of the Labor Arbiters and the NLRC provides
that:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.
xxxx
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations, including
those of persons in domestic or household service, involving an amount exceeding five
thousand pesos (P5,000.00) regardless of whether accompanied with a claim for
reinstatement.106[20]
Although the aforesaid provision speaks merely of claims for Social Security, it would
necessarily include issues on the coverage thereof, because claims are undeniably
rooted in the coverage by the system. Hence, the question on the existence of an
employer-employee relationship for the purpose of determining the coverage of
the Social Security System is explicitly excluded from the jurisdiction of the NLRC and
falls within the jurisdiction of the SSC which is primarily charged with the duty of settling
disputes arising under the Social Security Law of 1997.
On the basis thereof, considering that the petition-complaint of the petitioner SSS
involved the issue of compulsory coverage of the owners-members of the respondent
cooperative, this Court agrees with the petitioner SSC when it declared in its Order dated
17 February 2004 that as an incident to the issue of compulsory coverage, it may inquire
into the presence or absence of an employer-employee relationship without need of
waiting for a prior pronouncement or submitting the issue to the NLRC for prior
determination. Since both the petitioner SSC and the NLRC are independent bodies and
their jurisdiction are well-defined by the separate statutes creating them, petitioner SSC
has the authority to inquire into the relationship existing between the worker and the
person or entity to whom he renders service to determine if the employment, indeed, is
one that is excepted by the Social Security Law of 1997 from compulsory coverage.107
[21]
Even before the petitioner SSC could make a determination of the existence of an
employer-employee relationship, however, the respondent cooperative already elevated
the Order of the petitioner SSC, denying its Motion to Dismiss, to the Court of Appeals by
filing a Petition for Certiorari. As a consequence thereof, the petitioner SSC became a
party to the said Petition for Certiorari pursuant to Section 5(b)108[22] of Republic Act No.
8282. The appellate court ruled in favor of the respondent cooperative by declaring that
the petitioner SSC has no jurisdiction over the petition-complaint filed before it because
there was no employer-employee relationship between the respondent cooperative and
106
107
108

its owners-members. Resultantly, the petitioners SSS and SSC, representing the Republic
of the Philippines, filed a Petition for Review before this Court.
Although as a rule, in the exercise of the Supreme Courts power of review, the Court is
not a trier of facts and the findings of fact of the Court of Appeals are conclusive and
binding on the Court,109[23] said rule is not without exceptions. There are several
recognized exceptions110[24] in which factual issues may be resolved by this Court. One
of these exceptions finds application in this present case which is, when the findings of
fact are conflicting. There are, indeed, conflicting findings espoused by the petitioner SSC
and the appellate court relative to the existence of employer-employee relationship
between the respondent cooperative and its owners-members, which necessitates a
departure from the oft-repeated rule that factual issues may not be the subject of
appeals to this Court.
In determining the existence of an employer-employee relationship, the following
elements are considered: (1) the selection and engagement of the workers; (2) the
payment of wages by whatever means; (3) the power of dismissal; and (4) the power to
control the workers conduct, with the latter assuming primacy in the overall
consideration.111[25] The most important element is the employers control of the
employees conduct, not only as to the result of the work to be done, but also
as to the means and methods to accomplish.112[26] The power of control refers to
the existence of the power and not necessarily to the actual exercise thereof. It is not
essential for the employer to actually supervise the performance of duties of the
employee; it is enough that the employer has the right to wield that power.113[27] All the
aforesaid elements are present in this case.
First. It is expressly provided in the Service Contracts that it is the respondent
cooperative which has the exclusive discretion in the selection and engagement
of the owners-members as well as its team leaders who will be assigned at
Stanfilco.114[28] Second. Wages are defined as remuneration or earnings,
however designated, capable of being expressed in terms of money, whether fixed or
ascertained, on a time, task, piece or commission basis, or other method of calculating
the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service
rendered or to be rendered.115[29] In this case, the weekly stipends or the so-called
shares in the service surplus given by the respondent cooperative to its owners-members
were in reality wages, as the same were equivalent to an amount not lower than that
prescribed by existing labor laws, rules and regulations, including the wage order
applicable to the area and industry; or the same shall not be lower than the prevailing
rates of wages.116[30] It cannot be doubted then that those stipends or shares in the
service surplus are indeed wages, because these are given to the owners-members as
compensation in rendering services to respondent cooperatives client, Stanfilco. Third. It
is also stated in the above-mentioned Service Contracts that it is the respondent
109
110
111
112
113
114
115
116

cooperative which has the power to investigate, discipline and remove the
owners-members and its team leaders who were rendering services at Stanfilco.117
[31] Fourth. As earlier opined, of the four elements of the employer-employee
relationship, the control test is the most important. In the case at bar, it is the
respondent cooperative which has the sole control over the manner and means
of performing the services under the Service Contracts with Stanfilco as well
as the means and methods of work.118[32] Also, the respondent cooperative is solely
and entirely responsible for its owners-members, team leaders and other representatives
at Stanfilco.119[33] All these clearly prove that, indeed, there is an employer-employee
relationship between the respondent cooperative and its owners-members.
It is true that the Service Contracts executed between the respondent cooperative and
Stanfilco expressly provide that there shall be no employer-employee relationship
between the respondent cooperative and its owners-members.120[34] This Court,
however, cannot give the said provision force and effect.
As previously pointed out by this Court, an employee-employer relationship actually
exists between the respondent cooperative and its owners-members. The four elements
in the four-fold test for the existence of an employment relationship have been complied
with. The respondent cooperative must not be allowed to deny its employment
relationship with its owners-members by invoking the questionable Service Contracts
provision, when in actuality, it does exist. The existence of an employer-employee
relationship cannot be negated by expressly repudiating it in a contract, when
the terms and surrounding circumstances show otherwise. The employment
status of a person is defined and prescribed by law and not by what the parties
say it should be.121[35]
It is settled that the contracting parties may establish such stipulations, clauses, terms
and conditions as they want, and their agreement would have the force of law between
them. However, the agreed terms and conditions must not be contrary to law,
morals, customs, public policy or public order.122[36] The Service Contract provision
in question must be struck down for being contrary to law and public policy since it is
apparently being used by the respondent cooperative merely to circumvent the
compulsory coverage of its employees, who are also its owners-members, by the Social
Security Law.
This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of
Davao City, Inc. v. Ferrer-Calleja123[37] wherein it held that:
A cooperative, therefore, is by its nature different from an ordinary business concern,
being run either by persons, partnerships, or corporations. Its owners and/or members
are the ones who run and operate the business while the others are its employees x x x.

117
118
119
120
121
122
123

An employee therefore of such a cooperative who is a member and co-owner

thereof cannot invoke the right to collective bargaining for certainly an owner
cannot bargain with himself or his co-owners. In the opinion of August 14, 1981 of
the Solicitor General he correctly opined that employees of cooperatives who are
themselves members of the cooperative have no right to form or join labor organizations
for purposes of collective bargaining for being themselves co-owners of the cooperative.
However, in so far as it involves cooperatives with employees who are not members or
co-owners thereof, certainly such employees are entitled to exercise the rights of all
workers to organization, collective bargaining, negotiations and others as are enshrined
in the Constitution and existing laws of the country.
The situation in the aforesaid case is very much different from the present case. The
declaration made by the Court in the aforesaid case was made in the context of whether
an employee who is also an owner-member of a cooperative can exercise the right to
bargain collectively with the employer who is the cooperative wherein he is an ownermember. Obviously, an owner-member cannot bargain collectively with the cooperative
of which he is also the owner because an owner cannot bargain with himself. In the
instant case, there is no issue regarding an owner-members right to bargain collectively
with the cooperative. The question involved here is whether an employer-employee
relationship can exist between the cooperative and an owner-member. In fact, a closer
look at Cooperative Rural Bank of Davao City, Inc. will show that it actually recognized
that an owner-member of a cooperative can be its own employee.
It bears stressing, too, that a cooperative acquires juridical personality upon its
registration with the Cooperative Development Authority.124[38] It has its Board of
Directors, which directs and supervises its business; meaning, its Board of Directors is
the one in charge in the conduct and management of its affairs. 125[39] With that, a
cooperative can be likened to a corporation with a personality separate and distinct from
its owners-members. Consequently, an owner-member of a cooperative can be an
employee of the latter and an employer-employee relationship can exist between them.
In the present case, it is not disputed that the respondent cooperative had registered
itself with the Cooperative Development Authority, as evidenced by its Certificate of
Registration No. 0-623-2460.126[40] In its by-laws,127[41] its Board of Directors directs,
controls, and supervises the business and manages the property of the respondent
cooperative. Clearly then, the management of the affairs of the respondent cooperative
is vested in its Board of Directors and not in its owners-members as a whole. Therefore, it
is completely logical that the respondent cooperative, as a juridical person represented
by its Board of Directors, can enter into an employment with its owners-members.
In sum, having declared that there is an employer-employee relationship between the
respondent cooperative and its owners-member, we conclude that the petitioner SSC has
jurisdiction over the petition-complaint filed before it by the petitioner SSS. This being
our conclusion, it is no longer necessary to discuss the issue of whether the respondent
124
125
126
127

cooperative was estopped from assailing the jurisdiction of the petitioner SSC when it
filed its Answer with Motion to Dismiss.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5
January 2006 and 20 March 2006, respectively, are hereby REVERSED and SET ASIDE.
The Orders of the petitioner SSC dated 17 February 2004 and 16 September 2004 are
hereby REINSTATED. The petitioner SSC is hereby DIRECTED to continue hearing the
petition-complaint filed before it by the petitioner SSS as regards the compulsory
coverage of the respondent cooperative and its owners-members. No costs.
SO ORDERED.
SOCIAL SECURITY SYSTEM,
Petitioner,

G.R. No. 175952

Present:
QUISUMBING, J.,

- versus CHICO-NAZARIO,*
TINGA, and
VELASCO, JJ.

