ADMINISTRATIVE LAW CASES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23825 December 24, 1965

EMMANUEL PELAEZ, petitioner,

vs.
THE AUDITOR GENERAL, respondent.

Zulueta, Gonzales, Paculdo and Associates for petitioner.

Office of the Solicitor General for respondent.

CONCEPCION, J.:

During the period from September 4 to October 29, 1964 the President of the Philippines,
purporting to act pursuant to Section 68 of the Revised Administrative Code, issued Executive
Orders Nos. 93 to 121, 124 and 126 to 129; creating thirty-three (33) municipalities enumerated
in the margin.1 Soon after the date last mentioned, or on November 10, 1964 petitioner
Emmanuel Pelaez, as Vice President of the Philippines and as taxpayer, instituted the present
special civil action, for a writ of prohibition with preliminary injunction, against the Auditor
General, to restrain him, as well as his representatives and agents, from passing in audit any
expenditure of public funds in implementation of said executive orders and/or any disbursement
by said municipalities.

Petitioner alleges that said executive orders are null and void, upon the ground that said Section
68 has been impliedly repealed by Republic Act No. 2370 and constitutes an undue delegation of
legislative power. Respondent maintains the contrary view and avers that the present action is
premature and that not all proper parties — referring to the officials of the new political
subdivisions in question — have been impleaded. Subsequently, the mayors of several
municipalities adversely affected by the aforementioned executive orders — because the latter
have taken away from the former the barrios composing the new political subdivisions —
intervened in the case. Moreover, Attorneys Enrique M. Fernando and Emma Quisumbing-
Fernando were allowed to and did appear as amici curiae.

The third paragraph of Section 3 of Republic Act No. 2370, reads:

Barrios shall not be created or their boundaries altered nor their names changed except
under the provisions of this Act or by Act of Congress.

Pursuant to the first two (2) paragraphs of the same Section 3:

All barrios existing at the time of the passage of this Act shall come under the provisions
hereof.

Upon petition of a majority of the voters in the areas affected, a new barrio may be
created or the name of an existing one may be changed by the provincial board of the
province, upon recommendation of the council of the municipality or municipalities in
which the proposed barrio is stipulated. The recommendation of the municipal council
shall be embodied in a resolution approved by at least two-thirds of the entire
 membership of the said council: Provided, however, That no new barrio may be created if
its population is less than five hundred persons.

Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may "not
be created or their boundaries altered nor their names changed" except by Act of Congress or of
the corresponding provincial board "upon petition of a majority of the voters in the areas affected"
and the "recommendation of the council of the municipality or municipalities in which the
proposed barrio is situated." Petitioner argues, accordingly: "If the President, under this new law,
cannot even create a barrio, can he create a municipality which is composed of several barrios,
since barrios are units of municipalities?"

Respondent answers in the affirmative, upon the theory that a new municipality can be created
without creating new barrios, such as, by placing old barrios under the jurisdiction of the new
municipality. This theory overlooks, however, the main import of the petitioner's argument, which
is that the statutory denial of the presidential authority to create a new barrio implies a negation
of the bigger power to create municipalities, each of which consists of several barrios. The
cogency and force of this argument is too obvious to be denied or even questioned. Founded
upon logic and experience, it cannot be offset except by a clear manifestation of the intent of
Congress to the contrary, and no such manifestation, subsequent to the passage of Republic Act
No. 2379, has been brought to our attention.

Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive
orders are based, provides:

The (Governor-General) President of the Philippines may by executive order define the
boundary, or boundaries, of any province, subprovince, municipality, [township] municipal
district, or other political subdivision, and increase or diminish the territory comprised
therein, may divide any province into one or more subprovinces, separate any political
division other than a province, into such portions as may be required, merge any of such
subdivisions or portions with another, name any new subdivision so created, and may
change the seat of government within any subdivision to such place therein as the public
welfare may require: Provided, That the authorization of the (Philippine Legislature)
Congress of the Philippines shall first be obtained whenever the boundary of any
province or subprovince is to be defined or any province is to be divided into one or more
subprovinces. When action by the (Governor-General) President of the Philippines in
accordance herewith makes necessary a change of the territory under the jurisdiction of
any administrative officer or any judicial officer, the (Governor-General) President of the
Philippines, with the recommendation and advice of the head of the Department having
executive control of such officer, shall redistrict the territory of the several officers
affected and assign such officers to the new districts so formed.

Upon the changing of the limits of political divisions in pursuance of the foregoing
authority, an equitable distribution of the funds and obligations of the divisions thereby
affected shall be made in such manner as may be recommended by the (Insular Auditor)
Auditor General and approved by the (Governor-General) President of the Philippines.

Respondent alleges that the power of the President to create municipalities under this section
does not amount to an undue delegation of legislative power, relying upon Municipality of
Cardona vs. Municipality of Binañgonan (36 Phil. 547), which, he claims, has settled it. Such
claim is untenable, for said case involved, not the creation of a new municipality, but a
mere transfer of territory — from an already existing municipality (Cardona) to another
municipality (Binañgonan), likewise, existing at the time of and prior to said transfer (See Gov't of
the P.I. ex rel. Municipality of Cardona vs. Municipality, of Binañgonan [34 Phil. 518, 519-5201)
— in consequence of the fixing and definition, pursuant to Act No. 1748, of the common
boundaries of two municipalities.
It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid
or settle conflicts of jurisdiction between adjoining municipalities, may partake of
an administrative nature — involving, as it does, the adoption of means and ways to carry into
effect the law creating said municipalities — the authority to create municipal corporations is
essentially legislative in nature. In the language of other courts, it is "strictly a legislative function"
(State ex rel. Higgins vs. Aicklen, 119 S. 425, January 2, 1959) or "solely and exclusively the
exercise of legislative power" (Udall vs. Severn, May 29, 1938, 79 P. 2d 347-349). As the
Supreme Court of Washington has put it (Territory ex rel. Kelly vs. Stewart, February 13, 1890,
23 Pac. 405, 409), "municipal corporations are purely the creatures of statutes."

Although1a Congress may delegate to another branch of the Government the power to fill in the
details in the execution, enforcement or administration of a law, it is essential, to forestall a
violation of the principle of separation of powers, that said law: (a) be complete in itself — it must
set forth therein the policy to be executed, carried out or implemented by the delegate2 — and (b)
fix a standard — the limits of which are sufficiently determinate or determinable — to which the
delegate must conform in the performance of his functions.2a Indeed, without a statutory
declaration of policy, the delegate would in effect, make or formulate such policy, which is the
essence of every law; and, without the aforementioned standard, there would be no means to
determine, with reasonable certainty, whether the delegate has acted within or beyond the scope
of his authority.2b Hence, he could thereby arrogate upon himself the power, not only to make the
law, but, also — and this is worse — to unmake it, by adopting measures inconsistent with the
end sought to be attained by the Act of Congress, thus nullifying the principle of separation of
powers and the system of checks and balances, and, consequently, undermining the very
foundation of our Republican system.

Section 68 of the Revised Administrative Code does not meet these well settled requirements for
a valid delegation of the power to fix the details in the enforcement of a law. It does not enunciate
any policy to be carried out or implemented by the President. Neither does it give a standard
sufficiently precise to avoid the evil effects above referred to. In this connection, we do not
overlook the fact that, under the last clause of the first sentence of Section 68, the President:

... may change the seat of the government within any subdivision to such place therein as
the public welfare may require.

It is apparent, however, from the language of this clause, that the phrase "as the public welfare
may require" qualified, not the clauses preceding the one just quoted, but only the place to which
the seat of the government may be transferred. This fact becomes more apparent when we
consider that said Section 68 was originally Section 1 of Act No. 1748,3 which provided that,
"whenever in the judgment of the Governor-General the public welfare requires, he may, by
executive order," effect the changes enumerated therein (as in said section 68), including the
change of the seat of the government "to such place ... as the public interest requires." The
opening statement of said Section 1 of Act No. 1748 — which was not included in Section 68 of
the Revised Administrative Code — governed the time at which, or the conditions under which,
the powers therein conferred could be exercised; whereas the last part of the first sentence of
said section referred exclusively to the place to which the seat of the government was to be
transferred.

At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if
we assumed that the phrase "as the public welfare may require," in said Section 68, qualifies all
other clauses thereof. It is true that in Calalang vs. Williams (70 Phil. 726) and People vs.
Rosenthal (68 Phil. 328), this Court had upheld "public welfare" and "public interest,"
respectively, as sufficient standards for a valid delegation of the authority to execute the law. But,
the doctrine laid down in these cases — as all judicial pronouncements — must be construed in
relation to the specific facts and issues involved therein, outside of which they do not constitute
precedents and have no binding effect.4 The law construed in the Calalang case conferred upon
the Director of Public Works, with the approval of the Secretary of Public Works and
Communications, the power to issue rules and regulations to promote safe transitupon national
roads and streets. Upon the other hand, the Rosenthal case referred to the authority of the
Insular Treasurer, under Act No. 2581, to issue and cancel certificates or permits for the
sale of speculative securities. Both cases involved grants to administrative officers of powers
related to the exercise of their administrative functions, calling for the determination of questions
of fact.

Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of
municipalities, is not an administrative function, but one which is essentially and eminently
legislative in character. The question of whether or not "public interest" demands the exercise of
such power is not one of fact. it is "purely a legislativequestion "(Carolina-Virginia Coastal
Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310-313, 315-318), or a political question
(Udall vs. Severn, 79 P. 2d. 347-349). As the Supreme Court of Wisconsin has aptly
characterized it, "the question as to whether incorporation is for the best interest of the
community in any case is emphatically a question of public policy and statecraft" (In re Village of
North Milwaukee, 67 N.W. 1033, 1035-1037).

For this reason, courts of justice have annulled, as constituting undue delegation of legislative
powers, state laws granting the judicial department, the power to determine whether certain
territories should be annexed to a particular municipality (Udall vs. Severn, supra, 258-359); or
vesting in a Commission the right to determine the plan and frame of government of proposed
villages and what functions shall be exercised by the same, although the powers and functions of
the village are specifically limited by statute (In re Municipal Charters, 86 Atl. 307-308); or
conferring upon courts the authority to declare a given town or village incorporated, and
designate its metes and bounds, upon petition of a majority of the taxable inhabitants thereof,
setting forth the area desired to be included in such village (Territory ex rel Kelly vs. Stewart, 23
Pac. 405-409); or authorizing the territory of a town, containing a given area and population, to
be incorporated as a town, on certain steps being taken by the inhabitants thereof and on certain
determination by a court and subsequent vote of the inhabitants in favor thereof, insofar as the
court is allowed to determine whether the lands embraced in the petition "ought justly" to be
included in the village, and whether the interest of the inhabitants will be promoted by such
incorporation, and to enlarge and diminish the boundaries of the proposed village "as justice may
require" (In re Villages of North Milwaukee, 67 N.W. 1035-1037); or creating a Municipal Board of
Control which shall determine whether or not the laying out, construction or operation of a toll
road is in the "public interest" and whether the requirements of the law had been complied with,
in which case the board shall enter an order creating a municipal corporation and fixing the name
of the same (Carolina-Virginia Coastal Highway vs. Coastal Turnpike Authority, 74 S.E. 2d. 310).

Insofar as the validity of a delegation of power by Congress to the President is concerned, the
case of Schechter Poultry Corporation vs. U.S. (79 L. Ed. 1570) is quite relevant to the one at
bar. The Schechter case involved the constitutionality of Section 3 of the National Industrial
Recovery Act authorizing the President of the United States to approve "codes of fair
competition" submitted to him by one or more trade or industrial associations or corporations
which "impose no inequitable restrictions on admission to membership therein and are truly
representative," provided that such codes are not designed "to promote monopolies or to
eliminate or oppress small enterprises and will not operate to discriminate against them, and will
tend to effectuate the policy" of said Act. The Federal Supreme Court held:

To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without
precedent. It supplies no standards for any trade, industry or activity. It does not
undertake to prescribe rules of conduct to be applied to particular states of fact
determined by appropriate administrative procedure. Instead of prescribing rules of
conduct, it authorizes the making of codes to prescribe them. For that legislative
undertaking, Sec. 3 sets up no standards, aside from the statement of the general aims
of rehabilitation, correction and expansion described in Sec. 1. In view of the scope of
that broad declaration, and of the nature of the few restrictions that are imposed, the
discretion of the President in approving or prescribing codes, and thus enacting laws for
the government of trade and industry throughout the country, is virtually unfettered. We
 think that the code making authority thus conferred is an unconstitutional delegation of
legislative power.

If the term "unfair competition" is so broad as to vest in the President a discretion that is "virtually
unfettered." and, consequently, tantamount to a delegation of legislative power, it is obvious that
"public welfare," which has even a broader connotation, leads to the same result. In fact, if the
validity of the delegation of powers made in Section 68 were upheld, there would no longer be
any legal impediment to a statutory grant of authority to the President to do anything which, in his
opinion, may be required by public welfare or public interest. Such grant of authority would be a
virtual abdication of the powers of Congress in favor of the Executive, and would bring about a
total collapse of the democratic system established by our Constitution, which it is the special
duty and privilege of this Court to uphold.