Chairperson,
CARPIO MORALES,

ATLANTIC GULF AND PACIFIC

COMPANY OF MANILA, INC. and
SEMIRARA COAL CORPORATION, Promulgated:
Respondents.
April 30, 2008
x----------------------------------------------------------------------------x
DECISION
Tinga, J.:
In this Petition for Review on Certiorari128[1] under Rule 45 of the 1997 Rules of Civil
Procedure, petitioner Republic of the Philippines represented by the Social Security
System (SSS) assails the Decision129[2]

*
128
129

dated 31 August 2006 of the Eleventh Division of the Court of Appeals and its
Resolution130[3] dated 19 December 2006 denying petitioners Motion for Reconsideration.
Following are the antecedents culled from the decision of the Court of Appeals:
On 13 February 2004, Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P)
and Semirara Coal Corporation (SEMIRARA) (collectively referred to as private
respondents) filed a complaint for specific performance and damages against SSS before
the Regional Trial Court of Batangas City, Branch 3, docketed as Civil Case No. 7441. The
complaint alleged that:
xxx
3. Sometime in 2000, plaintiff informed the SSS in writing of its premiums and loan
amortization delinquencies covering the period from January 2000 to May 2000
amounting to P7.3 Million. AG&P proposed to pay its said arrears by end of 2000, but
requested for the condonation of all penalties;
4.
In turn, the defendant suggested two (2) options to AG&P, either to pay by
installment or through dacion en pago;
5.
AG&P chose to settle its obligation with the SSS under the second option, that is
through dacion en pago of its 5,999 sq. m. property situated in Baguio City covered by
TCT No. 3941 with an appraised value of about P80.0 Million. SSS proposes to carve-out
from the said property an area sufficient to cover plaintiffs delinquencies. AG&P,
however, is not amenable to subdivide its Baguio property;
6.
AG&P then made another proposal to SSS. This time, offering as payment a portion
of its 58,153 square meter-lot, situated in F.S. Sebastian, Sto. Nio, San Pascual, Batangas.
In addition, SSS informed AG&P of its decision to include other companies within the
umbrella of DMCI group with arrearages with the SSS. In the process of elimination of the
companies belonging to the DMCI group with possible outstanding obligation with the
SSS, it was only SEMIRARA which was left with outstanding delinquencies with the SSS.
Thus, SEMIRARAs inclusion in the proposed settlement through dacion en pago;
7.
AG&P was, thereafter, directed by the defendant to submit certain documents,
such as Transfer Certificate of Title, Tax Declaration covering the subject lot, and the
proposed subdivision plan, which requirements AG&P immediately complied;
8.
On April 4, 2001, SSS, in its Resolution No. 270, finally approved AG&Ps proposal to
settle its and SEMIRARAs delinquencies through dacion en pago, which as of March 31,
2001 amounted to P29,261,902.45. Approval of AG&Ps proposal was communicated to it
by Ms. Aurora E.L. Ortega, Vice-President, NCR-Group of the SSS in a letter dated April
23, 2001. ;
9.
As a result of the approval of the dacion en pago, posting of contributions and
loan amortization to individual member accounts, both for AG&P and SEMIRARA
employees, was effected immediately thereafter. Thus, the benefits of the memberemployees of both companies were restored;
10. From the time of the approval of AG&Ps proposal up to the present, AG&P is (sic)
religiously remitting the premium contributions and loan amortization of its memberemployees to the defendant;
130

11. To effect the property transfer, a Deed of Assignment has to be executed between
the plaintiffs and the defendant. Because of SSS failure to come up with the required
Deed of Assignment to effect said transfer, AG&P prepared the draft and submitted it to
the Office of the Vice-President NCR thru SSS Baclaran Branch in July 2001.
Unfortunately, the defendant failed to take any action on said Deed of Assignment
causing AG&P to re-submit it to the same office of the Vice-President NCR in December
2001. From its original submission of the Deed of Assignment in July 2001 to its resubmission in December 2001, and SSS returning of the revised draft in February 28,
2003 AG&P was consistent in its regular follow ups with SSS as to the status of its
submitted Deed of Assignment;
12. On February 28, 2003, or more than a year after the approval of AG&Ps proposal,
defendant sent the revised copy of the Deed of Assignment to AG&P. However, the
amount of the plaintiffs obligation appearing in the approved Deed of Assignment has
ballooned from P29,261,902.45 to P40,846,610.64 allegedly because of the
additional interests and penalty charges assessed on plaintiffs outstanding obligation
from April 2001, the date of approval of the proposal, up to January 2003;
13. AG&P demanded for the waiver and deletion of the additional interests on the
ground that delay in the approval of the deed and the subsequent delay in conveyance of
the property in defendants name was solely attributable to the defendant; hence, to
charge plaintiffs with additional interests and penalties amounting to more than
P10,000,000.00, would be unreasonable.;
14. AG&P and SEMIRARA maintain their willingness to settle their alleged obligation of
P29,261,902.45 to SSS. Defendant, however, refused to accept the payment through
dacion en pago, unless plaintiffs also pay the additional interests and penalties being
charged;
xxx
Instead of filing an answer, SSS moved for the dismissal of the complaint for lack of
jurisdiction and non-exhaustion of administrative remedies. In an order dated 28 July
2004, the trial court granted SSSs motion and dismissed private respondents complaint.
The pertinent portions of the assailed order are as follows:
Clearly, the motion is triggered on the issue of the courts jurisdiction over the
subject matter and the nature of the instant complaint. The length and breadth of the
complaint as perused, boils down to the questions of premium and loan amortization
delinquencies of the plaintiff, the option taken for the payment of the same in favor of
the defendant and the disagreement between the parties as to the amount of the unpaid
contributions and salary loan repayments. In other words, said questions are directly
related to the collection of contributions due the defendant. Republic Act No. 1161 as
amended by R.A. No. 8282, specifically provides that any dispute arising under the said
Act shall be cognizable by the Commission and any case filed with respect thereto shall
be heard by the Commission. Hence, a procedural process mandated by a special law.
Observingly, the running dispute between plaintiffs and defendant originated from
the disagreement as to the amount of unpaid contributions and the amount of the
penalties imposed appurtenant thereto. The alleged dacion en pago is crystal clear
manifestation of offering a special form of payment which to the mind of the court will
produce effect only upon acceptance by the offeree and the observance and compliance
of the required formalities by the parties. No matter in what form it may be, still the court

believes that the subject matter is the payment of contributions and the corresponding
penalties which are within the ambit of Sec. 5 (a) of R.A. No. 1161, as amended by R.A.
No. 8282.

WHEREFORE, the Court having no jurisdiction over the subject matter of the instant
complaint, the motion is granted and this case is hereby ordered DISMISSED.
SO ORDERED.131[4]
Private respondents moved for the reconsideration of the order but the same was
denied in an Order dated 15 September 2004.
Consequently, private respondents filed an appeal before the Court of Appeals
alleging that the trial court erred in its pronouncement that it had no jurisdiction over the
subject matter of the complaint and in granting the motion to dismiss.
The Court of Appeals reversed and set aside the trial courts challenged order,
granted private respondents appeal and ordered the trial court to proceed with the civil
case with dispatch. From the averments in their complaint, the appellate court observed
that private respondents are seeking to implement the Deed of Assignment which they
had drafted and submitted to SSS sometime in July 2001, pursuant to SSSs letter
addressed to AG& P dated 23 April 2001 approving AG&P and SEMIRARAS delinquencies
through dacion en pago, which as of 31 March 2001, amounted to P29,261,902.45. The
appellate court thus held that the subject of the complaint is no longer the payment of
the premium and loan amortization delinquencies, as well as the penalties appurtenant
thereto, but the enforcement of the dacion en pago pursuant to SSS Resolution No. 270.
The action then is one for specific performance which case law holds is an action
incapable of pecuniary estimation falling under the jurisdiction of the Regional Trial
Court.132[5]
SSS filed a motion for reconsideration of the appellate courts decision but the same was
denied in a Resolution dated 19 December 2006.
Now before the Court, SSS insists on the Social Security Commissions (the
Commission) jurisdiction over the complaint pursuant to Section 5 (a) of Republic Act
(R.A.) No. 8282. SSS maintains the Commissions jurisdiction over all disputes arising from
the provisions of R.A. No. 1161, amended by R.A. No. 8282 to the exclusion of trial
courts.133[6]
The main issue in this case pertains to which body has jurisdiction to entertain a
controversy arising from the non-implementation of a dacion en pago agreed upon by the
parties as a means of settlement of private respondents liabilities.