It may not be amiss to note that the executive orders in question were issued after the legislative
bills for the creation of the municipalities involved in this case had failed to pass Congress. A
better proof of the fact that the issuance of said executive orders entails the exercise of purely
legislative functions can hardly be given.

Again, Section 10 (1) of Article VII of our fundamental law ordains:

The President shall have control of all the executive departments, bureaus, or offices,
exercise general supervision over all local governments as may be provided by law, and
take care that the laws be faithfully executed.

The power of control under this provision implies the right of the President to interfere in the
exercise of such discretion as may be vested by law in the officers of the executive departments,
bureaus, or offices of the national government, as well as to act in lieu of such officers. This
power is denied by the Constitution to the Executive, insofar as local governments are
concerned. With respect to the latter, the fundamental law permits him to wield no more authority
than that of checking whether said local governments or the officers thereof perform their duties
as provided by statutory enactments. Hence, the President cannot interfere with local
governments, so long as the same or its officers act Within the scope of their authority. He may
not enact an ordinance which the municipal council has failed or refused to pass, even if it had
thereby violated a duty imposed thereto by law, although he may see to it that the corresponding
provincial officials take appropriate disciplinary action therefor. Neither may he vote, set aside or
annul an ordinance passed by said council within the scope of its jurisdiction, no matter how
patently unwise it may be. He may not even suspend an elective official of a regular municipality
or take any disciplinary action against him, except on appeal from a decision of the
corresponding provincial board.5

Upon the other hand if the President could create a municipality, he could, in effect, remove any
of its officials, by creating a new municipality and including therein the barrio in which the official
concerned resides, for his office would thereby become vacant.6 Thus, by merely brandishing the
power to create a new municipality (if he had it), without actually creating it, he could compel
local officials to submit to his dictation, thereby, in effect, exercising over them the power of
control denied to him by the Constitution.

Then, also, the power of control of the President over executive departments, bureaus or offices
implies no more than the authority to assume directly the functions thereof or to interfere in the
exercise of discretion by its officials. Manifestly, such control does not include the authority either
to abolish an executive department or bureau, or to create a new one. As a consequence, the
alleged power of the President to create municipal corporations would necessarily connote the
exercise by him of an authority even greater than that of control which he has over the executive
departments, bureaus or offices. In other words, Section 68 of the Revised Administrative Code
does not merely fail to comply with the constitutional mandate above quoted. Instead of giving
the President less power over local governments than that vested in him over the executive
departments, bureaus or offices, it reverses the process and does the exact opposite, by
conferring upon him more power over municipal corporations than that which he has over said
executive departments, bureaus or offices.

In short, even if it did entail an undue delegation of legislative powers, as it certainly does, said
Section 68, as part of the Revised Administrative Code, approved on March 10, 1917, must be
deemed repealed by the subsequent adoption of the Constitution, in 1935, which is utterly
incompatible and inconsistent with said statutory enactment.7

There are only two (2) other points left for consideration, namely, respondent's claim (a) that "not
all the proper parties" — referring to the officers of the newly created municipalities — "have
been impleaded in this case," and (b) that "the present petition is premature."

As regards the first point, suffice it to say that the records do not show, and the parties do not
claim, that the officers of any of said municipalities have been appointed or elected and assumed
office. At any rate, the Solicitor General, who has appeared on behalf of respondent Auditor
General, is the officer authorized by law "to act and represent the Government of the Philippines,
its offices and agents, in any official investigation, proceeding or matter requiring the services of
a lawyer" (Section 1661, Revised Administrative Code), and, in connection with the creation of
the aforementioned municipalities, which involves a political, not proprietary, function, said local
officials, if any, are mere agents or representatives of the national government. Their interest in
the case at bar has, accordingly, been, in effect, duly represented.8

With respect to the second point, respondent alleges that he has not as yet acted on any of the
executive order & in question and has not intimated how he would act in connection therewith. It
is, however, a matter of common, public knowledge, subject to judicial cognizance, that the
President has, for many years, issued executive orders creating municipal corporations and that
the same have been organized and in actual operation, thus indicating, without peradventure of
doubt, that the expenditures incidental thereto have been sanctioned, approved or passed in
audit by the General Auditing Office and its officials. There is no reason to believe, therefore, that
respondent would adopt a different policy as regards the new municipalities involved in this case,
in the absence of an allegation to such effect, and none has been made by him.

WHEREFORE, the Executive Orders in question are hereby declared null and void ab initio and
the respondent permanently restrained from passing in audit any expenditure of public funds in
implementation of said Executive Orders or any disbursement by the municipalities above
referred to. It is so ordered.

Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Barrera and Dizon, JJ., concur.

Zaldivar, J., took no part.

Separate Opinions

BENGZON, J.P., J., concurring and dissenting:

A sign of progress in a developing nation is the rise of new municipalities. Fostering their rapid
growth has long been the aim pursued by all three branches of our Government.

So it was that the Governor-General during the time of the Jones Law was given authority by the
Legislature (Act No. 1748) to act upon certain details with respect to said local governments,
such as fixing of boundaries, subdivisions and mergers. And the Supreme Court, within the
framework of the Jones Law, ruled in 1917 that the execution or implementation of such details,
did not entail abdication of legislative power (Government vs. Municipality of Binañgonan, 34
Phil. 518; Municipality of Cardona vs. Municipality of Binañgonan, 36 Phil. 547). Subsequently,
Act No. 1748's aforesaid statutory authorization was embodied in Section 68 of the Revised
Administrative Code. And Chief Executives since then up to the present continued to avail of said
provision, time and again invoking it to issue executive orders providing for the creation of
municipalities.

From September 4, 1964 to October 29, 1964 the President of the Philippines issued executive
orders to create thirty-three municipalities pursuant to Section 68 of the Revised Administrative
Code. Public funds thereby stood to be disbursed in implementation of said executive orders.

Suing as private citizen and taxpayer, Vice President Emmanuel Pelaez filed in this Court a
petition for prohibition with preliminary injunction against the Auditor General. It seeks to restrain
the respondent or any person acting in his behalf, from passing in audit any expenditure of public
funds in implementation of the executive orders aforementioned.

Petitioner contends that the President has no power to create a municipality by executive order.
It is argued that Section 68 of the Revised Administrative Code of 1917, so far as it purports to
grant any such power, is invalid or, at the least, already repealed, in light of the Philippine
Constitution and Republic Act 2370 (The Barrio Charter).

Section 68 is again reproduced hereunder for convenience:

SEC. 68. General authority of [Governor-General) President of the Philippines to fix

boundaries and make new subdivisions. — The [Governor-General] President of the
Philippines may by executive order define the boundary, or boundaries, of any province,
subprovince, municipality, [township] municipal district, or other political subdivision, and
increase or diminish the territory comprised therein, may divide any province into one or
more subprovinces, separate any political division other than a province, into such
portions as may be required, merge any of such subdivisions or portions with another,
name any new subdivision so created, and may change the seat of government within
any subdivision to such place therein as the public welfare may require: Provided, That
the authorization of the [Philippine Legislature] Congress of the Philippines shall first be
obtained whenever the boundary of any province or subprovince is to be defined or any
province is to be divided into one or more subprovinces. When action by the [Governor-
General] President of the Philippines in accordance herewith makes necessary a change
of the territory under the jurisdiction of any administrative officer or any judicial officer, the
[Governor-General] President of the Philippines, with the recommendation and advice of
the head of the Department having executive control of such officer, shall redistrict the
territory of the several officers to the new districts so formed.

Upon the changing of the limits of political divisions in pursuance of the foregoing
authority, an equitable distribution of the funds and obligations of the divisions thereby
affected shall be made in such manner as may be recommended by the [Insular Auditor]
Auditor General and approved by the [Governor-General] President of the Philippines.

From such working I believe that power to create a municipality is included: to "separate any
political division other than a province, into such portions as may be required, merge any such
subdivisions or portions with another, name any new subdivision so created." The issue,
however, is whether the legislature can validly delegate to the Executive such power.

The power to create a municipality is legislative in character. American authorities have therefore
favored the view that it cannot be delegated; that what is delegable is not the power to create
municipalities but only the power to determine the existence of facts under which creation of a
municipality will result (37 Am. Jur. 628).
The test is said to lie in whether the statute allows any discretion on the delegate as to whether
the municipal corporation should be created. If so, there is an attempted delegation of legislative
power and the statute is invalid (Ibid.). Now Section 68 no doubt gives the President such
discretion, since it says that the President "may by executive order" exercise the powers therein
granted. Furthermore, Section 5 of the same Code states:

SEC. 5. Exercise of administrative discretion — The exercise of the permissive powers of

all executive or administrative officers and bodies is based upon discretion, and when
such officer or body is given authority to do any act but not required to do such act, the
doing of the same shall be dependent on a sound discretion to be exercised for the good
of the service and benefit of the public, whether so expressed in the statute giving the
authority or not.

Under the prevailing rule in the United States — and Section 68 is of American origin — the
provision in question would be an invalid attempt to delegate purely legislative powers, contrary
to the principle of separation of powers.

It is very pertinent that Section 68 should be considered with the stream of history in mind. A
proper knowledge of the past is the only adequate background for the present. Section 68 was
adopted half a century ago. Political change, two world wars, the recognition of our
independence and rightful place in the family of nations, have since taken place. In 1917 the
Philippines had for its Organic Act the Jones Law. And under the setup ordained therein no strict
separation of powers was adhered to. Consequently, Section 68 was not constitutionally
objectionable at the time of its enactment.

The advent of the Philippine Constitution in 1935 however altered the situation. For not only was
separation of powers strictly ordained, except only in specific instances therein provided, but the
power of the Chief Executive over local governments suffered an explicit reduction.

Formerly, Section 21 of the Jones Law provided that the Governor-General "shall have general
supervision and control of all the departments and bureaus of the government in the Philippine
Islands." Now Section 10 (1), Article VII of the Philippine Constitution provides: "The President
shall have control of all the executive departments, bureaus, or offices, exercise general
supervision over all local governments as may be provided by law, and take care that the laws be
faithfully executed.

In short, the power of control over local governments had now been taken away from the Chief
Executive. Again, to fully understand the significance of this provision, one must trace its
development and growth.

As early as April 7, 1900 President McKinley of the United States, in his Instructions to the
Second Philippine Commission, laid down the policy that our municipal governments should be
"subject to the least degree of supervision and control" on the part of the national government.
Said supervision and control was to be confined within the "narrowest limits" or so much only as
"may be necessary to secure and enforce faithful and efficient administration by local officers."
And the national government "shall have no direct administration except of matters of purely
general concern." (See Hebron v. Reyes, L-9158, July 28, 1958.)

All this had one aim, to enable the Filipinos to acquire experience in the art of self-government,
with the end in view of later allowing them to assume complete management and control of the
administration of their local affairs. Such aim is the policy now embodied in Section 10 (1), Article
VII of the Constitution (Rodriguez v. Montinola, 50 O.G. 4820).

It is the evident decree of the Constitution, therefore, that the President shall have no power of
control over local governments. Accordingly, Congress cannot by law grant him such power
(Hebron v. Reyes, supra). And any such power formerly granted under the Jones Law thereby
became unavoidably inconsistent with the Philippine Constitution.

It remains to examine the relation of the power to create and the power to control local
governments. Said relationship has already been passed upon by this Court in Hebron v.
Reyes, supra. In said case, it was ruled that the power to control is an incident of the power to
create or abolish municipalities. Respondent's view, therefore, that creating municipalities and
controlling their local governments are "two worlds apart," is untenable. And since as stated, the
power to control local governments can no longer be conferred on or exercised by the President,
it follows a fortiori that the power to create them, all the more cannot be so conferred or
exercised.

I am compelled to conclude, therefore, that Section 10 (1), Article VII of the Constitution has
repealed Section 68 of the Revised Administrative Code as far as the latter empowers the
President to create local governments. Repeal by the Constitution of prior statutes inconsistent
with it has already been sustained in De los Santos v. MaIlare, 87 Phil. 289. And it was there
held that such repeal differs from a declaration of unconstitutionality of a posterior legislation, so
much so that only a majority vote of the Court is needed to sustain a finding of repeal.

Since the Constitution repealed Section 68 as far back as 1935, it is academic to ask whether
Republic Act 2370 likewise has provisions in conflict with Section 68 so as to repeal it. Suffice it
to state, at any rate, that statutory prohibition on the President from creating a barrio does not, in
my opinion, warrant the inference of statutory prohibition for creating a municipality. For although
municipalities consist of barrios, there is nothing in the statute that would preclude creation of
new municipalities out of pre-existing barrios.

It is not contrary to the logic of local autonomy to be able to create larger political units and
unable to create smaller ones. For as long ago observed in President McKinley's Instructions to
the Second Philippine Commission, greater autonomy is to be imparted to the smaller of the two
political units. The smaller the unit of local government, the lesser is the need for the national
government's intervention in its political affairs. Furthermore, for practical reasons, local
autonomy cannot be given from the top downwards. The national government, in such a case,
could still exercise power over the supposedly autonomous unit, e.g., municipalities, by
exercising it over the smaller units that comprise them, e.g., the barrios. A realistic program of
decentralization therefore calls for autonomy from the bottom upwards, so that it is not surprising
for Congress to deny the national government some power over barrios without denying it over
municipalities. For this reason, I disagree with the majority view that because the President could
not create a barrio under Republic Act 2370, a fortiori he cannot create a municipality.

It is my view, therefore, that the Constitution, and not Republic Act 2370, repealed Section 68 of
the Revised Administrative Code's provision giving the President authority to create local
governments. And for this reason I agree with the ruling in the majority opinion that the executive
orders in question are null and void.

In thus ruling, the Court is but sustaining the fulfillment of our historic desire to be free and
independent under a republican form of government, and exercising a function derived from the
very sovereignty that it upholds. Executive orders declared null and void.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 162784 June 22, 2007

NATIONAL HOUSING AUTHORITY, petitioner,
vs.
SEGUNDA ALMEIDA, COURT OF APPEALS, and RTC of SAN PEDRO, LAGUNA, BR.
31, respondents.

DECISION

PUNO, C.J.:

This is a Petition for Review on Certiorari under Rule 45 filed by the National Housing Authority
(NHA) against the Court of Appeals, the Regional Trial Court of San Pedro Laguna, Branch 31,
and private respondent Segunda Almeida.

On June 28, 1959, the Land Tenure Administration (LTA) awarded to Margarita Herrera several
portions of land which are part of the Tunasan Estate in San Pedro, Laguna. The award is
evidenced by an Agreement to Sell No. 3787.1 By virtue of Republic Act No. 3488, the LTA was
succeeded by the Department of Agrarian Reform (DAR). On July 31, 1975, the DAR was
succeeded by the NHA by virtue of Presidential Decree No. 757.2 NHA as the successor agency
of LTA is the petitioner in this case.

The records show that Margarita Herrera had two children: Beatriz Herrera-Mercado (the mother
of private respondent) and Francisca Herrera. Beatriz Herrera-Mercado predeceased her mother
and left heirs.

Margarita Herrera passed away on October 27, 1971.3

On August 22, 1974, Francisca Herrera, the remaining child of the late Margarita Herrera
executed a Deed of Self-Adjudication claiming that she is the only remaining relative, being the
sole surviving daughter of the deceased. She also claimed to be the exclusive legal heir of the
late Margarita Herrera.

The Deed of Self-Adjudication was based on a Sinumpaang Salaysay dated October 7, 1960,
allegedly executed by Margarita Herrera. The pertinent portions of which are as follows:

SINUMPAANG SALAYSAY

SA SINO MAN KINAUUKULAN;

Akong si MARGARITA HERRERA, Filipina, may 83 taong gulang, balo, kasalukuyang

naninirahan at tumatanggap ng sulat sa Nayon ng San Vicente, San Pedro Laguna, sa
ilalim ng panunumpa ay malaya at kusang loob kong isinasaysay at pinagtitibay itong
mga sumusunod:

1. Na ako ay may tinatangkilik na isang lagay na lupang tirikan (SOLAR), tumatayo sa

Nayon ng San Vicente, San Pedro, Laguna, mayroong PITONG DAAN AT PITUMPU'T
ISANG (771) METRONG PARISUKAT ang laki, humigit kumulang, at makikilala sa tawag
na Lote 17, Bloke 55, at pag-aari ng Land Tenure Administration;

2. Na ang nasabing lote ay aking binibile, sa pamamagitan ng paghuhulog sa Land

Tenure Administration, at noong ika 30 ng Julio, 1959, ang Kasunduang sa Pagbibile
(AGREEMENT TO SELL No. 3787) ay ginawa at pinagtibay sa Lungsod ng Maynila, sa
harap ng Notario Publico na si G. Jose C. Tolosa, at lumalabas sa kaniyang Libro
Notarial bilang Documento No. 13, Pagina No. 4; Libro No. IV, Serie ng 1959;
 3. Na dahilan sa ako'y matanda na at walang ano mang hanap buhay, ako ay nakatira at
pinagsisilbihan nang aking anak na si Francisca Herrera, at ang tinitirikan o solar na
nasasabi sa unahan ay binabayaran ng kaniyang sariling cuarta sa Land Tenure
Administration;

4. Na alang-alang sa nasasaysay sa unahan nito, sakaling ako'y bawian na ng Dios ng

aking buhay, ang lupang nasasabi sa unahan ay aking ipinagkakaloob sa nasabi kong
anak na FRANCISCA HERRERA, Filipina, nasa katamtamang gulang, kasal kay Macario
Berroya, kasalukuyang naninirahan at tumatanggap ng sulat sa Nayong ng San Vicente,
San Pedro Laguna, o sa kaniyang mga tagapagmana at;

5. Na HINIHILING KO sa sino man kinauukulan, na sakaling ako nga ay bawian na ng

Dios ng aking buhay ay KILALANIN, IGALANG at PAGTIBAYIN ang nilalaman sa
pangalan ng aking anak na si Francisca Herrera ang loteng nasasabi sa unahan.

SA KATUNAYAN NG LAHAT, ako ay nag-didiit ng hinlalaki ng kanan kong kamay sa

ibaba nito at sa kaliwang gilid ng unang dahon, dito sa Lungsod ng Maynila, ngayong ika
7 ng Octubre, 1960.4

The said document was signed by two witnesses and notarized. The witnesses signed at the left-
hand side of both pages of the document with the said document having 2 pages in total.
Margarita Herrera placed her thumbmark5above her name in the second page and at the left-
hand margin of the first page of the document.

The surviving heirs of Beatriz Herrera-Mercado filed a case for annulment of the Deed of Self-
Adjudication before the then Court of First Instance of Laguna, Branch 1 in Binan, Laguna (now,
Regional Trial Court Branch 25). The case for annulment was docketed as Civil Case No. B-
1263.6

On December 29, 1980, a Decision in Civil Case No. B-1263 (questioning the Deed of Self-
Adjudication) was rendered and the deed was declared null and void.7

During trial on the merits of the case assailing the Deed of Self-Adjudication, Francisca Herrera
filed an application with the NHA to purchase the same lots submitting therewith a copy of the
"Sinumpaang Salaysay" executed by her mother. Private respondent Almeida, as heir of Beatriz
Herrera-Mercado, protested the application.

In a Resolution8 dated February 5, 1986, the NHA granted the application made by Francisca
Herrera, holding that:

From the evidence of the parties and the records of the lots in question, we gathered the
following facts: the lots in question are portions of the lot awarded and sold to the late
Margarita Herrera on July 28, 1959 by the defunct Land Tenure Administration;
protestant is the daughter of the late Beatriz Herrera Mercado who was the sister of the
protestee; protestee and Beatriz are children of the late Margarita Herrera; Beatriz was
the transferee from Margarita of Lot Nos. 45, 46, 47, 48 and 49, Block 50; one of the lots
transferred to Beatriz, e.g. Lot 47, with an area of 148 square meters is in the name of
the protestant; protestant occupied the lots in question with the permission of the
protestee; protestee is a resident of the Tunasan Homesite since birth; protestee was
born on the lots in question; protestee left the place only after marriage but resided in a
lot situated in the same Tunasan Homesite; her (protestee) son Roberto Herrera has
been occupying the lots in question; he has been there even before the death of the late
Margarita Herrera; on October 7, 1960, Margarita Herrera executed a "Sinumpaang
Salaysay" whereby she waived or transferred all her rights and interest over the
lots in question in favor of the protestee; and protestee had paid the lots in question in
full on March 8, 1966 with the defunct Land Tenure Administration.
This Office finds that protestee has a better preferential right to purchase the lots in question.9

Private respondent Almeida appealed to the Office of the President.10 The NHA Resolution was
affirmed by the Office of the President in a Decision dated January 23, 1987.11

On February 1, 1987, Francisca Herrera died. Her heirs executed an extrajudicial settlement of
her estate which they submitted to the NHA. Said transfer of rights was approved by the
NHA.12 The NHA executed several deeds of sale in favor of the heirs of Francisca Herrera and
titles were issued in their favor.13 Thereafter, the heirs of Francisca Herrera directed Segunda
Mercado-Almeida to leave the premises that she was occupying.

Feeling aggrieved by the decision of the Office of the President and the resolution of the NHA,
private respondent Segunda Mercado-Almeida sought the cancellation of the titles issued in
favor of the heirs of Francisca. She filed a Complaint on February 8, 1988, for "Nullification of
Government Lot's Award," with the Regional Trial Court of San Pedro, Laguna, Branch 31.

In her complaint, private respondent Almeida invoked her forty-year occupation of the disputed
properties, and re-raised the fact that Francisca Herrera's declaration of self-adjudication has
been adjudged as a nullity because the other heirs were disregarded. The defendant heirs of
Francisca Herrera alleged that the complaint was barred by laches and that the decision of the
Office of the President was already final and executory.14 They also contended that the transfer
of purchase of the subject lots is perfectly valid as the same was supported by a consideration
and that Francisca Herrera paid for the property with the use of her own money.15 Further, they
argued that plaintiff's occupation of the property was by mere tolerance and that they had been
paying taxes thereon.16

The Regional Trial Court issued an Order dated June 14, 1988 dismissing the case for lack of
jurisdiction.17 The Court of Appeals in a Decision dated June 26, 1989 reversed and held that the
Regional Trial Court had jurisdiction to hear and decide the case involving "title and possession
to real property within its jurisdiction."18 The case was then remanded for further proceedings on
the merits.

A pre-trial was set after which trial ensued.

On March 9, 1998, the Regional Trial Court rendered a Decision setting aside the resolution of
the NHA and the decision of the Office of the President awarding the subject lots in favor of
Francisca Herrera. It declared the deeds of sale executed by NHA in favor of Herrera's heirs null
and void. The Register of Deeds of Laguna, Calamba Branch was ordered to cancel the Transfer
Certificate of Title issued. Attorney's fees were also awarded to private respondent.

The Regional Trial Court ruled that the "Sinumpaang Salaysay" was not an assignment of rights
but a disposition of property which shall take effect upon death. It then held that the said
document must first be submitted to probate before it can transfer property.

Both the NHA and the heirs of Francisca Herrera filed their respective motions for
reconsideration which were both denied on July 21, 1998 for lack of merit. They both appealed to
the Court of Appeals. The brief for the heirs of Francisca Herrera was denied admission by the
appellate court in a Resolution dated June 14, 2002 for being a "carbon copy" of the brief
submitted by the NHA and for being filed seventy-nine (79) days late.

On August 28, 2003, the Court of Appeals affirmed the decision of the Regional Trial Court, viz:

There is no dispute that the right to repurchase the subject lots was awarded to Margarita
Herrera in 1959. There is also no dispute that Margarita executed a "Sinumpaang
Salaysay" on October 7, 1960. Defendant NHA claims that the "Sinumpaang Salaysay"
is, in effect, a waiver or transfer of rights and interest over the subject lots in favor of
 Francisca Herrera. This Court is disposed to believe otherwise. After a perusal of the
"Sinumpaang Salaysay" of Margarita Herrera, it can be ascertained from its wordings
taken in their ordinary and grammatical sense that the document is a simple disposition
of her estate to take effect after her death. Clearly the Court finds that the "Sinumpaang
Salaysay" is a will of Margarita Herrera. Evidently, if the intention of Margarita Herrera
was to merely assign her right over the lots to her daughter Francisca Herrera, she
should have given her "Sinumpaang Salaysay" to the defendant NHA or to Francisca
Herrera for submission to the defendant NHA after the full payment of the purchase price
of the lots or even prior thereto but she did not. Hence it is apparent that she intended the
"Sinumpaang Salaysay" to be her last will and not an assignment of rights as what the
NHA in its resolution would want to make it appear. The intention of Margarita Herrera
was shared no less by Francisca Herrera who after the former's demise executed on
August 22, 1974 a Deed of Self-Adjudication claiming that she is her sole and legal heir.
It was only when said deed was questioned in court by the surviving heirs of Margarita
Herrera's other daughter, Beatriz Mercado, that Francisca Herrera filed an application to
purchase the subject lots and presented the "Sinumpaang Salaysay" stating that it is a
deed of assignment of rights.19

The Court of Appeals ruled that the NHA acted arbitrarily in awarding the lots to the heirs of
Francisca Herrera. It upheld the trial court ruling that the "Sinumpaang Salaysay" was not an
assignment of rights but one that involved disposition of property which shall take effect upon
death. The issue of whether it was a valid will must first be determined by probate.

Petitioner NHA elevated the case to this Court.