131
132
133

At the outset, it is well to restate the rule that what determines the nature of the
action as well as the tribunal or body which has jurisdiction over the case are the
allegations in the complaint.134[7]
The pertinent provision of law detailing the jurisdiction of the Commission is Section 5(a)
of R.A. No. 1161, as amended by R.A. No. 8282, otherwise known as the Social Security
Act of 1997, to wit:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect
to coverage, benefits, contributions and penalties thereon or any other matter related
thereto, shall be cognizable by the Commission, and any case filed with respect thereto
shall be heard by the Commission, or any of its members, or by hearing officers duly
authorized by the Commission and decided within the mandatory period of twenty (20)
days after the submission of the evidence. The filing, determination and settlement of
disputes shall be governed by the rules and regulations promulgated by the Commission.
The law clearly vests upon the Commission jurisdiction over disputes arising under this
Act with respect to coverage, benefits, contributions and penalties thereon or any matter
related thereto... Dispute is defined as a conflict or controversy.135[8]
From the allegations of respondents complaint, it readily appears that there is no longer
any dispute with respect to respondents accountability to the SSS. Respondents had, in
fact, admitted their delinquency and offered to settle them by way of dacion en pago
subsequently approved by the SSS in Resolution No. 270-s. 2001. SSS stated in said
resolution that the dacion en pago proposal of AG&P Co. of Manila and Semirara Coals
Corporation to pay their liabilities in the total amount of P30,652,710.71 as of 31 March
2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it is
hereby, approved..136[9] This statement unequivocally evinces its consent to the dacion
en pago. In Vda. de Jayme v. Court of Appeals,137[10] the Court ruled significantly as
follows:

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. It is a special
mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in one
sense of the nature of sale, that is the creditor is really buying the thing or property of
the debtor, payment for which is to be charged against the debtors debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where the thing offered as an
134
135
136
137

accepted equivalent of the performance of an obligation is considered as the object of

the contract of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation.138[11]
The controversy, instead, lies in the non-implementation of the approved and agreed
dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain its
enforcement which is, doubtless, a suit for specific performance and one incapable of
pecuniary estimation beyond the competence of the Commission.139[12] Pertinently, the
Court ruled in Singson v. Isabela Sawmill,140[13] as follows:
In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature
of the principal action or remedy sought. If it is primarily for the recovery of a sum of
money, the claim is considered capable of pecuniary estimation, and whether jurisdiction
in the municipal courts or in the courts of first instance

138
139
140

would depend on the amount of the claim. However, where the basic issue is something
other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has considered
such actions as cases where the subject of the litigation may not be estimated in terms
of money, and are cognizable exclusively by courts of first instance (now Regional Trial
Courts).141[14]
In fine, the Court finds the decision of the Court of Appeals in accord with law and
jurisprudence.
WHEREFORE, the petition is DENIED. The Decision dated 31 August 2006 of the Court of
Appeals Eleventh Division in CA-G.R. CV No. 83775 AFFIRMED.
Let the case be remanded to the trial court for further proceedings.
SO ORDERED.
G.R. No. 209741
April 15, 2015
SOCIAL SECURITY COMMISSION, Petitioner,
vs.
EDNA A. AZOTE, Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari1 under Rule 45 of the Rules of Court filed by
petitioner Social Security Commission (SSC) assails the August 13, 2013 Decision2 of the
Court of Appeals (CA), and its October 29, 2013 Resolution3 in CA-G.R. SP No. 122933,
allowing respondent Edna A. Azote (Edna) to claim the death benefits of her late
husband, Edgardo Azote (Edgardo).
The Antecedents:
On June 19, 1992, respondent Edna and Edgardo, a member of the Social Security
System (SSS), were married in civil rites at the Regional Trial Court, Branch 9, Legazpi
City, Albay (RTC). Their union produced six Children4 born from 1985 to 1999. On April
27, 1994, Edgardo submitted Form E-4 to the SSS with Edna and their three older
children as designated beneficiaries. Thereafter or on September 7, 2001, Edgardo
submitted another Form E-4 to the SSS designating his three younger children as
additional beneficiaries.5
X
by TurboMac
On January 13, 2005, Edgardo passed away. Shortly thereafter, Edna filed her claim for
death benefits with the SSS as the wife of a deceased-member. It appeared, however,
from the SSS records that Edgardo had earlier submitted another Form E-4 on November
5, 1982 with a different set of beneficiaries, namely: Rosemarie Azote (Rosemarie), as his
spouse; and Elmer Azote (Elmer),as dependent, born on October 9, 1982. Consequently,
Ednas claim was denied. Her children were adjudged as beneficiaries and she was
considered as the legal guardian of her minor children. The benefits, however, would be
stopped once a child would attain the age of 21.6
141

On March 13, 2007, Edna filed a petition with the SSC to claim the death benefits, lump
sum and monthly pension of Edgardo.7 She insisted that she was the legitimate wife of
Edgardo. In its answer, the SSS averred that there was a conflicting information in the
forms submitted by the deceased. Summons was published in a newspaper of general
circulation directing Rosemarie to file her answer. Despite the publication, no answer was
filed and Rosemarie was subsequently declared in default.8
In the Resolution,9 dated December 8, 2010,the SSC dismissed Ednas petition for lack of
merit. Citing Section 24(c) of the SS Law, it explained that although Edgardo filed the
Form E-4 designating Edna and their six children as beneficiaries, he did not revoke the
designation of Rosemarie as his wife-beneficiary, and Rosemarie was still presumed to be
his legal wife.
The SSC further wrote that the National Statistics Office (NSO) records revealed that the
marriage of Edgardo to one Rosemarie Teodora Sino was registered on July 28, 1982.
Consequently, it opined that Edgardos marriage to Edna was not valid as there was no
showing that his first marriage had been annulled or dissolved. The SSC stated that there
must be a judicial determination of nullity of a previous marriage before a party could
enter into a second marriage.10
In an order,11 dated June 8, 2011, the SSC denied Ednas motion for reconsideration. It
explained that it was incumbent upon Edna to prove that her marriage to the deceased
was valid, which she failed to do. It further opined that Rosemarie could not be merely
presumed dead, and that death benefits under the SSS could not be considered
properties which may be disposed of in a holographic will.12
X
by TurboMac
In the assailed August 13, 2013 Decision, the CA reversed and set aside the resolution
and the order of the SSC. It held that the SSC could not make a determination of the
validity or invalidity of the marriage of Edna to Edgardo considering that no contest came
from either Rosemarie or Elmer.13
The CA explained that Edna had established her right to the benefits by substantial
evidence, namely, her marriage certificate and the baptismal certificates of her
children.14 It ruled that Edgardo made a deliberate change of his wife-beneficiary in his
1994 E-4 form, as such was clearly his voluntary act manifesting his intention to revoke
his former declaration in the 1982 E-4 form.15 The 1994 E-4 form submitted by Edgardo,
designating Edna as his wife, superseded his former declaration in his 1982 E-4 form.16
It further opined that the Davac case cited by the SSC was not applicable because there
were two conflicting claimants in that case, both claiming to be wives of the deceased,
while in this case, Edna was the sole claimant for the death benefits, and that her
designation as wife-beneficiary remained valid and unchallenged. It was of the view that
Rosemaries nonappearance despite notice could be deemed a waiver to claim death
benefits from the SSS, thereby losing whatever standing she might have had to dispute
Ednas claim.17
In the assailed October 29, 2013 Resolution,18 the CA denied the SSCs motion for
reconsideration.19
Hence, the present petition.
GROUNDS
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COMMISSION IS
BEREFT OF AUTHORITY TO DETERMINE THE VALIDITY OR INVALIDITY OF THE MARRIAGE
OF THE PRIVATE RESPONDENT AND MEMBER EDGARDO AZOTE. RESPONDENT COURT OF
APPEALS GRAVELY ERRED IN GRANTING THE PETITION OF THE PRIVATE RESPONDENT
AND FINDING HER ENTITLED TO THE SS BENEFITS.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE

DESIGNATION OF THE PRIVATE RESPONDENT AS WIFE-BENEFICIARY IS VALID.20
The SSC argues that the findings of fact of the CA were not supported by the records. It
submits that under Section 5 of the SS Law, it is called upon to determine the rightful
beneficiary in the performance of its quasi-judicial function of adjudicating SS benefits. In
fact, it cited a number of cases,21 where the SSC had passed upon the validity of
marriages for the purpose of determining who were entitled to SS benefits.22
The SSC contends that Edna was not the legitimate spouse of deceased member Edgardo
as the CA failed to consider the NSO certification showing that Edgardo was previously
married to Rosemarie. With the death certificate of Rosemarie showing that she died only
on November 6, 2004, it proved that she was alive at the time Edna and Edgardo were
married, and, therefore, there existed a legal impediment to his second marriage,
rendering it void. Edna is, therefore, not a legitimate spouse who is entitled to the death
benefits of Edgardo.23
The SSC claims that the right to designate a beneficiary is subject to the SS Law. The
designation of a wife-beneficiary merely creates a disputable presumption that they are
legally married and may be overthrown by evidence to the contrary. Ednas designation
became invalid with the determination of the subsistence of a previous marriage. The
SSC posits that even though Edgardo revoked and superseded his earlier designation of
Rosemarie as beneficiary, his designation of Edna was still not valid considering that only
a legitimate spouse could qualify as a primary beneficiary.24
The Courts Ruling
The petition is meritorious.
The law in force at the time of Edgardos death was Republic Act (R.A.) No. 8282,25 the
amendatory law of R.A. No. 1161 or the "Social Security Law." It is a tax-exempt social
security service designed to promote social justice and provide meaningful protection to
members and their beneficiaries against the hazards of disability, sickness, maternity,
old age, death, and other contingencies resulting in loss of income or financial burden.26
As a social security program of the government, Section 8 (e) and (k) of the said law
expressly provides who would be entitled to receive benefits from its deceased-member,
to wit:
SEC. 8. Terms Defined. - For purposes of this Act, the following terms shall, unless the
context indicates otherwise, have the following meanings:
xxxx
(e) Dependents - The dependents shall be the following:
(1) The legal spouse entitled by law to receive support from the member;
(2) The legitimate, legitimated or legally adopted, and illegitimate child who is
unmarried, not gainfully employed, and has not reached twenty-one (21) years of age, or
if over twenty-one (21) years of age, he is congenitally or while still a minor has been
permanently incapacitated and incapable of self-support, physically or mentally; and
(3) The parent who is receiving regular support from the member.
xxxx
(k) Beneficiaries - The dependent spouse until he or she remarries, the dependent
legitimate, legitimated or legally adopted, and illegitimate children, who shall be the
primary beneficiaries of the member: Provided, That the dependent illegitimate children
shall be entitled to fifty percent (50%) of the share of the legitimate, legitimated or
legally adopted children: Provided, further, That in the absence of the dependent
legitimate, legitimated children of the member, his/her dependent illegitimate children
shall be entitled to one hundred percent (100%) of the benefits. In their absence, the
dependent parents who shall be the secondary beneficiaries of the member. In the