Petitioner NHA raised the following issues:

A. WHETHER OR NOT THE RESOLUTION OF THE NHA AND THE DECISION OF

THE OFFICE OF THE PRESIDENT HAVE ATTAINED FINALITY, AND IF SO,
WHETHER OR NOT THE PRINCIPLE OF ADMINISTRATIVE RES JUDICATA BARS
THE COURT FROM FURTHER DETERMINING WHO BETWEEN THE PARTIES HAS
PREFERENTIAL RIGHTS FOR AWARD OVER THE SUBJECT LOTS;

B. WHETHER OR NOT THE COURT HAS JURISDICTION TO MAKE THE AWARD ON

THE SUBJECT LOTS; AND

C. WHETHER OR NOT THE AWARD OF THE SUBJECT LOTS BY THE NHA IS

ARBITRARY.

We rule for the respondents.

Res judicata is a concept applied in review of lower court decisions in accordance with the
hierarchy of courts. But jurisprudence has also recognized the rule of administrative res judicata:
"the rule which forbids the reopening of a matter once judicially determined by competent
authority applies as well to the judicial and quasi-judicial facts of public, executive or
administrative officers and boards acting within their jurisdiction as to the judgments of courts
having general judicial powers . . . It has been declared that whenever final adjudication of
persons invested with power to decide on the property and rights of the citizen is examinable by
the Supreme Court, upon a writ of error or a certiorari, such final adjudication may be pleaded
as res judicata."20 To be sure, early jurisprudence were already mindful that the doctrine of res
judicata cannot be said to apply exclusively to decisions rendered by what are usually
understood as courts without unreasonably circumscribing the scope thereof and that the more
equitable attitude is to allow extension of the defense to decisions of bodies upon whom judicial
powers have been conferred.
In Ipekdjian Merchandising Co., Inc. v. Court of Tax Appeals,21 the Court held that the rule
prescribing that "administrative orders cannot be enforced in the courts in the absence of an
express statutory provision for that purpose" was relaxed in favor of quasi-judicial agencies.

In fine, it should be remembered that quasi-judicial powers will always be subject to true judicial
power—that which is held by the courts. Quasi-judicial power is defined as that power of
adjudication of an administrative agency for the "formulation of a final order."22 This function
applies to the actions, discretion and similar acts of public administrative officers or bodies who
are required to investigate facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise discretion of a judicial
nature.23 However, administrative agencies are not considered courts, in their strict sense. The
doctrine of separation of powers reposes the three great powers into its three (3) branches—the
legislative, the executive, and the judiciary. Each department is co-equal and coordinate, and
supreme in its own sphere. Accordingly, the executive department may not, by its own fiat,
impose the judgment of one of its agencies, upon the judiciary. Indeed, under the expanded
jurisdiction of the Supreme Court, it is empowered to "determine whether or not there has been
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government."24 Courts have an expanded role under the 1987 Constitution
in the resolution of societal conflicts under the grave abuse clause of Article VIII which includes
that duty to check whether the other branches of government committed an act that falls under
the category of grave abuse of discretion amounting to lack or excess of jurisdiction.25

Next, petitioner cites Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of
198026 where it is therein provided that the Intermediate Appellate Court (now, Court of Appeals)
shall exercise the "exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders or awards, of the Regional Trial Courts and Quasi-Judicial agencies, instrumentalities,
boards or commissions, except those falling within the jurisdiction of the Supreme Court in
accordance with the Constitution…"27 and contends that the Regional Trial Court has no
jurisdiction to rule over awards made by the NHA.

Well-within its jurisdiction, the Court of Appeals, in its decision of August 28, 2003, already ruled
that the issue of the trial court's authority to hear and decide the instant case has already been
settled in the decision of the Court of Appeals dated June 26, 1989 (which has become final and
executory on August 20, 1989 as per entry of judgment dated October 10, 1989).28 We find no
reason to disturb this ruling. Courts are duty-bound to put an end to controversies. The system of
judicial review should not be misused and abused to evade the operation of a final and executory
judgment.29 The appellate court's decision becomes the law of the case which must be adhered
to by the parties by reason of policy.30

Next, petitioner NHA contends that its resolution was grounded on meritorious grounds when it
considered the application for the purchase of lots. Petitioner argues that it was the daughter
Francisca Herrera who filed her application on the subject lot; that it considered the respective
application and inquired whether she had all the qualifications and none of the disqualifications of
a possible awardee. It is the position of the petitioner that private respondent possessed all the
qualifications and none of the disqualifications for lot award and hence the award was not done
arbitrarily.

The petitioner further argues that assuming that the "Sinumpaang Salaysay" was a will, it could
not bind the NHA.31That, "insofar as [the] NHA is concerned, it is an evidence that the subject lots
were indeed transferred by Margarita Herrera, the original awardee, to Francisca Herrera was
then applying to purchase the same before it."32

We are not impressed. When the petitioner received the "Sinumpaang Salaysay," it should have
noted that the effectivity of the said document commences at the time of death of the author of
the instrument; in her words "sakaling ako'y bawian na ng Dios ng aking buhay…" Hence, in
such period, all the interests of the person should cease to be hers and shall be in the
possession of her estate until they are transferred to her heirs by virtue of Article 774 of the Civil
Code which provides that:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance, of a person are transmitted
through his death to another or others either by his will or by operation of law.33

By considering the document, petitioner NHA should have noted that the original applicant has
already passed away. Margarita Herrera passed away on October 27, 1971.34 The NHA issued
its resolution35 on February 5, 1986. The NHA gave due course to the application made by
Francisca Herrera without considering that the initial applicant's death would transfer all her
property, rights and obligations to the estate including whatever interest she has or may have
had over the disputed properties. To the extent of the interest that the original owner had over
the property, the same should go to her estate. Margarita Herrera had an interest in the property
and that interest should go to her estate upon her demise so as to be able to properly distribute
them later to her heirs—in accordance with a will or by operation of law.

The death of Margarita Herrera does not extinguish her interest over the property. Margarita
Herrera had an existing Contract to Sell36 with NHA as the seller. Upon Margarita Herrera's
demise, this Contract to Sell was neither nullified nor revoked. This Contract to Sell was an
obligation on both parties—Margarita Herrera and NHA. Obligations are
transmissible.37 Margarita Herrera's obligation to pay became transmissible at the time of her
death either by will or by operation of law.

If we sustain the position of the NHA that this document is not a will, then the interests of the
decedent should transfer by virtue of an operation of law and not by virtue of a resolution by the
NHA. For as it stands, NHA cannot make another contract to sell to other parties of a property
already initially paid for by the decedent. Such would be an act contrary to the law on succession
and the law on sales and obligations.38

When the original buyer died, the NHA should have considered the estate of the decedent as the
next "person"39likely to stand in to fulfill the obligation to pay the rest of the purchase price. The
opposition of other heirs to the repurchase by Francisca Herrera should have put the NHA on
guard as to the award of the lots. Further, the Decision in the said Civil Case No. B-1263
(questioning the Deed of Self-Adjudication) which rendered the deed therein null and
void40 should have alerted the NHA that there are other heirs to the interests and properties of
the decedent who may claim the property after a testate or intestate proceeding is concluded.
The NHA therefore acted arbitrarily in the award of the lots.

We need not delve into the validity of the will. The issue is for the probate court to determine. We
affirm the Court of Appeals and the Regional Trial Court which noted that it has an element of
testamentary disposition where (1) it devolved and transferred property; (2) the effect of which
shall transpire upon the death of the instrument maker.41

IN VIEW WHEREOF, the petition of the National Housing Authority is DENIED. The decision of
the Court of Appeals in CA-G.R. No. 68370 dated August 28, 2003, affirming the decision of the
Regional Trial Court of San Pedro, Laguna in Civil Case No. B-2780 dated March 9, 1998, is
hereby AFFIRMED.

No cost.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 THIRD DIVISION

G. R. No. 174350 August 13, 2008

SPOUSES BERNYL BALANGAUAN & KATHERENE BALANGAUAN, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, SPECIAL NINETEENTH (19TH) DIVISION, CEBU CITY
& THE HONGKONG AND SHANGHAI BANKING CORPORATION, LTD., respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Certiorari under Rule 65 of the Revised Rules of Court assailing the 28
April 2006 Decision1 and 29 June 2006 Resolution2 of the Court of Appeals in CA-G.R. CEB-SP No.
00068, which annulled and set aside the 6 April 20043 and 30 August 20044 Resolutions of the
Department of Justice (DOJ) in I.S. No. 02-9230-I, entitled "The Hongkong and Shanghai Banking
Corporation v. Katherine Balangauan, et al." The twin resolutions of the DOJ affirmed, in essence,
the Resolution of the Office of the City Prosecutor,5 Cebu City, which dismissed for lack of probable
cause the criminal complaint for Estafa and/or Qualified Estafa, filed against petitioner-Spouses
Bernyl Balangauan (Bernyl) and Katherene Balangauan (Katherene) by respondent Hong Kong and
Shanghai Banking Corporation, Ltd. (HSBC).

In this Petition for Certiorari, petitioners Bernyl and Katherene urge this Court to "reverse and set
aside the Decision of the Court of Appeals, Special nineteenth (sic) [19 th] division (sic), Cebu City (sic)
and accordingly, dismiss the complaint against the [petitioners Bernyl and Katherene] in view of the
absence of probable cause to warrant the filing of an information before the Court and for utter lack of
merit."6

As culled from the records, the antecedents of the present case are as follows:

Petitioner Katherene was a Premier Customer Services Representative (PCSR) of respondent bank,
HSBC. As a PCSR, she managed the accounts of HSBC depositors with Premier Status. One such
client and/or depositor handled by her was Roger Dwayne York (York).

York maintained several accounts with respondent HSBC. Sometime in April 2002, he went to
respondent HSBC’s Cebu Branch to transact with petitioner Katherene respecting his Dollar and Peso
Accounts. Petitioner Katherene being on vacation at the time, York was attended to by another
PCSR. While at the bank, York inquired about the status of his time deposit in the amount
of P2,500,000.00. The PCSR representative who attended to him, however, could not find any record
of said placement in the bank’s data base.

York adamantly insisted, though, that through petitioner Katherene, he made a placement of the
aforementioned amount in a higher-earning time deposit. York further elaborated that petitioner
Katherene explained to him that the alleged higher-earning time deposit scheme was supposedly
being offered to Premier clients only. Upon further scrutiny and examination, respondent HSBC’s
bank personnel discovered that: (1) on 18 January 2002, York pre-terminated a P1,000,000.00 time
deposit; (2) there were cash movement tickets and withdrawal slips all signed by York for the amount
of P1,000,000.00; and (3) there were regular movements in York’s accounts, i.e., beginning in the
month of January 2002, monthly deposits in the amount of P12,500.00 and P8,333.33 were made,
which York denied ever making, but surmised were the regular interest earnings from the placement
of the P2,500,000.00.

It was likewise discovered that the above-mentioned deposits were transacted using petitioner
Katherene’s computer and work station using the code or personal password "CEO8." The
significance of code "CEO8," according to the bank personnel of respondent HSBC, is that, "[i]t is only
Ms. Balangauan who can transact from [the] computer in the work station CEO-8, as she is provided
with a swipe card which she keeps sole custody of and only she can use, and which she utilizes for
purposes of performing bank transactions from that computer."7

Bank personnel of respondent HSBC likewise recounted in their affidavits that prior to the filing of the
complaint for estafa and/or qualified estafa, they were in contact with petitioners Bernyl and
Katherene. Petitioner Bernyl supposedly met with them on two occasions. At first he disavowed any
knowledge regarding the whereabouts of York’s money but later on admitted that he knew that his
wife invested the funds with Shell Company. He likewise admitted that he made the phone banking
deposit to credit York’s account with the P12,500.00 and the P8,333.33 using their landline telephone.
With respect to petitioner Katherene, she allegedly spoke to the bank personnel and York on several
occasions and admitted that the funds were indeed invested with Shell Company but that York knew
about this.

So as not to ruin its name and goodwill among its clients, respondent HSBC reimbursed York
the P2,500,000.00.

Based on the foregoing factual circumstances, respondent HSBC, through its personnel, filed a
criminal complaint for Estafa and/or Qualified Estafa before the Office of the City Prosecutor, Cebu
City.

Petitioners Bernyl and Katherene submitted their joint counter-affidavit basically denying the
allegations contained in the affidavits of the aforenamed employees of respondent HSBC as well as
that made by York. They argued that the allegations in the Complaint-Affidavits were pure
fabrications. Specifically, petitioner Katherene denied 1) having spoken on the telephone with Dy and
York; and 2) having admitted to the personnel of respondent HSBC and York that she took
the P2,500,000.00 of York and invested the same with Shell Corporation. Petitioner Bernyl similarly
denied 1) having met with Dy, Iñigo, Cortes and Arcuri; and 2) having admitted to them that York
knew about petitioner Katherene’s move of investing the former’s money with Shell Corporation.

Respecting the P12,500.00 and P8,333.33 regular monthly deposits to York’s account made using the
code "CEO8," petitioners Bernyl and Katherene, in their defense, argued that since it was a deposit, it
was her duty to accept the funds for deposit. As regards York’s time deposit with respondent HSBC,
petitioners Bernyl and Katherene insisted that the funds therein were never entrusted to Katherene in
the latter’s capacity as PCSR Employee of the former because monies deposited "at any bank would
not and will not be entrusted to specific bank employee but to the bank as a whole."

Following the requisite preliminary investigation, Assistant City Prosecutor (ACP) Victor C. Laborte,
Prosecutor II of the OCP, Cebu City, in a Resolution8 dated 21 February 2003, found no probable
cause to hold petitioners Bernyl and Katherene liable to stand trial for the criminal complaint of estafa
and/or qualified estafa, particularly Article 315 of the Revised Penal Code. Accordingly, the ACP
recommended the dismissal of respondent HSBC’s complaint.

The ACP explained his finding, viz:

As in any other cases, we may never know the ultimate truth of this controversy. But on
balance, the evidence on record tend to be supportive of respondents’ contention rather than
that of complaint.

xxxx

First of all, it is well to dwell on what Mr. York said in his affidavit. Thus:

`18. For purposes of opening these two time deposits (sic) accounts, Ms. Balangauan
asked me to sign several Bank documents on several occasions, the nature of which
I was unfamiliar with.’
 `20. I discovered later that these were withdrawal slips and cash movement
tickets, with which documents Ms. Balangauan apparently was able to withdraw the
amount from my accounts, and take the same from the premises of the Bank.’

In determining the credibility of an evidence, it is well to consider the probability or

improbability of one’s statements for it has been said that there is no test of the truth of
human testimony except its conformity to our knowledge, observation and experience.

Mr. York could not have been that unwary and unknowingly innocent to claim unfamiliarity
with withdrawal slips and cash movement tickets which Ms. Balangauan made him to sign on
several occasions. He is a premier client of HSBC maintaining an account in millions of
pesos. A withdrawal slip and cash movement tickets could not have had such intricate
wordings or terminology so as to render them non-understandable even to an ordinary
account holder. Mr. York admittedly is a long-standing client of the bank. Within the period of
‘long-standing’ he certainly must have effected some withdrawals. It goes without saying
therefore that the occasions that Ms. Balangauan caused him to sign withdrawal slips are not
his first encounter with such kinds of documents.

The one ineluctable conclusion therefore that can be drawn from the premises is that Mr. York
freely and knowingly knew what was going on with his money, who has in possession of them
and where it was invested. These take out the elements of deceit, fraud, abuse of confidence
and without the owner’s consent in the crimes charged.

The other leg on which complainant’s cause of action stands rest on its claim for sum of
money against respondents allegedly after it reimbursed Mr. York for his missing account
supposedly taken/withdrawn by Ms. Balangauan. The bank’s action against respondents
would be a civil suit against them which apparently it already did after the bank steps into the
shoes of Mr. York and becomes the creditor of Ms. Balangauan.9

The ACP then concluded that:

By and large, the evidence on record do (sic) not engender enough bases to establish a
probable cause against respondents.10

On 1 July 2003, respondent HSBC appealed the above-quoted resolution and foregoing comment to
the Secretary of the DOJ by means of a Petition for Review.

In a Resolution dated 6 April 2004, the Chief State Prosecutor, Jovencito R. Zuño, for the Secretary of
the DOJ, dismissed the petition. In denying respondent HSBC’s recourse, the Chief State Prosecutor
held that:

Sec. 12 (c) of Department Circular No. 70 dated July 2, 2000 provides that the Secretary of
Justice may, motu proprio, dismiss outright the petition if there is no showing of any reversible
error in the questioned resolution.

We carefully examined the petition and its attachments and found no reversible error that
would justify a reversal of the assailed resolution which is in accord with the law and evidence
on the matter.

Respondent HSBC’s Motion for Reconsideration was likewise denied with finality by the DOJ in a
lengthier Resolution dated 30 August 2004.

The DOJ justified its ruling in this wise:

A perusal of the motion reveals no new matter or argument which was not taken into
consideration in our review of the case. Hence, we find no cogent reason to reconsider our
resolution. Appellant failed to present any iota of evidence directly showing that respondent
 Katherene Balangauan took the money and invested it somewhere else. All it tried to
establish was that Katherene unlawfully took the money and fraudulently invested it
somewhere else x x x, because after the withdrawals were made, the money never reached
Roger York as appellant adopted hook, line and sinker the latter’s declaration, despite York’s
signatures on the withdrawal slips covering the total amount of P2,500,000.00 x x x. While
appellant has every reason to suspect Katherene for the loss of the P2,500,000.00 as per
York’s bank statements, the cash deposits were identified by the numerals "CEO8" and it was
only Katherene who could transact from the computer in the work station CEO-8, plus alleged
photographs showing Katherene "leaving her office at 5:28 p.m. with a bulky plastic bag
presumably containing cash" since a portion of the funds was withdrawn, we do not, however,
dwell on possibilities, suspicion and speculation. We rule based on hard facts and solid
evidence.

Moreover, an examination of the petition for review reveals that appellant failed to append
thereto all annexes to respondents’ urgent manifestations x x x together
with supplemental affidavits of Melanie de Ocampo and Rex B. Balucan x x x, which are
pertinent documents required under Section 5 of Department Circular No. 70 dated July 3,
2000.11

Respondent HSBC then went to the Court of Appeals by means of a Petition for Certiorari under Rule
65 of the Revised Rules of Court.

On 28 April 2006, the Court of Appeals promulgated its Decision granting respondent HSBC’s
petition, thereby annulling and setting aside the twin resolutions of the DOJ.

The fallo of the assailed decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

GRANTING the petition filed in this case. The assailed Resolutions dated April 6, 2004 and
August 30, 2004 are ANNULLED and SET ASIDE.

The City Prosecutor of Cebu City is hereby ORDERED to file the appropriate Information
against the private respondents.12

Petitioners Bernyl and Katherene’s motion for reconsideration proved futile, as it was denied by the
appellate court in a Resolution dated 29 June 2006.

Hence, this petition for certiorari filed under Rule 65 of the Revised Rules of Court.

Petitioners Bernyl and Katherene filed the present petition on the argument that the Court of Appeals
committed grave abuse of discretion in reversing and setting aside the resolutions of the DOJ when:
(1) "[i]t reversed the resolution of the Secretary of Justice, Manila dated August 30, 2004 and
correspondingly, gave due course to the Petition for Certiorari filed by HSBC on April 28, 2006 despite
want of probable cause to warrant the filing of an information against the herein petitioners"13; (2) "[i]t
appreciated the dubious evidence adduced by HSBC albeit the absence of legal standing or
personality of the latter"14; (3) "[i]t denied the motions for reconsideration on June 29, 2006
notwithstanding the glaring evidence proving the innocence of the petitioners" 15; (4) "[i]t rebuffed the
evidence of the herein petitioners in spite of the fact that, examining such evidence alone would
establish that the money in question was already withdrawn by Mr. Roger Dwayne York"16; and (5) "[i]t
failed to dismiss outright the petition by HSBC considering that the required affidavit of service was
not made part or attached in the said petition pursuant to Section 13, Rule 13 in relation to Section 3,
Rule 46, and Section 2, Rule 56 of the Rules of Court."17

Required to comment on the petition, respondent HSBC remarked that the filing of the present petition
is improper and should be dismissed. It argued that the correct remedy is an appeal
by certiorari under Rule 45 of the Revised Rules of Court.
Petitioners Bernyl and Katherene, on the other hand, asserted in their Reply18 that the petition filed
under Rule 65 was rightfully filed considering that not only questions of law were raised but questions
of fact and error of jurisdiction as well. They insist that the Court of Appeals "clearly usurped into the
jurisdiction and authority of the Public Prosecutor/Secretary of justice (sic) x x x." 19

Given the foregoing arguments, there is need to address, first, the issue of the mode of appeal
resorted to by petitioners Bernyl and Katherene. The present petition is one for certiorari under Rule
65 of the Revised Rules of Court. Notice that what is being assailed in this recourse is the decision
and resolution of the Court of Appeals dated 28 April 2006 and 29 June 2006, respectively. The
Revised Rules of Court, particularly Rule 45 thereof, specifically provides that an appeal
by certiorarifrom the judgments or final orders or resolutions of the appellate court is by verified
petition for review on certiorari.20

In the present case, there is no question that the 28 April 2006 Decision and 29 June
2006 Resolution of the Court of Appeals granting the respondent HSBC’s petition in CA-G.R. CEB.
SP No. 00068 is already a disposition on the merits. Therefore, both decision and resolution, issued
by the Court of Appeals, are in the nature of a final disposition of the case set before it, and which,
under Rule 45, are appealable to this Court via a Petition for Review on Certiorari, viz:

SECTION 1. Filing of petition with Supreme Court. – A party desiring to appeal

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

It is elementary in remedial law that a writ of certiorari will not issue where the remedy of appeal is
available to an aggrieved party. A remedy is considered "plain, speedy and adequate" if it will
promptly relieve the petitioners from the injurious effects of the judgment and the acts of the lower
court or agency.21 In this case, appeal was not only available but also a speedy and adequate
remedy.22 And while it is true that in accordance with the liberal spirit pervading the Rules of Court
and in the interest of substantial justice,23 this Court has, before,24 treated a petition for certiorari as a
petition for review on certiorari, particularly if the petition for certiorari was filed within the
reglementary period within which to file a petition for review on certiorari;25 this exception is not
applicable to the present factual milieu.

Pursuant to Sec. 2, Rule 45 of the Revised Rules of Court:

SEC. 2. Time for filing; extension. – The petition shall be filed within fifteen (15) days from
notice of the judgment or final order or resolution appealed from, or of the denial of the
petitioner’s motion for new trial or reconsideration filed in due time after notice of the
judgment. x x x.

a party litigant wishing to file a petition for review on certiorari must do so within 15 days from receipt
of the judgment, final order or resolution sought to be appealed. In this case, petitioners Bernyl and
Katherene’s motion for reconsideration of the appellate court’s Resolution was denied by the Court of
Appeals in its Resolution dated 29 June 2006, a copy of which was received by petitioners on 4 July
2006. The present petition was filed on 1 September 2006; thus, at the time of the filing of said
petition, 59 days had elapsed, way beyond the 15-day period within which to file a petition for review
under Rule 45, and even beyond an extended period of 30 days, the maximum period for extension
allowed by the rules had petitioners sought to move for such extra time. As the facts stand, petitioners
Bernyl and Katherene had lost the right to appeal via Rule 45.

Be that as it may, alternatively, if the decision of the appellate court is attended by grave abuse of
discretion amounting to lack or excess of jurisdiction, then such ruling is fatally defective on
jurisdictional ground and may be questioned even after the lapse of the period of appeal under Rule
4526 but still within the period for filing a petition for certiorari under Rule 65.
We have previously ruled that grave abuse of discretion may arise when a lower court or tribunal
violates and contravenes the Constitution, the law or existing jurisprudence. By grave abuse of
discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction. The abuse of discretion must be grave, as where the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility and must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined by or to act at
all in contemplation of law.27 The word "capricious," usually used in tandem with the term "arbitrary,"
conveys the notion of willful and unreasoning action. Thus, when seeking the corrective hand
of certiorari, a clear showing of caprice and arbitrariness in the exercise of discretion is imperative. 28

In reversing and setting aside the resolutions of the DOJ, petitioners Bernyl and Katherene contend
that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction.

The Court of Appeals, when it resolved to grant the petition in CA-G.R. CEB. SP No. 00068, did so on
two grounds, i.e., 1) that "the public respondent (DOJ) gravely abused his discretion in finding that
there was no reversible error on the part of the Cebu City Prosecutor dismissing the case against the
private respondent without stating the facts and the law upon which this conclusion was made" 29; and
2) that "the public respondent (DOJ) made reference to the facts and circumstances of the case
leading to his finding that no probable cause exists, x x x (the) very facts and circumstances (which)
show that there exists a probable cause to believe that indeed the private respondents committed the
crimes x x x charged against them."30

It explained that:

In refusing to file the appropriate information against the private respondents because he
‘does not dwell on possibilities, suspicion and speculation’ and that he rules ‘based on hard
facts and solid evidence’, (sic) the public respondent exceeded his authority and gravely
abused his discretion. It must be remembered that a finding of probable cause does not
require an inquiry into whether there is sufficient evidence to procure a conviction. It is
enough that it is believed that the act or omission complained of constitutes the offense
charged. The term does not mean ‘actual or positive cause;’ (sic) nor does it import absolute
certainty. It is merely based on opinion and reasonable belief. [Citation omitted.] A trial is
there precisely for the reception of evidence of the prosecution in support of the charge.