absence of all the foregoing, any other person designated by the member as his/her
secondary beneficiary. (Emphasis supplied)
Applying Section 8(e) and (k) of R.A. No. 8282, it is clear that only the legal spouse of the
deceased-member is qualified to be the beneficiary of the latters SS benefits. In this
case, there is a concrete proof that Edgardo contracted an earlier marriage with another
individual as evidenced by their marriage contract. Edgardo even acknowledged his
married status when he filled out the 1982 Form E-4 designating Rosemarie as his
spouse.27
It is undisputed that the second marriage of Edgardo with Edna was celebrated at the
time when the Family Code was already in force.1wphi1 Article 41 of the Family Code
expressly states:
Art. 41. A marriage contracted by any person during subsistence of a previous marriage
shall be null and void, unless before the celebration of the subsequent marriage, the
prior spouse had been absent for four consecutive years and the spouse present has a
well-founded belief that the absent spouse was already dead. In case of disappearance
where there is danger under the circumstances set forth in the provisions of Article 391
of the Civil Code, an absence of only two years shall be sufficient.
For the purpose of contracting a subsequent marriage under the preceding paragraph,
the spouse present must institute a summary proceeding as provided in this Code for the
declaration of presumptive death of the absentee, without prejudice to the effect of
reappearance of the absent spouse. (Emphasis and underscoring supplied)
Using the parameters outlined in Article 41 of the Family Code, Edna, without doubt,
failed to establish that there was no impediment or that the impediment was already
removed at the time of the celebration of her marriage to Edgardo. Settled is the rule
that "whoever claims entitlement to the benefits provided by law should establish his or
her right thereto by substantial evidence."28 Edna could not adduce evidence to prove
that the earlier marriage of Edgardo was either annulled or dissolved or whether there
was a declaration of Rosemaries presumptive death before her marriage to Edgardo.
What is apparent is that Edna was the second wife of Edgardo. Considering that Edna
was not able to show that she was the legal spouse of a deceased-member, she would
not qualify under the law to be the beneficiary of the death benefits of Edgardo.
The Court does not subscribe to the disquisition of the CA that the updated Form E-4 of
Edgardo was determinative of Ednas status and eligibility to claim the death benefits of
deceased-member. Although an SSS member is free to designate a beneficiary, the
designation must always conform to the statute. To blindly rely on the form submitted by
the deceased-member would subject the entire social security system to the whims and
caprices of its members and would render the SS Law inutile.
Although the SSC is not intrinsically empowered to determine the validity of marriages, it
is required by Section 4(b) (7) of R.A. No. 828229 to examine available statistical and
economic data to ensure that the benefits fall into the rightful beneficiaries. As held in
Social Security Commission vs. Favila,30 SSS, as the primary institution in charge of
extending social security protection to workers and their beneficiaries is mandated by
Section 4(b)(7) of RA 8282 to require reports, compilations and analyses of statistical and
economic data and to make an investigation as may be needed for its proper
administration and development. Precisely, the investigations conducted by SSS are
appropriate in order to ensure that the benefits provided under the SS Law are received
by the rightful beneficiaries. It is not hard to see that such measure is necessary for the
systems proper administration, otherwise, it will be swamped with bogus claims that will
pointlessly deplete its funds. Such scenario will certainly frustrate the purpose of the law
which is to provide covered employees and their families protection against the hazards
of disability, sickness, old age and death, with a view to promoting their well-being in the

spirit of social justice. Moreover and as correctly pointed out by SSC, such investigations
are likewise necessary to carry out the mandate of Section 15 of the SS Law which
provides in part, viz:
Sec. 15. Non-transferability of Benefits. - The SSS shall pay the benefits provided for in
this Act to such [x x xj persons as may be entitled thereto in accordance with the
provisions of this Act x x x. (Emphasis supplied.)
The existence of two Form E-4s designating, on two different dates, two different women
as his spouse is already an indication that only one of them can be the legal spouse. As
can be gleaned from the certification issued by the NSO,31 there is no doubt that
Edgardo married Rosemarie in 1982. Edna cannot be considered as the legal spouse of
Edgardo as their marriage took place during the existence of a previously contracted
marriage. For said reason, the denial of Edna's claim by the SSC was correct. It should be
emphasized that the SSC determined Edna's eligibility on the basis of available statistical
data and documents on their database as expressly permitted by Section 4(b) (7) of R.A.
No. 8282.
It is of no moment that the first wife, Rosemarie, did not participate or oppose Edna's
claim. Rosemarie's non-participation or her subsequent death on November 11, 200432
did not cure or legitimize the status of Edna.
WHEREFORE, the petition is GRANTED. The August 13, 2013 Decision and the October
29, 2013 Resolution of the Court of Appeals in CA-G.R. SP No. 122933 are REVERSED and
SET ASIDE. Accordingly, the petition for entitlement of SS death benefits filed by
respondent Edna Azote is DENIED for lack of merit.
SO ORDERED
THE PROVINCE OF NEGROS
OCCIDENTAL, represented by its
Governor ISIDRO P. ZAYCO,
Petitioner,

- versus -

THE COMMISSIONERS,
COMMISSION ON AUDIT; THE
DIRECTOR, CLUSTER IV-VISAYAS;
THE REGIONAL CLUSTER
DIRECTORS; and THE PROVINCIAL
AUDITOR, NEGROS OCCIDENTAL,
Respondents.

G.R. No. 182574

Present:
CORONA, c.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO, JJ.
Promulgated:

September 28, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CARPIO, J.:
The Case
Before the Court is a petition for certiorari142[1] assailing Decision No. 2006044 [2] dated 14 July 2006 and Decision No. 2008-010144[3] dated 30 January 2008 of
the Commission on Audit (COA) disallowing premium payment for the hospitalization and
health care insurance benefits of 1,949 officials and employees of the Province of Negros
Occidental.
The Facts
On 21 December 1994, the Sangguniang Panlalawigan of Negros Occidental passed
Resolution No. 720-A145[4] allocating P4,000,000 of its retained earnings for the
hospitalization and health care insurance benefits of 1,949 officials and employees of the
province. After a public bidding, the Committee on Awards granted the insurance
coverage to Philam Care Health System Incorporated (Philam Care).
143

Petitioner Province of Negros Occidental, represented by its then Governor Rafael L.

Coscolluela, and Philam Care entered into a Group Health Care Agreement involving a
total payment of P3,760,000 representing the insurance premiums of its officials and
employees. The total premium amount was paid on 25 January 1996.
On 23 January 1997, after a post-audit investigation, the Provincial Auditor issued
Notice of Suspension No. 97-001-101146[5] suspending the premium payment because of
lack of approval from the Office of the President (OP) as provided under Administrative
Order No. 103147[6] (AO 103) dated 14 January 1994. The Provincial Auditor explained
that the premium payment for health care benefits violated Republic Act No. 6758 (RA
6758),148[7] otherwise known as the Salary Standardization Law.
Petitioner complied with the directive post-facto and sent a letter-request dated 12
January 1999 to the OP. In a Memorandum dated 26 January 1999,149[8] then President
Joseph E. Estrada directed the COA to lift the suspension but only in the amount of
P100,000. The Provincial Auditor ignored the directive of the President and instead issued
Notice of Disallowance No. 99-005-101(96)150[9] dated 10 September 1999 stating similar
grounds as mentioned in Notice of Suspension No. 97-001-101.
Petitioner appealed the disallowance to the COA. In a Decision dated 14 July 2006, the
COA affirmed the Provincial Auditors Notice of Disallowance dated 10 September 1999. 151
[10] The COA ruled that under AO 103, no government entity, including a local
government unit, is exempt from securing prior approval from the President granting
additional benefits to its personnel. This is in conformity with the policy of
142
143
144
145
146
147
148
149
150
151

standardization of compensation laid down in RA 6758. The COA added that Section
468(a)(1)(viii)152[11] of Republic Act No. 7160 (RA 7160) or the Local Government Code of
1991 relied upon by petitioner does not stand on its own but has to be harmonized with
Section 12153[12] of RA 6758.
Further, the COA stated that the insurance benefits from Philam Care, a private insurance
company, was a duplication of the benefits provided to employees under the Medicare
program which is mandated by law. Being merely a creation of a local legislative body,
the provincial health care program should not contravene but instead be consistent with
national laws enacted by Congress from where local legislative bodies draw their
authority.
The COA held the following persons liable: (1) all the 1,949 officials and employees
of the province who benefited from the hospitalization and health care insurance benefits
with regard to their proportionate shares; (2) former Governor Rafael L. Coscolluela,
being the person who signed the contract on behalf of petitioner as well as the person
who approved the disbursement voucher; and (3) the Sangguniang Panlalawigan
members who passed Resolution No. 720-A. The COA did not hold Philam Care and
Provincial Accountant Merly P. Fortu liable for the disallowed disbursement. The COA
explained that it was unjust to require Philam Care to refund the amount received for
services it had duly rendered since insurance law prohibits the refund of premiums after
risks had already attached to the policy contract. As for the Provincial Accountant, the
COA declared that the Sangguniang Panlalawigan resolution was sufficient basis for the
accountant to sign the disbursement voucher since there were adequate funds available
for the purpose. However, being one of the officials who benefited from the subject
disallowance, the inclusion of the accountants name in the persons liable was proper
with regard to her proportionate share of the premium.