In this case, the petitioner had amply established that it has a prima facie case against the
private respondents. As observed by the public respondent in his second assailed resolution,
petitioner was able to present photographs of private respondent Ms. Balangauan leaving her
office carrying a bulky plastic bag. There was also the fact that the transactions in Mr. York’s
account used the code ‘CEO8’ which presumably point to the private respondent Ms.
Balangauan as the author thereof for she is the one assigned to such work station.

Furthermore, petitioner was able to establish that it was Ms. Balangauan who handled Mr.
York’s account and she was the one authorized to make the placement of the sum
of P2,500,000.00. Since said sum is nowhere to be found in the records of the bank, then,
apparently, Ms. Balangauan must be made to account for the same.31

The appellate court then concluded that:

These facts engender a well-founded belief that that (sic) a crime has been committed and
that the private respondents are probably guilty thereof. In refusing to file the corresponding
information against the private respondents despite the presence of the circumstances
making out a prima facie case against them, the public respondent gravely abused his
discretion amounting to an evasion of a positive duty or to a virtual refusal either to perform
the duty enjoined or to act at all in contemplation of law.32

The Court of Appeals found fault in the DOJ’s failure to identify and discuss the issues raised by the
respondent HSBC in its Petition for Review filed therewith. And, in support thereof, respondent HSBC
maintains that it is incorrect to argue that "it was not necessary for the Secretary of Justice to have his
resolution recite the facts and the law on which it was based," because courts and quasi-judicial
bodies should faithfully comply with Section 14, Article VIII of the Constitution requiring that decisions
rendered by them should state clearly and distinctly the facts of the case and the law on which the
decision is based.33

Petitioners Bernyl and Katherene, joined by the Office of the Solicitor General, on the other hand,
defends the DOJ and assert that the questioned resolution was complete in that it stated the legal
basis for denying respondent HSBC’s petition for review – "that (after) an examination (of) the petition
and its attachment [it] found no reversible error that would justify a reversal of the assailed resolution
which is in accord with the law and evidence on the matter."

It must be remembered that a preliminary investigation is not a quasi-judicial proceeding, and that the
DOJ is not a quasi-judicial agency exercising a quasi-judicial function when it reviews the findings of a
public prosecutor regarding the presence of probable cause. In Bautista v. Court of Appeals,34 this
Court held that a preliminary investigation is not a quasi-judicial proceeding, thus:

[T]he prosecutor in a preliminary investigation does not determine the guilt or innocence of
the accused. He does not exercise adjudication nor rule-making functions. Preliminary
investigation is merely inquisitorial, and is often the only means of discovering the persons
who may be reasonably charged with a crime and to enable the fiscal to prepare his
complaint or information. It is not a trial of the case on the merits and has no purpose except
that of determining whether a crime has been committed and whether there is probable cause
to believe that the accused is guilty thereof. While the fiscal makes that determination, he
cannot be said to be acting as a quasi-court, for it is the courts, ultimately, that pass judgment
on the accused, not the fiscal.

Though some cases35 describe the public prosecutor’s power to conduct a preliminary investigation
as quasi-judicial in nature, this is true only to the extent that, like quasi-judicial bodies, the prosecutor
is an officer of the executive department exercising powers akin to those of a court, and the similarity
ends at this point.36 A quasi-judicial body is an organ of government other than a court and other than
a legislature which affects the rights of private parties through either adjudication or rule-making.37 A
quasi-judicial agency performs adjudicatory functions such that its awards, determine the rights of
parties, and their decisions have the same effect as judgments of a court. Such is not the case when
a public prosecutor conducts a preliminary investigation to determine probable cause to file an
Information against a person charged with a criminal offense, or when the Secretary of Justice is
reviewing the former’s order or resolutions. In this case, since the DOJ is not a quasi-judicial body,
Section 14, Article VIII of the Constitution finds no application. Be that as it may, the DOJ rectified the
shortness of its first resolution by issuing a lengthier one when it resolved respondent HSBC’s motion
for reconsideration.

Anent the substantial merit of the case, whether or not the Court of Appeals’ decision and resolution
are tainted with grave abuse of discretion in finding probable cause, this Court finds the petition
dismissible.

The Court of Appeals cannot be said to have acted with grave abuse of discretion amounting to lack
or excess of jurisdiction in reversing and setting aside the resolutions of the DOJ. In the resolutions of
the DOJ, it affirmed the recommendation of ACP Laborte that no probable cause existed to warrant
the filing in court of an Information for estafa and/or qualified estafa against petitioners Bernyl and
Katherene. It was the reasoning of the DOJ that "[w]hile appellant has every reason to suspect
Katherene for the loss of the P2,500,000.00 as per York’s bank statements, the cash deposits were
identified by the numerals ‘CEO8’ and it was only Katherene who could transact from the computer in
the work station CEO-8, plus alleged photographs showing Katherene ‘leaving her office at 5:28 p.m.
with a bulky plastic bag presumably containing cash’ since a portion of the funds was withdrawn, we
do not, however, dwell on possibilities, suspicion and speculation. We rule based on hard facts and
solid evidence."38

We do not agree.
Probable cause has been defined as the existence of such facts and circumstances as would excite
belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the
person charged was guilty of the crime for which he was prosecuted. 39 A finding of probable cause
merely binds over the suspect to stand trial. It is not a pronouncement of guilt.40

The executive department of the government is accountable for the prosecution of crimes, its principal
obligation being the faithful execution of the laws of the land. A necessary component of the power to
execute the laws is the right to prosecute their violators,41 the responsibility for which is thrust upon
the DOJ. Hence, the determination of whether or not probable cause exists to warrant the prosecution
in court of an accused is consigned and entrusted to the DOJ. And by the nature of his office, a public
prosecutor is under no compulsion to file a particular criminal information where he is not convinced
that he has evidence to prop up the averments thereof, or that the evidence at hand points to a
different conclusion.

But this is not to discount the possibility of the commission of abuses on the part of the prosecutor. It
is entirely possible that the investigating prosecutor has erroneously exercised the discretion lodged
in him by law. This, however, does not render his act amenable to correction and annulment by the
extraordinary remedy of certiorari, absent any showing of grave abuse of discretion amounting to
excess of jurisdiction.42

And while it is this Court’s general policy not to interfere in the conduct of preliminary investigations,
leaving the investigating officers sufficient discretion to determine probable cause, 43 we have
nonetheless made some exceptions to the general rule, such as when the acts of the officer are
without or in excess of authority,44 resulting from a grave abuse of discretion. Although there is no
general formula or fixed rule for the determination of probable cause, since the same must be decided
in the light of the conditions obtaining in given situations and its existence depends to a large degree
upon the finding or opinion of the judge conducting the examination, such a finding should not
disregard the facts before the judge (public prosecutor) or run counter to the clear dictates of
reason.45

Applying the foregoing disquisition to the present petition, the reasons of DOJ for affirming the
dismissal of the criminal complaints for estafa and/or qualified estafa are determinative of whether or
not it committed grave abuse of discretion amounting to lack or excess of jurisdiction. In requiring
"hard facts and solid evidence" as the basis for a finding of probable cause to hold petitioners Bernyl
and Katherene liable to stand trial for the crime complained of, the DOJ disregards the definition of
probable cause – that it is a reasonable ground of presumption that a matter is, or may be, well-
founded, such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution
and prudence to believe, or entertain an honest or strong suspicion, that a thing is so. 46 The term
does not mean "actual and positive cause" nor does it import absolute certainty.47 It is merely based
on opinion and reasonable belief;48 that is, the belief that the act or omission complained of
constitutes the offense charged. While probable cause demands more than "bare suspicion," it
requires "less than evidence which would justify conviction." Herein, the DOJ reasoned as if no
evidence was actually presented by respondent HSBC when in fact the records of the case were
teeming; or it discounted the value of such substantiation when in fact the evidence presented was
adequate to excite in a reasonable mind the probability that petitioners Bernyl and Katherene
committed the crime/s complained of. In so doing, the DOJ whimsically and capriciously exercised its
discretion, amounting to grave abuse of discretion, which rendered its resolutions amenable to
correction and annulment by the extraordinary remedy of certiorari.

From the records of the case, it is clear that a prima facie case for estafa/qualified estafa exists
against petitioners Bernyl and Katherene. A perusal of the records, i.e., the affidavits of respondent
HSBC’s witnesses, the documentary evidence presented, as well as the analysis of the factual milieu
of the case, leads this Court to agree with the Court of Appeals that, taken together, they are enough
to excite the belief, in a reasonable mind, that the Spouses Bernyl Balangauan and Katherene
Balangauan are guilty of the crime complained of. Whether or not they will be convicted by a trial
court based on the same evidence is not a consideration. It is enough that acts or omissions
complained of by respondent HSBC constitute the crime of estafa and/or qualified estafa.
Collectively, the photographs of petitioner Katherene leaving the premises of respondent HSBC
carrying a bulky plastic bag and the affidavits of respondent HSBC’s witnesses sufficiently establish
acts adequate to constitute the crime of estafa and/or qualified estafa. What the affidavits bear out are
the following: that York was a Premier Client of respondent HSBC; that petitioner Katherene handled
all the accounts of York; that not one of York’s accounts reflect the P2,500,000.00 allegedly deposited
in a higher yielding account; that prior to the discovery of her alleged acts and omissions, petitioner
Katherene supposedly persuaded York to invest in a "new product" of respondent HSBC, i.e., a higher
interest yielding time deposit; that York made a total of P2,500,000.00 investment in the "new product"
by authorizing petitioner Balangauan to transfer said funds to it; that petitioner Katherene supposedly
asked York to sign several transaction documents in order to transfer the funds to the "new product";
that said documents turned out to be withdrawal slips and cash movement tickets; that at no time did
York receive the cash as a result of signing the documents that turned out to be withdrawal slips/cash
movement tickets; that York’s account was regularly credited "loose change" in the amounts
of P12,500.00 and P8,333.33 beginning in the month after the alleged "transfer" of York’s funds to the
"new product"; that the regular deposits of loose change were transacted with the use of petitioner
Katherene’s work terminal accessed by her password "CEO8"; that the "CEO8" password was keyed
in with the use of a swipe card always in the possession of petitioner Katherene; that one of the loose-
change deposits was transacted via the phone banking feature of respondent HSBC and that when
traced, the phone number used was the landline number of the house of petitioners Bernyl and
Katherene; that respondent HSBC’s bank personnel, as well as York, supposedly a) talked with
petitioner Katherene on the phone, and that she allegedly admitted that the missing funds were
invested with Shell Company, of which York approved, and that it was only for one year; and b) met
with petitioner Bernyl, and that the latter at first denied having knowledge of his wife’s complicity, but
later on admitted that he knew of the investment with Shell Company, and that he supposedly made
the loose-change deposit via phone banking; that after 23 April 2002, York was told that respondent
HSBC had no "new product" or that it was promoting investment with Shell Company; that York
denied having any knowledge that his money was invested outside of respondent HSBC; and that
petitioner Katherene would not have been able to facilitate the alleged acts or omissions without
taking advantage of her position or office, as a consequence of which, HSBC had to reimburse York
the missing P2,500,000.00.

From the above, the alleged circumstances of the case at bar make up the elements of abuse of
confidence, deceit or fraudulent means, and damage under Art. 315 of the Revised Penal Code on
estafa and/or qualified estafa. They give rise to the presumption or reasonable belief that the offense
of estafa has been committed; and, thus, the filing of an Information against petitioners Bernyl and
Katherene is warranted. That respondent HSBC is supposed to have no personality to file any
criminal complaint against petitioners Bernyl and Katherene does not ipso facto clear them of prima
facie guilt. The same goes for their basic denial of the acts or omissions complained of; or their
attempt at shifting the doubt to the person of York; and their claim that witnesses of respondent HSBC
are guilty of fabricating the whole scenario. These are matters of defense; their validity needs to be
tested in the crucible of a full-blown trial. Lest it be forgotten, the presence or absence of the elements
of the crime is evidentiary in nature and is a matter of defense, the truth of which can best be passed
upon after a full-blown trial on the merits. Litigation will prove petitioners Bernyl and Katherene’s
innocence if their defense be true.

In fine, the relaxation of procedural rules may be allowed only when there are exceptional
circumstances to justify the same. Try as we might, this Court cannot find grave abuse of discretion
on the part of the Court of Appeals, when it reversed and set aside the resolutions of the DOJ. There
is no showing that the appellate court acted in an arbitrary and despotic manner, so patent or gross
as to amount to an evasion or unilateral refusal to perform its legally mandated duty. On the contrary,
we find the assailed decision and resolution of the Court of Appeals to be more in accordance with the
evidence on record and relevant laws and jurisprudence than the resolutions of the DOJ.

Considering the allegations, issues and arguments adduced and our disquisition above, we hereby
dismiss the instant petition for being the wrong remedy under the Revised Rules of Court, as well as
for petitioner Bernyl and Katherene’s failure to sufficiently show that the
challenged Decision and Resolution of the Court of Appeals were rendered in grave abuse of
discretion amounting to lack or excess of jurisdiction.
WHEREFORE, premises considered, the instant Petition for Certiorari is DISMISSED for lack of merit.
The 28 April 2006 Decision and the 29 June 2006 Resolution of the Court of Appeals in CA-G.R.
CEB- SP No. 00068, are hereby AFFIRMED.With costs against petitioners -- Spouses Bernyl
Balangauan and Katherene Balangauan.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 107518 October 8, 1998

PNOC SHIPPING AND TRANSPORT CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS and MARIA EFIGENIA FISHING
CORPORATION, respondents.

ROMERO, J.:

A party is entitled to adequate compensation only for such pecuniary loss actually suffered and
duly proved.1Indeed, basic is the rule that to recover actual damages, the amount of loss
must not only be capable of proof but must actually be proven with a reasonable degree
of certainty, premised upon competent proof or best evidence obtainable of the actual
amount thereof.2 The claimant is duty-bound to point out specific facts that afford a basis
for measuring whatever compensatory damages are borne.3 A court cannot merely rely on
speculations, conjectures, or guesswork as to the fact and amount of damages4 as well as
hearsay5or uncorroborated testimony whose truth is suspect.6 Such are the jurisprudential
precepts that the Court now applies in resolving the instant petition.

The records disclose that in the early morning of September 21, 1977, the M/V Maria
Efigenia XV, owned by private respondent Maria Efigenia Fishing Corporation, was
navigating the waters near Fortune Island in Nasugbu, Batangas on its way to Navotas,
Metro Manila when it collided with the vessel Petroparcel which at the time was owned by
the Luzon Stevedoring Corporation (LSC).

After investigation was conducted by the Board of Marine Inquiry, Philippine Coast Guard
Commandant Simeon N. Alejandro rendered a decision finding the Petroparcel at fault.
Based on this finding by the Board and after unsuccessful demands on
petitioner, 7 private respondent sued the LSC and the Petroparcelcaptain, Edgardo
Doruelo, before the then Court of First Instance of Caloocan City, paying thereto the
docket fee of one thousand two hundred fifty-two pesos (P1,252.00) and the legal research
fee of two pesos (P2.00). 8 In particular, private respondent prayed for an award of
P692,680.00, allegedly representing the value of the fishing nets, boat equipment and
cargoes of M/V Maria Efigenia XV, with interest at the legal rate plus 25% thereof as
attorney's fees. Meanwhile, during the pendency of the case, petitioner PNOC Shipping
and Transport Corporation sought to be substituted in place of LSC as it had already
acquired ownership of the Petroparcel. 9
For its part, private respondent later sought the amendment of its complaint on the
ground that the original complaint failed to plead for the recovery of the lost value of the
hull of M/V Maria Efigenia XV. 10Accordingly, in the amended complaint, private
respondent averred that M/V Maria Efigenia XV had an actual value of P800,000.00 and
that, after deducting the insurance payment of P200,000.00, the amount of P600,000.00
should likewise be claimed. The amended complaint also alleged that inflation resulting
from the devaluation of the Philippine peso had affected the replacement value of the hull
of the vessel, its equipment and its lost cargoes, such that there should be a reasonable
determination thereof. Furthermore, on account of the sinking of the vessel, private
respondent supposedly incurred unrealized profits and lost business opportunities that
would thereafter be proven. 11

Subsequently, the complaint was further amended to include petitioner as a

defendant 12 which the lower court granted in its order of September 16,
1985. 13 After petitioner had filed its answer to the second amended complaint, on
February 5, 1987, the lower court issued a pre-trial order 14 containing, among other
things, a stipulations of facts, to wit:

1. On 21 September 1977, while the fishing boat "M/V MARIA EFIGENIA"

owned by plaintiff was navigating in the vicinity of Fortune Island in
Nasugbu, Batangas, on its way to Navotas, Metro Manila, said fishing boat
was hit by the LSCO tanker "Petroparcel" causing the former to sink.

2. The Board of Marine Inquiry conducted an investigation of this marine

accident and on 21 November 1978, the Commandant of the Philippine
Coast Guard, the Honorable Simeon N. Alejandro, rendered a decision
finding the cause of the accident to be the reckless and imprudent manner
in which Edgardo Doruelo navigated the LSCO "Petroparcel" and declared
the latter vessel at fault.

3. On 2 April 1978, defendant Luzon Stevedoring Corporation

(LUSTEVECO), executed in favor of PNOC Shipping and Transport
Corporation a Deed of Transfer involving several tankers, tugboats, barges
and pumping stations, among which was the LSCO Petroparcel.

4. On the same date on 2 April 1979 (sic), defendant PNOC STC again
entered into an Agreement of Transfer with co-defendant Lusteveco
whereby all the business properties and other assets appertaining to the
tanker and bulk oil departments including the motor tanker LSCO
Petroparcel of defendant Lusteveco were sold to PNOC STC.

5. The aforesaid agreement stipulates, among others, that PNOC-STC

assumes, without qualifications, all obligations arising from and by virtue
of all rights it obtained over the LSCO "Petroparcel".

6. On 6 July 1979, another agreement between defendant LUSTEVECO and

PNOC-STC was executed wherein Board of Marine Inquiry Case No. 332
(involving the sea accident of 21 September 1977) was specifically
identified and assumed by the latter.

7. On 23 June 1979, the decision of Board of Marine Inquiry was affirmed by

the Ministry of National Defense, in its decision dismissing the appeal of
Capt. Edgardo Doruelo and Chief mate Anthony Estenzo of LSCO
"Petroparcel".
 8. LSCO "Petroparcel" is presently owned and operated by PNOC-STC and
likewise Capt. Edgardo Doruelo is still in their employ.

9. As a result of the sinking of M/V Maria Efigenia caused by the reckless

and imprudent manner in which LSCO Petroparcel was navigated by
defendant Doruelo, plaintiff suffered actual damages by the loss of its
fishing nets, boat equipments (sic) and cargoes, which went down with the
ship when it sank the replacement value of which should be left to the
sound discretion of this Honorable Court.

After trial, the lower court 15 rendered on November 18, 1989 its decision disposing of Civil
Case No. C-9457 as follows:

WHEREFORE, and in view of the foregoing, judgment is hereby rendered in

favor of the plaintiff and against the defendant PNOC Shipping & Transport
Corporation, to pay the plaintiff:

a. The sum of P6,438,048.00 representing the value of the

fishing boat with interest from the date of the filing of the
complaint at the rate of 6% per annum;

b. The sum of P50,000.00 as and for attorney's fees; and

c. The costs of suit.

The counterclaim is hereby DISMISSED for lack of merit. Likewise, the case
against defendant Edgardo Doruelo is hereby DISMISSED, for lack of
jurisdiction.

SO ORDERED.

In arriving at the above disposition, the lower court cited the evidence presented by
private respondent consisting of the testimony of its general manager and sole witness,
Edilberto del Rosario. Private respondent's witness testified that M/V Maria Efigenia
XV was owned by private respondent per Exhibit A, a certificate of ownership issued by
the Philippine Coast Guard showing that M/V Maria Efigenia XV was a wooden motor boat
constructed in 1965 with 128.23 gross tonnage. According to him, at the time the vessel
sank, it was then carrying 1,060 tubs (bañeras) of assorted fish the value of which was
never recovered. Also lost with the vessel were two cummins engines (250 horsepower),
radar, pathometer and compass. He further added that with the loss of his flagship vessel
in his fishing fleet of fourteen (14) vessels, he was constrained to hire the services of
counsel whom he paid P10,000 to handle the case at the Board of Marine Inquiry and
P50,000.00 for commencing suit for damages in the lower court.

As to the award of P6,438,048.00 in actual damages, the lower court took into account the
following pieces of documentary evidence that private respondent proffered during trial:

(a) Exhibit A — certified xerox copy of the certificate of

ownership of M/V Maria Efigenia XV;

(b) Exhibit B — a document titled "Marine Protest" executed

by Delfin Villarosa, Jr. on September 22, 1977 stating that as
a result of the collision, the M/V Maria Efigenia XV sustained
a hole at its left side that caused it to sink with its cargo of
1,050 bañeras valued at P170,000.00;
 (c) Exhibit C — a quotation for the construction of a 95-footer
trawler issued by Isidoro A. Magalong of I. A. Magalong
Engineering and Construction on January 26, 1987 to Del
Rosario showing that construction of such trawler would
cost P2,250,000.00;

(d) Exhibit D — pro forma invoice No. PSPI-05/87-NAV issued

by E.D. Daclan of Power Systems, Incorporated on January
20, 1987 to Del Rosario showing that two (2) units of
CUMMINS Marine Engine model N855-M, 195 bhp. at 1800
rpm. would cost P1,160,000.00;

(e) Exhibit E — quotation of prices issued by Scan Marine

Inc. on January 20, 1987 to Del Rosario showing that a unit of
Furuno Compact Daylight Radar, Model FR-604D, would cost
P100,000.00 while a unit of Furuno Color Video Sounder,
Model FCV-501 would cost P45,000.00 so that the two units
would cost P145,000.00;

(f) Exhibit F — quotation of prices issued by Seafgear Sales,

Inc. on January 21, 1987 to Del Rosario showing that two (2)
rolls of nylon rope (5" cir. X 300fl.) would cost P140,000.00;
two (2) rolls of nylon rope (3" cir. X 240fl.), P42,750.00; one
(1) binocular (7 x 50), P1,400.00, one (1) compass (6"),
P4,000.00 and 50 pcs. of floats, P9,000.00 or a total of
P197,150.00;

(g) Exhibit G — retainer agreement between Del Rosario and

F. Sumulong Associates Law Offices stipulating an
acceptance fee of P5,000.00, per appearance fee of P400.00,
monthly retainer of P500.00, contingent fee of 20% of the
total amount recovered and that attorney's fee to be awarded
by the court should be given to Del Rosario; and

(h) Exhibit H — price quotation issued by Seafgear Sales, Inc.

dated April 10, 1987 to Del Rosario showing the cost of poly
nettings as: 50 rolls of 400/18 3kts. 100md x 100mtrs.,
P70,000.00; 50 rolls of 400/18 5kts. 100md x 100mtrs.,
P81,500.00; 50 rolls of 400/18 8kts. 100md x 100mtrs.,
P116,000.00, and 50 rolls of 400/18 10kts. 100md x 100mtrs.,
P146,500 and bañera (tub) at P65.00 per piece or a total of
P414,065.00.

The lower court held that the prevailing replacement value of P6,438,048.00 of the fishing
boat and all its equipment would regularly increase at 30% every year from the date the
quotations were given.

On the other hand, the lower court noted that petitioner only presented Lorenzo Lazaro,
senior estimator at PNOC Dockyard & Engineering Corporation, as sole witness and it did
not bother at all to offer any documentary evidence to support its position. Lazaro
testified that the price quotations submitted by private respondent were "excessive" and
that as an expert witness, he used the quotations of his suppliers in making his estimates.
However, he failed to present such quotations of prices from his suppliers, saying that he
could not produce a breakdown of the costs of his estimates as it was "a sort of secret
scheme." For this reason, the lower court concluded:
 Evidently, the quotation of prices submitted by the plaintiff relative to the
replacement value of the fishing boat and its equipments in the tune of
P6,438,048.00 which were lost due to the recklessness and imprudence of
the herein defendants were not rebutted by the latter with sufficient
evidence. The defendants through their sole witness Lorenzo Lazaro relied
heavily on said witness' bare claim that the amount afore-said is excessive
or bloated, but they did not bother at all to present any documentary
evidence to substantiate such claim. Evidence to be believed must not only
proceed from the mouth of the credible witness, but it must be credible in
itself. (Vda. de Bonifacio vs. B. L. T. Bus Co., Inc. L-26810, August 31, 1970).