The dispositive portion of the COAs 14 July 2006 decision states:

WHEREFORE, premises considered, and finding no substantial ground or
cogent reason to disturb the subject disallowance, the instant appeal is hereby denied for
lack of merit. Accordingly, Notice of Disallowance No. 99-005-101(96) dated 10
September 1999 in the total amount of P3,760,000.00 representing the hospitalization
and insurance benefits of the officials and employees of the Province of Negros
Occidental is hereby AFFIRMED and the refund thereof is hereby ordered.
The Cluster Director, Cluster IV-Visayas, COA Regional Office No. VII, Cebu
City shall ensure the proper implementation of this decision.154[13]
Petitioner filed a Motion for Reconsideration dated 23 October 2006 which the COA
denied in a Resolution dated 30 January 2008.
Hence, the instant petition.
The Issue
152
153
154

The main issue is whether COA committed grave abuse of discretion in affirming
the disallowance of P3,760,000 for premium paid for the hospitalization and health care
insurance benefits granted by the Province of Negros Occidental to its 1,949 officials and
employees.
The Courts Ruling
Petitioner insists that the payment of the insurance premium for the health
benefits of its officers and employees was not unlawful and improper since it was paid
from an allocation of its retained earnings pursuant to a valid appropriation ordinance.
Petitioner states that such enactment was a clear exercise of its express powers under
the principle of local fiscal autonomy which includes the power of Local Government
Units (LGUs) to allocate their resources in accordance with their own priorities. Petitioner
adds that while it is true that LGUs are only agents of the national government and local
autonomy simply means decentralization, it is equally true that an LGU has fiscal control
over its own revenues derived solely from its own tax base.
Respondents, on the other hand, maintain that although LGUs are afforded local
fiscal autonomy, LGUs are still bound by RA 6758 and their actions are subject to the
scrutiny of the Department of Budget and Management (DBM) and applicable auditing
rules and regulations enforced by the COA. Respondents add that the grant of additional
compensation, like the hospitalization and health care insurance benefits in the present
case, must have prior Presidential approval to conform with the state policy on salary
standardization for government workers.
AO 103 took effect on 14 January 1994 or eleven months before the Sangguniang
Panlalawigan of the Province of Negros Occidental passed Resolution No. 720-A. The
main purpose of AO 103 is to prevent discontentment, dissatisfaction and demoralization
among government personnel, national or local, who do not receive, or who receive less,
productivity incentive benefits or other forms of allowances or benefits. This is clear in
the Whereas Clauses of AO 103 which state:
WHEREAS, the faithful implementation of statutes, including the Administrative
Code of 1987 and all laws governing all forms of additional compensation and personnel
benefits is a Constitutional prerogative vested in the President of the Philippines under
Section 17, Article VII of the 1987 Constitution;
WHEREAS, the Constitutional prerogative includes the determination of the rates,
the timing and schedule of payment, and final authority to commit limited resources of
government for the payment of personal incentives, cash awards, productivity bonus,
and other forms of additional compensation and fringe benefits;
WHEREAS, the unilateral and uncoordinated grant of productivity incentive
benefits in the past gave rise to discontentment, dissatisfaction and
demoralization among government personnel who have received less or have
not received at all such benefits;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines,
by virtue of the powers vested in me by law and in order to forestall further
demoralization of government personnel do hereby direct: x x x (Emphasis
supplied)

Sections 1 and 2 of AO 103 state:

SECTION 1. All agencies of the National Government including governmentowned and/or -controlled corporations and government financial institutions,
and local government units, are hereby authorized to grant productivity incentive
benefit in the maximum amount of TWO THOUSAND PESOS (P2,000.00) each to their
permanent and full-time temporary and casual employees, including contractual
personnel with employment in the nature of a regular employee, who have rendered at
least one (1) year of service in the Government as of December 31, 1993.
SECTION 2. All heads of government offices/agencies, including
government owned and/or controlled corporations, as well as their respective
governing boards are hereby enjoined and prohibited from authorizing/granting
Productivity Incentive Benefits or any and all forms of allowances/benefits without prior
approval and authorization via Administrative Order by the Office of the President.
Henceforth, anyone found violating any of the mandates in this Order, including all
officials/agency found to have taken part thereof, shall be accordingly and severely dealt
with in accordance with the applicable provisions of existing administrative and penal
laws.
Consequently, all administrative authorizations to grant any form of
allowances/benefits and all forms of additional compensation usually paid outside of the
prescribed basic salary under R.A. 6758, the Salary Standardization Law, that are
inconsistent with the legislated policy on the matter or are not covered by any legislative
action are hereby revoked. (Emphasis supplied)
It is clear from Section 1 of AO 103 that the President authorized all agencies of the
national government as well as LGUs to grant the maximum amount of P2,000
productivity incentive benefit to each employee who has rendered at least one year of
service as of 31 December 1993. In Section 2, the President enjoined all heads of
government offices and agencies from granting productivity incentive benefits or any
and all similar forms of allowances and benefits without the Presidents prior approval.
In the present case, petitioner, through an approved Sangguniang Panlalawigan
resolution, granted and released the disbursement for the hospitalization and health care
insurance benefits of the provinces officials and employees without any prior approval
from the President. The COA disallowed the premium payment for such benefits since
petitioner disregarded AO 103 and RA 6758.
We disagree with the COA. From a close reading of the provisions of AO 103,
petitioner did not violate the rule of prior approval from the President since Section 2
states that the prohibition applies only to government offices/agencies, including
government-owned and/or controlled corporations, as well as their respective governing
boards. Nowhere is it indicated in Section 2 that the prohibition also applies to LGUs. The
requirement then of prior approval from the President under AO 103 is applicable only to
departments, bureaus, offices and government-owned and controlled corporations under
the Executive branch. In other words, AO 103 must be observed by government offices
under the Presidents control as mandated by Section 17, Article VII of the Constitution
which states:

Section 17. The President shall have control of all executive departments, bureaus
and offices. He shall ensure that the laws be faithfully executed. (Emphasis supplied)
Being an LGU, petitioner is merely under the Presidents general supervision
pursuant to Section 4, Article X of the Constitution:
Sec. 4. The President of the Philippines shall exercise general supervision
over local governments. Provinces with respect to component cities and
municipalities, and cities and municipalities with respect to component barangays shall
ensure that the acts of their component units are within the scope of their prescribed
powers and functions. (Emphasis supplied)
The Presidents power of general supervision means the power of a superior officer
to see to it that subordinates perform their functions according to law.155[14] This is
distinguished from the Presidents power of control which is the power to alter or modify
or set aside what a subordinate officer had done in the performance of his duties and to
substitute the judgment of the President over that of the subordinate officer.156[15] The
power of control gives the President the power to revise or reverse the acts or decisions
of a subordinate officer involving the exercise of discretion.157[16]
Since LGUs are subject only to the power of general supervision of the President,
the Presidents authority is limited to seeing to it that rules are followed and laws are
faithfully executed. The President may only point out that rules have not been followed
but the President cannot lay down the rules, neither does he have the discretion to
modify or replace the rules. Thus, the grant of additional compensation like
hospitalization and health care insurance benefits in the present case does not need the
approval of the President to be valid.
Also, while it is true that LGUs are still bound by RA 6758, the COA did not clearly
establish that the medical care benefits given by the government at the time under
Presidential Decree No. 1519158[17] were sufficient to cover the needs of government
employees especially those employed by LGUs.
Petitioner correctly relied on the Civil Service Commissions (CSC) Memorandum Circular
No. 33 (CSC MC No. 33), series of 1997, issued on 22 December 1997 which provided the
policy framework for working conditions at the workplace. In this circular, the CSC
pursuant to CSC Resolution No. 97-4684 dated 18 December 1997 took note of the
inadequate policy on basic health and safety conditions of work experienced by
government personnel. Thus, under CSC MC No. 33, all government offices including
LGUs were directed to provide a health program for government employees which
included hospitalization services and annual mental, medical-physical examinations.
Later, CSC MC No. 33 was further reiterated in Administrative Order No. 402159[18]
(AO 402) which took effect on 2 June 1998. Sections 1, 2, and 4 of AO 402 state:

155
156
157
158
159

Section 1. Establishment of the Annual Medical Check-up Program. An annual medical

check-up for government of officials and employees is hereby authorized to be
established starting this year, in the meantime that this benefit is not yet integrated
under the National Health Insurance Program being administered by the Philippine Health
Insurance Corporation (PHIC).
Section 2. Coverage. x x x Local Government Units are also encouraged to
establish a similar program for their personnel.
Section 4. Funding. x x x Local Government Units, which may establish a similar
medical program for their personnel, shall utilize local funds for the purpose. (Emphasis
supplied)
The CSC, through CSC MC No. 33, as well as the President, through AO 402,
recognized the deficiency of the state of health care and medical services implemented
at the time. Republic Act No. 7875160[19] or the National Health Insurance Act of 1995
instituting a National Health Insurance Program (NHIP) for all Filipinos was only approved
on 14 February 1995 or about two months after petitioners Sangguniang Panlalawigan
passed Resolution No. 720-A. Even with the establishment of the NHIP, AO 402 was still
issued three years later addressing a primary concern that basic health services under
the NHIP either are still inadequate or have not reached geographic areas like that of
petitioner.
Thus, consistent with the state policy of local autonomy as guaranteed by the 1987
Constitution, under Section 25, Article II161[20] and Section 2, Article X,162[21] and the
Local Government Code of 1991,163[22] we declare that the grant and release of the
hospitalization and health care insurance benefits given to petitioners officials and
employees were validly enacted through an ordinance passed by petitioners
Sangguniang Panlalawigan.
In sum, since petitioners grant and release of the questioned disbursement without the
Presidents approval did not violate the Presidents directive in AO 103, the COA then
gravely abused its discretion in applying AO 103 to disallow the premium payment for
the hospitalization and health care insurance benefits of petitioners officials and
employees.
WHEREFORE, we GRANT the petition. We REVERSE AND SET ASIDE Decision
No. 2006-044 dated 14 July 2006 and Decision No. 2008-010 dated 30 January 2008 of
the Commission on Audit.
SO ORDERED.
PHILIPPINE HEALTH CARE
PROVIDERS, INC.,
Petitioner,
160
161
162
163

G.R. No. 167330

Present:

-versus-

PUNO, C.J., Chairperson,

CORONA,
CHICO-NAZARIO,*
LEONARDO-DE CASTRO and
BERSAMIN, JJ.

COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
Promulgated:
September 18, 2009
x - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and
instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the
needs of the underprivileged sick, elderly, disabled, women, and children. The State shall
endeavor to provide free medical care to paupers.164[1]
For resolution are a motion for reconsideration and supplemental motion for
reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner
Philippine Health Care Providers, Inc.165[2]
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is [t]o establish,
maintain, conduct and operate a prepaid group practice health care delivery system or a
health maintenance organization to take care of the sick and disabled persons enrolled in
the health care plan and to provide for the administrative, legal, and financial
responsibilities of the organization. Individuals enrolled in its health care programs pay
an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists and other

*
*
164
165

professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
xxx

xxx

xxx

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner
a formal demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest, for the taxable years
1996 and 1997 in the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners
health care agreement with the members of its health care program pursuant to Section
185 of the 1997 Tax Code xxxx
xxx

xxx

xxx

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent
did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals
(CTA) seeking the cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to
P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge
plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND
SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency
tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it
cancelled the DST assessment. He claimed that petitioners health care agreement was a
contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioners health care
agreement was in the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary
stamp tax assessment and ordered petitioner to desist from collecting the same is
REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge

for late payment and 20% interest per annum from January 27, 2000, pursuant to
Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this
case.
xxx

xxx

xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs
decision. We held that petitioners health care agreement during the pertinent period was
in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross
Healthcare, Inc. v. Olivares166[3] and Philamcare Health Systems, Inc. v. CA.167[4] We also
ruled that petitioners contention that it is a health maintenance organization (HMO) and
not an insurance company is irrelevant because contracts between companies like
petitioner and the beneficiaries under their plans are treated as insurance contracts.
Moreover, DST is not a tax on the business transacted but an excise on the privilege,
opportunity or facility offered at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration
and supplemental motion for reconsideration, asserting the following arguments:
(a)
The DST under Section 185 of the National Internal Revenue of 1997 is imposed
only on a company engaged in the business of fidelity bonds and other insurance
policies. Petitioner, as an HMO, is a service provider, not an insurance company.
(b)
The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in
effect the CAs disposition that health care services are not in the nature of an insurance
business.
(c)

Section 185 should be strictly construed.

(d)
Legislative intent to exclude health care agreements from items subject to DST is
clear, especially in the light of the amendments made in the DST law in 2002.
(e)
Assuming arguendo that petitioners agreements are contracts of indemnity, they
are not those contemplated under Section 185.
(f)
Assuming arguendo that petitioners agreements are akin to health insurance,
health insurance is not covered by Section 185.
(g)
The agreements do not fall under the phrase other branch of insurance mentioned
in Section 185.
(h)

166
167

The June 12, 2008 decision should only apply prospectively.

(i)
Petitioner availed of the tax amnesty benefits under RA168[5] 9480 for the taxable
year 2005 and all prior years. Therefore, the questioned assessments on the DST are now
rendered moot and academic.169[6]
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their
memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a
tax amnesty under RA 9480170[7] (also known as the Tax Amnesty Act of 2007) by fully
paying the amount of P5,127,149.08 representing 5% of its net worth as of the year
ending December 31, 2005.171[8]
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange
Commission on June 30, 1987.172[9] It is engaged in the dispensation of the following
medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family
planning counseling, consultation and advices on diet, exercise and other healthy habits,
and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis,
fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and
therapeutic processes in the event of an injury or sickness on the part of the enrolled
member.173[10]
Individuals enrolled in its health care program pay an annual membership fee.
Membership is on a year-to-year basis. The medical services are dispensed to enrolled
members in a hospital or clinic owned, operated or accredited by petitioner, through
physicians, medical and dental practitioners under contract with it. It negotiates with
such health care practitioners regarding payment schemes, financing and other
procedures for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e. those directly
employed by it174[11] or whose services are contracted by it.175[12] Petitioner also
provides hospital services such as room and board accommodation, laboratory services,
operating rooms, x-ray facilities and general nursing care.176[13] If and when a member
avails of the benefits under the agreement, petitioner pays the participating physicians
and other health care providers for the services rendered, at pre-agreed rates.177[14]
168
169
170
171
172
173
174
175
176
177

To avail of petitioners health care programs, the individual members are required to sign
and execute a standard health care agreement embodying the terms and conditions for
the provision of the health care services. The same agreement contains the various
health care services that can be engaged by the enrolled member, i.e., preventive,
diagnostic and curative medical services. Except for the curative aspect of the medical
service offered, the enrolled member may actually make use of the health care services
being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and
not an insurer because its agreements are treated as insurance contracts and the DST is
not a tax on the business but an excise on the privilege, opportunity or facility used in
the transaction of the business.178[15]
Petitioner, however, submits that it is of critical importance to characterize the business
it is engaged in, that is, to determine whether it is an HMO or an insurance company, as
this distinction is indispensable in turn to the issue of whether or not it is liable for DST
on its health care agreements.179[16]
A second hard look at the relevant law and jurisprudence convinces the Court that the
arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employers liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all bonds,
undertakings, or recognizances, conditioned for the performance of the duties of any
office or position, for the doing or not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of any bond or other obligations issued
by any province, city, municipality, or other public body or organization, and on all
obligations guaranteeing the title to any real estate, or guaranteeing any mercantile
credits, which may be made or renewed by any such person, company or corporation,
there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four
pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or
part of a statute shall be considered surplusage or superfluous, meaningless, void and
insignificant. To this end, a construction which renders every word operative is preferred
over that which makes some words idle and nugatory.180[17] This principle is expressed in
the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which
gives effect to the whole of the statute its every word.181[18]
178
179
180
181

From the language of Section 185, it is evident that two requisites must concur before
the DST can apply, namely: (1) the document must be a policy of insurance or an
obligation in the nature of indemnity and (2) the maker should be transacting
the business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland,
and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or The National Health Insurance Act of
1995), an HMO is an entity that provides, offers or arranges for coverage of designated
health services needed by plan members for a fixed prepaid premium. 182[19] The
payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during
the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD183[20] 1460 (otherwise known as the Insurance Code) enumerates
what constitutes doing an insurance business or transacting an insurance business:
a)

making or proposing to make, as insurer, any insurance contract;

b)
making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity of the
surety;
c)
doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of this
Code;
d)
doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive to show that the
making thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,184[21] have determined that HMOs are not in the insurance business. One test
that they have applied is whether the assumption of risk and indemnification of loss
(which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely incidental
and service is the principal purpose, then the business is not insurance.
Applying the principal object and purpose test,185[22] there is significant American case
law supporting the argument that a corporation (such as an HMO, whether or not
182
183
184
185

organized for profit), whose main object is to provide the members of a group with health
services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association186[23] wherein the Court of
Appeals of the District of Columbia Circuit held that Group Health Association should not
be considered as engaged in insurance activities since it was created primarily for the
distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating
security against loss from illness or accident more truly they constitute the quantity
purchase of well-rounded, continuous medical service by its members. xxx The
functions of such an organization are not identical with those of insurance or
indemnity companies. The latter are concerned primarily, if not exclusively, with risk
and the consequences of its descent, not with service, or its extension in kind, quantity
or distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with
getting service rendered to its members and doing so at lower prices made
possible by quantity purchasing and economies in operation. Its primary
purpose is to reduce the cost rather than the risk of medical care; to broaden
the service to the individual in kind and quantity; to enlarge the number
receiving it; to regularize it as an everyday incident of living, like purchasing
food and clothing or oil and gas, rather than merely protecting against the
financial loss caused by extraordinary and unusual occurrences, such as death,
disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary
aches and pains, minor ills and all the temporary bodily discomforts as well as the more
serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of
service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except
incidentally to these features, the indemnification for cost after the services is
rendered. Except the last, these are not distinctive or generally characteristic
of the insurance arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the contingency that it be
needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not
outweigh all other factors. If attention is focused only on that feature, the line between
insurance or indemnity and other types of legal arrangement and economic function
becomes faint, if not extinct. This is especially true when the contract is for the sale of
goods or services on contingency. But obviously it was not the purpose of the insurance
statutes to regulate all arrangements for assumption or distribution of risk. That view
would cause them to engulf practically all contracts, particularly conditional sales and
contingent service agreements. The fallacy is in looking only at the risk element,
to the exclusion of all others present or their subordination to it. The question
turns, not on whether risk is involved or assumed, but on whether that or
something else to which it is related in the particular plan is its principal object
purpose.187[24] (Emphasis supplied)

186
187

In California Physicians Service v. Garrison,188[25] the California court felt that, after
scrutinizing the plan of operation as a whole of the corporation, it was service rather than
indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged
in the insurance business. Absence or presence of assumption of risk or peril is
not the sole test to be applied in determining its status. The question, more
broadly, is whether, looking at the plan of operation as a whole, service rather
than indemnity is its principal object and purpose. Certainly the objects and
purposes of the corporation organized and maintained by the California physicians have
a wide scope in the field of social service. Probably there is no more impelling need
than that of adequate medical care on a voluntary, low-cost basis for persons
of small income. The medical profession unitedly is endeavoring to meet that
need. Unquestionably this is service of a high order and not indemnity. 189[26]
(Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an
insurance company is that HMOs undertake to provide or arrange for the provision of
medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New
Jersey190[27] is clear on this point:
The basic distinction between medical service corporations and ordinary health and
accident insurers is that the former undertake to provide prepaid medical services
through participating physicians, thus relieving subscribers of any further financial
burden, while the latter only undertake to indemnify an insured for medical expenses up
to, but not beyond, the schedule of rates contained in the policy.
xxx
xxx
xxx
The primary purpose of a medical service corporation, however, is an undertaking to
provide physicians who will render services to subscribers on a prepaid basis. Hence, if
there are no physicians participating in the medical service corporations plan,
not only will the subscribers be deprived of the protection which they might
reasonably have expected would be provided, but the corporation will, in
effect, be doing business solely as a health and accident indemnity insurer
without having qualified as such and rendering itself subject to the more stringent
financial requirements of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render
health care services to or for persons covered by a contract issued by health service
corporation in return for which the health service corporation agrees to make
payment directly to the participating provider.191[28] (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary
purpose of the business to provide medical services as needed, with payment made
188
189
190
191

directly to the provider of these services.192[29] In short, even if petitioner assumes the
risk of paying the cost of these services even if significantly more than what the member
has prepaid, it nevertheless cannot be considered as being engaged in the insurance
business.
By the same token, any indemnification resulting from the payment for services rendered
in case of emergency by non-participating health providers would still be incidental to
petitioners purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery of such medical
services. This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers preventive and diagnostic
medical services intended to keep members from developing medical conditions or
diseases.193[30] As an HMO, it is its obligation to maintain the good health of its
members. Accordingly, its health care programs are designed to prevent or to
minimize the possibility of any assumption of risk on its part. Thus, its
undertaking under its agreements is not to indemnify its members against any loss or
damage arising from a medical condition but, on the contrary, to provide the health and
medical services needed to prevent such loss or damage.194[31]
Overall, petitioner appears to provide insurance-type benefits to its members (with
respect to its curative medical services), but these are incidental to the principal activity
of providing them medical care. The insurance-like aspect of petitioners business is
miniscule compared to its noninsurance activities. Therefore, since it substantially
provides health care services rather than insurance services, it cannot be considered as
being in the insurance business.
It is important to emphasize that, in adopting the principal purpose test used in the
above-quoted U.S. cases, we are not saying that petitioners operations are identical in
every respect to those of the HMOs or health providers which were parties to those
cases. What we are stating is that, for the purpose of determining what doing an
insurance business means, we have to scrutinize the operations of the business as a
whole and not its mere components. This is of course only prudent and appropriate,
taking into account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we are also not
unmindful that there are other American authorities who have found particular HMOs to
be actually engaged in insurance activities.195[32]
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry.
This is evident from the fact that it is not supervised by the Insurance Commission but by
the Department of Health.196[33] In fact, in a letter dated September 3, 2000, the
Insurance Commissioner confirmed that petitioner is not engaged in the insurance
business. This determination of the commissioner must be accorded great weight. It is
well-settled that the interpretation of an administrative agency which is tasked to
implement a statute is accorded great respect and ordinarily controls the interpretation
192
193
194
195
196

of laws by the courts. The reason behind this rule was explained in Nestle Philippines,
Inc. v. Court of Appeals:197[34]
The rationale for this rule relates not only to the emergence of the multifarious needs of
a modern or modernizing society and the establishment of diverse administrative
agencies for addressing and satisfying those needs; it also relates to the accumulation of
experience and growth of specialized capabilities by the administrative agency charged
with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner
of Customs,198[35] the Court stressed that executive officials are presumed to have
familiarized themselves with all the considerations pertinent to the meaning and purpose
of the law, and to have formed an independent, conscientious and competent expert
opinion thereon. The courts give much weight to the government agency officials
charged with the implementation of the law, their competence, expertness, experience
and informed judgment, and the fact that they frequently are the drafters of the law they
interpret.199[36]

A Health Care Agreement Is Not An Insurance Contract Contemplated Under

Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on all policies of insurance or obligations of the
nature of indemnity for loss, damage, or liability. In our decision dated June 12, 2008, we
ruled that petitioners health care agreements are contracts of indemnity and are
therefore insurance contracts:
It is incorrect to say that the health care agreement is not based on loss or damage
because, under the said agreement, petitioner assumes the liability and indemnifies its
member for hospital, medical and related expenses (such as professional fees of
physicians). The term "loss or damage" is broad enough to cover the monetary expense
or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional
services to the member in case of sickness, injury or emergency or his availment of socalled "out-patient services" (including physical examination, x-ray and laboratory tests,
medical consultations, vaccine administration and family planning counseling) is the
contingent event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are
prepaid. The expenses to be incurred by each member cannot be predicted beforehand,
if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the
services even if they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance.200[37]
197
198
199
200

We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage,
or liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employers liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are
strictly construed against the taxing authority.201[38] This is because taxation is a
destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the government. 202[39]
Hence, tax laws may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not specifically
provided.203[40]
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health
care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. However, those cases did not involve the interpretation of a tax provision.
Instead, they dealt with the liability of a health service provider to a member under the
terms of their health care agreement. Such contracts, as contracts of adhesion, are
liberally interpreted in favor of the member and strictly against the HMO. For this reason,
we reconsider our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
1.

The insured has an insurable interest;

2.

The insured is subject to a risk of loss by the happening of the designed peril;

3.

The insurer assumes the risk;

4.
Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk and
5.

In consideration of the insurers promise, the insured pays a premium.204[41]

Do the agreements between petitioner and its members possess all these elements?
They do not.

201
202
203
204

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even
if a contract contains all the elements of an insurance contract, if its primary purpose is
the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements
mentioned above would be an insurance contract. The primary purpose of the
parties in making the contract may negate the existence of an insurance
contract. For example, a law firm which enters into contracts with clients whereby in
consideration of periodical payments, it promises to represent such clients in all suits for
or against them, is not engaged in the insurance business. Its contracts are simply for
the purpose of rendering personal services. On the other hand, a contract by which a
corporation, in consideration of a stipulated amount, agrees at its own expense to defend
a physician against all suits for damages for malpractice is one of insurance, and the
corporation will be deemed as engaged in the business of insurance. Unlike the lawyers
retainer contract, the essential purpose of such a contract is not to render personal
services, but to indemnify against loss and damage resulting from the defense of actions
for malpractice.205[42] (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in
petitioners agreements. To begin with, there is no loss, damage or liability on the part of
the member that should be indemnified by petitioner as an HMO. Under the agreement,
the member pays petitioner a predetermined consideration in exchange for the hospital,
medical and professional services rendered by the petitioners physician or affiliated
physician to him. In case of availment by a member of the benefits under the agreement,
petitioner does not reimburse or indemnify the member as the latter does not pay any
third party. Instead, it is the petitioner who pays the participating physicians and other
health care providers for the services rendered at pre-agreed rates. The member does
not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary
liability on the part of the member to any third party-provider of medical services which
might in turn necessitate indemnification from petitioner. The terms indemnify or
indemnity presuppose that a liability or claim has already been incurred. There is no
indemnity precisely because the member merely avails of medical services to be paid or
already paid in advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the
benefits anytime, e.g. laboratory services, x-ray, routine annual physical examination
and consultations, vaccine administration as well as family planning counseling, even in
the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who
receives care from a non-participating physician or hospital. However, this is only a very
minor part of the list of services available. The assumption of the expense by petitioner is
not confined to the happening of a contingency but includes incidents even in the
absence of illness or injury.

205

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,206[43]

although the health care contracts called for the defendant to partially reimburse a
subscriber for treatment received from a non-designated doctor, this did not make
defendant an insurer. Citing Jordan, the Court determined that the primary activity of the
defendant (was) the provision of podiatric services to subscribers in consideration of
prepayment for such services.207[44] Since indemnity of the insured was not the focal
point of the agreement but the extension of medical services to the member at an
affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily
true that risk alone is sufficient to establish it. Almost anyone who undertakes a
contractual obligation always bears a certain degree of financial risk. Consequently,
there is a need to distinguish prepaid service contracts (like those of petitioner) from the
usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the risk that it might fail to earn a reasonable return on its investment. But it is
not the risk of the type peculiar only to insurance companies. Insurance risk, also known
as actuarial risk, is the risk that the cost of insurance claims might be higher than the
premiums paid. The amount of premium is calculated on the basis of assumptions made
relative to the insured.208[45]
However, assuming that petitioners commitment to provide medical services to its
members can be construed as an acceptance of the risk that it will shell out more than
the prepaid fees, it still will not qualify as an insurance contract because petitioners
objective is to provide medical services at reduced cost, not to distribute risk like an
insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude
that it is not an insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of
HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioners
health care agreements under Section 185 of the NIRC of 1997 is the provisions
legislative history. The text of Section 185 came into U.S. law as early as 1904 when
HMOs and health care agreements were not even in existence in this jurisdiction. It was
imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the Internal
Revenue Law of 1904)209[46] enacted on July 2, 1904 and became effective on August 1,
1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:

ARTICLE XI
206
207
208
209

Stamp Taxes on Specified Objects

Section 116.There shall be levied, collected, and paid for and in respect to the several
bonds, debentures, or certificates of stock and indebtedness, and other documents,
instruments, matters, and things mentioned and described in this section, or for or in
respect to the vellum, parchment, or paper upon which such instrument, matters, or
things or any of them shall be written or printed by any person or persons who shall
make, sign, or issue the same, on and after January first, nineteen hundred and five, the
several taxes following:
xxx

xxx

xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of
indemnity for loss, damage, or liability made or renewed by any person,
association, company, or corporation transacting the business of accident,
fidelity, employers liability, plate glass, steam boiler, burglar, elevator,
automatic sprinkle, or other branch of insurance (except life, marine, inland,
and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted
revising and consolidating the laws relating to internal revenue. The aforecited pertinent
portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section
30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items
subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again
reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its
amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of
Act No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision
remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was
reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959,
enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again
increased.
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the
NIRC of 1977 was renumbered as Section 198. And under Section 23 of EO210[47] 273
dated July 25, 1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with
respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424
(or the NIRC of 1997), the subject legal provision was retained as the present Section

210

185. In 2004, amendments to the DST provisions were introduced by RA 9243211[48] but
Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the
formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later
reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However,
there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer,
having set foot in the Philippines as early as 1965 and having been formally incorporated
in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered
HMOs with a total enrollment of more than 2 million.212[49]
We can clearly see from these two histories (of the DST on the one hand and HMOs on
the other) that when the law imposing the DST was first passed, HMOs were yet unknown
in the Philippines. However, when the various amendments to the DST law were enacted,
they were already in existence in the Philippines and the term had in fact already been
defined by RA 7875. If it had been the intent of the legislature to impose DST on health
care agreements, it could have done so in clear and categorical terms. It had many
opportunities to do so. But it did not. The fact that the NIRC contained no specific
provision on the DST liability of health care agreements of HMOs at a time they were
already known as such, belies any legislative intent to impose it on them. As a matter
of fact, petitioner was assessed its DST liability only on January 27, 2000, after
more than a decade in the business as an HMO.213[50]
Considering that Section 185 did not change since 1904 (except for the rate of tax), it
would be safe to say that health care agreements were never, at any time, recognized as
insurance contracts or deemed engaged in the business of insurance within the context
of the provision.
The Power To Tax Is Not
The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which imposes the tax on the
constituency who is to pay it.214[51] So potent indeed is the power that it was once
opined that the power to tax involves the power to destroy.215[52]
Petitioner claims that the assessed DST to date which amounts to P376 million 216[53] is
way beyond its net worth of P259 million.217[54] Respondent never disputed these
assertions. Given the realities on the ground, imposing the DST on petitioner would be
highly oppressive. It is not the purpose of the government to throttle private business.
On the contrary, the government ought to encourage private enterprise. 218[55] Petitioner,
211
212
213
214
215
216
217
218

just like any concern organized for a lawful economic activity, has a right to maintain a
legitimate business.219[56] As aptly held in Roxas, et al. v. CTA, et al.:220[57]
The power of taxation is sometimes called also the power to destroy. Therefore it should
be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays
the golden egg.221[58]
Legitimate enterprises enjoy the constitutional protection not to be taxed out of
existence. Incurring losses because of a tax imposition may be an acceptable
consequence but killing the business of an entity is another matter and should not be
allowed. It is counter-productive and ultimately subversive of the nations thrust towards
a better economy which will ultimately benefit the majority of our people.222[59]
Petitioners Tax Liability
Was Extinguished Under
The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable
years 1996 and 1997 became moot and academic223[60] when it availed of the tax
amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08 representing 5%
of its net worth as of the year ended December 31, 2005 and complied with all
requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to
immunity from payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. 224
[61]
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to
immunity from payment of the tax involved, including the civil, criminal, or
administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005
and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the
merits of this case as discussed above, respondent concedes that such tax amnesty
extinguishes the tax liabilities of petitioner. This admission, however, is not meant
to preclude a revocation of the amnesty granted in case it is found to have been granted
under circumstances amounting to tax fraud under Section 10 of said amnesty law.225[62]
(Emphasis supplied)

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Furthermore, we held in a recent case that DST is one of the taxes covered by the tax
amnesty program under RA 9480.226[63] There is no other conclusion to draw than that
petitioners liability for DST for the taxable years 1996 and 1997 was totally extinguished
by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this
Court is bound by the ruling of the CA227[64] in CIR v. Philippine National Bank228[65] that
a health care agreement of Philamcare Health Systems is not an insurance contract for
purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this
Court dismissing the appeal in Philippine National Bank (G.R. No. 148680).229[66]
Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a
judgment on the merits; hence, the Court should apply the CA ruling there that a health
care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was
a disposition of the merits of the case. When we dismissed the petition, we effectively
affirmed the CA ruling being questioned. As a result, our ruling in that case has already
become final.230[67] When a minute resolution denies or dismisses a petition for failure to
comply with formal and substantive requirements, the challenged decision, together with
its findings of fact and legal conclusions, are deemed sustained.231[68] But what is its
effect on other cases?
With respect to the same subject matter and the same issues concerning the same
parties, it constitutes res judicata.232[69] However, if other parties or another subject
matter (even with the same parties and issues) is involved, the minute resolution is not
binding precedent. Thus, in CIR v. Baier-Nickel,233[70] the Court noted that a previous
case, CIR v. Baier-Nickel234[71] involving the same parties and the same issues, was
previously disposed of by the Court thru a minute resolution dated February 17, 2003
sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case
ha(d) no bearing on the latter case because the two cases involved different subject
matters as they were concerned with the taxable income of different taxable years.235
[72]
Besides, there are substantial, not simply formal, distinctions between a minute
resolution and a decision. The constitutional requirement under the first paragraph of
Section 14, Article VIII of the Constitution that the facts and the law on which the
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judgment is based must be expressed clearly and distinctly applies only to decisions, not
to minute resolutions. A minute resolution is signed only by the clerk of court by
authority of the justices, unlike a decision. It does not require the certification of the
Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision.236[73] Indeed, as a rule, this Court lays down doctrines or principles of law
which constitute binding precedent in a decision duly signed by the members of the
Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners
liability for DST on its health care agreement was not the subject matter of G.R. No.
148680, petitioner cannot successfully invoke the minute resolution in that case (which is
not even binding precedent) in its favor. Nonetheless, in view of the reasons already
discussed, this does not detract in any way from the fact that petitioners health care
agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of
Section 185 of the NIRC and there was never any legislative intent to impose the same
on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its
coverage.
It is a matter of common knowledge that there is a great social need for adequate
medical services at a cost which the average wage earner can afford. HMOs arrange,
organize and manage health care treatment in the furtherance of the goal of providing a
more efficient and inexpensive health care system made possible by quantity purchasing
of services and economies of scale. They offer advantages over the pay-for-service
system (wherein individuals are charged a fee each time they receive medical services),
including the ability to control costs. They protect their members from exposure to the
high cost of hospitalization and other medical expenses brought about by a fluctuating
economy. Accordingly, they play an important role in society as partners of the State in
achieving its constitutional mandate of providing its citizens with affordable health
services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 237[74]
Its imposition will elevate the cost of health care services. This will in turn necessitate an
increase in the membership fees, resulting in either placing health services beyond the
reach of the ordinary wage earner or driving the industry to the ground. At the end of the
day, neither side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004
decision of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE.
The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED
and SET ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.

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SO ORDERED.