Aggrieved, petitioner filed a motion for the reconsideration of the lower court's decision
contending that: (1) the lower court erred in holding it liable for damages; that the lower
court did not acquire jurisdiction over the case by paying only P1,252.00 as docket fee; (2)
assuming that plaintiff was entitled to damages, the lower court erred in awarding an
amount greater than that prayed for in the second amended complaint; and (3) the lower
court erred when it failed to resolve the issues it had raised in its
memorandum. 16Petitioner likewise filed a supplemental motion for reconsideration
expounding on whether the lower court acquired jurisdiction over the subject matter of
the case despite therein plaintiff's failure to pay the prescribed docket fee. 17

On January 25, 1990, the lower court declined reconsideration for lack of
merit. 18 Apparently not having received the order denying its motion for reconsideration,
petitioner still filed a motion for leave to file a reply to private respondent's opposition to
said motion. 19 Hence, on February 12, 1990, the lower court denied said motion for leave
to file a reply on the ground that by the issuance of the order of January 25, 1990, said
motion had become moot and academic. 20

Unsatisfied with the lower court's decision, petitioner elevated the matter to the Court of
Appeals which, however, affirmed the same in toto on October 14, 1992. 21 On petitioner's
assertion that the award of P6,438,048.00 was not convincingly proved by competent and
admissible evidence, the Court of Appeals ruled that it was not necessary to qualify Del
Rosario as an expert witness because as the owner of the lost vessel, "it was well within
his knowledge and competency to identify and determine the equipment installed and the
cargoes loaded" on the vessel. Considering the documentary evidence presented as in
the nature of market reports or quotations, trade journals, trade circulars and price lists,
the Court of Appeals held, thus:

Consequently, until such time as the Supreme Court categorically rules on

the admissibility or inadmissibility of this class of evidence, the reception
of these documentary exhibits (price quotations) as evidence rests on the
sound discretion of the trial court. In fact, where the lower court is
confronted with evidence which appears to be of doubtful admissibility, the
judge should declare in favor of admissibility rather than of non-
admissibility (The Collector of Palakadhari, 124 [1899], p. 13, cited in
Francisco, Revised Rules of Court, Evidence, Volume VII, Part I, 1990
Edition, p. 18). Trial courts are enjoined to observe the strict enforcement of
the rules of evidence which crystallized through constant use and practice
and are very useful and effective aids in the search for truth and for the
effective administration of justice. But in connection with evidence which
may appear to be of doubtful relevancy or incompetency or admissibility, it
is the safest policy to be liberal, not rejecting them on doubtful or technical
grounds, but admitting them unless plainly irrelevant, immaterial or
incompetent, for the reason that their rejection places them beyond the
consideration of the court. If they are thereafter found relevant or
competent, can easily be remedied by completely discarding or ignoring
 them. (Banaria vs. Banaria, et al., C.A. No. 4142, May 31, 1950; cited in
Francisco, Supra). [Emphasis supplied].

Stressing that the alleged inadmissible documentary exhibits were never satisfactorily
rebutted by appellant's own sole witness in the person of Lorenzo Lazaro, the appellate
court found that petitioner ironically situated itself in an "inconsistent posture by the fact
that its own witness, admittedly an expert one, heavily relies on the very same pieces of
evidence (price quotations) appellant has so vigorously objected to as inadmissible
evidence." Hence, it concluded:

. . . The amount of P6,438,048.00 was duly established at the trial on the

basis of appellee's documentary exhibits (price quotations) which stood
uncontroverted, and which already included the amount by way of
adjustment as prayed for in the amended complaint. There was therefore no
need for appellee to amend the second amended complaint in so far as to
the claim for damages is concerned to conform with the evidence
presented at the trial. The amount of P6,438,048.00 awarded is clearly within
the relief prayed for in appellee's second amended complaint.

On the issue of lack of jurisdiction, the respondent court held that following the ruling
in Sun Insurance Ltd. v. Asuncion, 22 the additional docket fee that may later on be
declared as still owing the court may be enforced as a lien on the judgment.

Hence, the instant recourse.

In assailing the Court of Appeals' decision, petitioner posits the view that the award of
P6,438,048 as actual damages should have been in light of these considerations, namely:
(1) the trial court did not base such award on the actual value of the vessel and its
equipment at the time of loss in 1977; (2) there was no evidence on extraordinary inflation
that would warrant an adjustment of the replacement cost of the lost vessel, equipment
and cargo; (3) the value of the lost cargo and the prices quoted in respondent's
documentary evidence only amount to P4,336,215.00; (4) private respondent's failure to
adduce evidence to support its claim for unrealized profit and business opportunities; and
(5) private respondent's failure to prove the extent and actual value of damages sustained
as a result of the 1977 collision of the vessels. 23

Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded
in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a
sense of natural justice and are designed to repair the wrong that has been done, to
compensate for the injury inflicted and not to impose a penalty. 24 In actions based on
torts or quasi-delicts, actual damages include all the natural and probable consequences
of the act or omission complained of. 25 There are two kinds of actual or compensatory
damages: one is the loss of what a person already possesses (daño emergente), and the
other is the failure to receive as a benefit that which would have pertained to him (lucro
cesante). 26 Thus:

Where goods are destroyed by the wrongful act of the defendant the
plaintiff is entitled to their value at the time of destruction, that is, normally,
the sum of money which he would have to pay in the market for identical or
essentially similar goods, plus in a proper case damages for the loss of use
during the period before replacement. In other words, in the case of profit-
earning chattels, what has to be assessed is the value of the chattel to its
owner as a going concern at the time and place of the loss, and this means,
at least in the case of ships, that regard must be had to existing and
pending engagements, . . .
 . . . . If the market value of the ship reflects the fact that it is in any case
virtually certain of profitable employment, then nothing can be added to
that value in respect of charters actually lost, for to do so would be pro
tanto to compensate the plaintiff twice over. On the other hand, if the ship
is valued without reference to its actual future engagements and only in the
light of its profit-earning potentiality, then it may be necessary to add to the
value thus assessed the anticipated profit on a charter or other engagement
which it was unable to fulfill. What the court has to ascertain in each case is
the "capitalised value of the vessel as a profit-earning machine not in the
abstract but in view of the actual circumstances," without, of course, taking
into account considerations which were too remote at the time of the
loss. 27 [Emphasis supplied].

As stated at the outset, to enable an injured party to recover actual or compensatory

damages, he is required to prove the actual amount of loss with reasonable degree of
certainty premised upon competent proof and on the best evidence available. 28 The
burden of proof is on the party who would be defeated if no evidence would be presented
on either side. He must establish his case by a preponderance of evidence which means
that the evidence, as a whole, adduced by one side is superior to that of the other. 29 In
other words, damages cannot be presumed and courts, in making an award must point
out specific facts that could afford a basis for measuring whatever compensatory or
actual damages are borne. 30

In this case, actual damages were proven through the sole testimony of private
respondent's general manager and certain pieces of documentary evidence. Except for
Exhibit B where the value of the 1,050 bañeras of fish were pegged at their September
1977 value when the collision happened, the pieces of documentary evidence proffered by
private respondent with respect to items and equipment lost show similar items and
equipment with corresponding prices in early 1987 or approximately ten (10) years after
the collision. Noticeably, petitioner did not object to the exhibits in terms of the time index
for valuation of the lost goods and equipment. In objecting to the same pieces of
evidence, petitioner commented that these were not duly authenticated and that the
witness (Del Rosario) did not have personal knowledge on the contents of the writings
and neither was he an expert on the subjects thereof. 31 Clearly ignoring petitioner's
objections to the exhibits, the lower court admitted these pieces of evidence and gave
them due weight to arrive at the award of P6,438,048.00 as actual damages.

The exhibits were presented ostensibly in the course of Del Rosario's testimony. Private
respondent did not present any other witnesses especially those whose signatures
appear in the price quotations that became the bases of the award. We hold, however, that
the price quotations are ordinary private writings which under the Revised Rules of Court
should have been proffered along with the testimony of the authors thereof. Del Rosario
could not have testified on the veracity of the contents of the writings even though he was
the seasoned owner of a fishing fleet because he was not the one who issued the price
quotations. Section 36, Rule 130 of the Revised Rules of Court provides that a witness can
testify only to those facts that he knows of his personal knowledge.

For this reason, Del Rosario's claim that private respondent incurred losses in the total
amount of P6,438,048.00 should be admitted with extreme caution considering that,
because it was a bare assertion, it should be supported by independent evidence.
Moreover, because he was the owner of private respondent corporation 32 whatever
testimony he would give with regard to the value of the lost vessel, its equipment and
cargoes should be viewed in the light of his self-interest therein. We agree with the Court
of Appeals that his testimony as to the equipment installed and the cargoes loaded on the
vessel should be given credence 33 considering his familiarity thereto. However, we do not
subscribe to the conclusion that his valuation of such equipment, cargo and the vessel
itself should be accepted as gospel truth. 34 We must, therefore, examine the documentary
evidence presented to support Del Rosario's claim as regards the amount of losses.

The price quotations presented as exhibits partake of the nature of hearsay evidence
considering that the persons who issued them were not presented as witnesses. 35 Any
evidence, whether oral or documentary, is hearsay if its probative value is not based on
the personal knowledge of the witness but on the knowledge of another person who is not
on the witness stand. Hearsay evidence, whether objected to or not, has no probative
value unless the proponent can show that the evidence falls within the exceptions to the
hearsay evidence rule. 36 On this point, we believe that the exhibits do not fall under any of
the exceptions provided under Sections 37 to 47 of Rule 130. 37

It is true that one of the exceptions to the hearsay rule pertains to "commercial lists and
the like" under Section 45, Rule 130 of the Revised Rules on Evidence. In this respect, the
Court of Appeals considered private respondent's exhibits as "commercial lists." It added,
however, that these exhibits should be admitted in evidence "until such time as the
Supreme Court categorically rules on the admissibility or inadmissibility of this class of
evidence" because "the reception of these documentary exhibits (price quotations) as
evidence rests on the sound discretion of the trial court." 38 Reference to Section 45, Rule
130, however, would show that the conclusion of the Court of Appeals on the matter was
arbitrarily arrived at. This rule states:

Commercial lists and the like. — Evidence of statements of matters of

interest to persons engaged in an occupation contained in a list, register,
periodical, or other published compilation is admissible as tending to prove
the truth of any relevant matter so stated if that compilation is published for
use by persons engaged in that occupation and is generally used and relied
upon by them there.

Under Section 45 of the aforesaid Rule, a document is a commercial list if: (1) it is a
statement of matters of interest to persons engaged in an occupation; (2) such statement
is contained in a list, register, periodical or other published compilation; (3) said
compilation is published for the use of persons engaged in that occupation, and (4) it is
generally used and relied upon by persons in the same occupation.

Based on the above requisites, it is our considered view that Exhibits B, C, D, E, F and
H 39 are not "commercial lists" for these do not belong to the category of "other published
compilations" under Section 45 aforequoted. Under the principle of ejusdem generis,
"(w)here general words follow an enumeration of persons or things, by words of a
particular and specific meaning, such general words are not to be construed in their
widest extent, but are to be held as applying only to persons or things of the same kind or
class as those specifically mentioned." 40 The exhibits mentioned are mere price
quotations issued personally to Del Rosario who requested for them from dealers of
equipment similar to the ones lost at the collision of the two vessels. These are not
published in any list, register, periodical or other compilation on the relevant subject
matter. Neither are these "market reports or quotations" within the purview of
"commercial lists" as these are not "standard handbooks or periodicals, containing data
of everyday professional need and relied upon in the work of the occupation." 41 These are
simply letters responding to the queries of Del Rosario. Thus, take for example Exhibit D
which reads:

January 20, 1987

PROFORMA INVOICE NO. PSPI-05/87-NAV

MARIA EFIGINIA FISHING CORPORATION

Navotas, Metro Manila

Attention: MR. EDDIE DEL ROSARIO

Gentlemen:

In accordance to your request, we are pleated to quote our Cummins

Marine Engine, to wit.

Two (2) units CUMMINS Marine Engine model

N855-M, 195 bhp. at 1800 rpm., 6-cylinder in-
line, 4-stroke cycle, natural aspirated, 5 1/2 in.
x 6 in. bore and stroke, 855 cu. In.
displacement, keel-cooled, electric starting
coupled with Twin-Disc Marine gearbox model
MG-509, 4.5:1 reduction ratio, includes oil
cooler, companion flange, manual and
standard accessories as per attached sheet.

Price FOB Manila P580,000.00/unit

Total FOB Manila P1,160,000.00

TERMS : CASH

DELIVERY : 60-90 days from date of order.

VALIDITY : Subject to our final confirmation.

WARRANTY : One (1) full year against factory defect.

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To be sure, letters and telegrams are admissible in evidence but these are, however,
subject to the general principles of evidence and to various rules relating to documentary
evidence. 42 Hence, in one case, it was held that a letter from an automobile dealer offering
an allowance for an automobile upon purchase of a new automobile after repairs had been
completed, was not a "price current" or "commercial list" within the statute which made
such items presumptive evidence of the value of the article specified therein. The letter
was not admissible in evidence as a "commercial list" even though the clerk of the dealer
testified that he had written the letter in due course of business upon instructions of the
dealer. 43

But even on the theory that the Court of Appeals correctly ruled on the admissibility of
those letters or communications when it held that unless "plainly irrelevant, immaterial or
incompetent," evidence should better be admitted rather than rejected on "doubtful or
technical grounds," 44 the same pieces of evidence, however, should not have been given
probative weight. This is a distinction we wish to point out. Admissibility of evidence
refers to the question of whether or not the circumstance (or evidence) is to considered at
all. 45 On the other hand, the probative value of evidence refers to the question of whether
or not it proves an issue. 46 Thus, a letter may be offered in evidence and admitted as such
but its evidentiary weight depends upon the observance of the rules on evidence.
Accordingly, the author of the letter should be presented as witness to provide the other
party to the litigation the opportunity to question him on the contents of the letter. Being
mere hearsay evidence, failure to present the author of the letter renders its contents
suspect. As earlier stated, hearsay evidence, whether objected to or not, has no probative
value. Thus:

The courts differ as to the weight to be given to hearsay evidence admitted

without objection. Some hold that when hearsay has been admitted without
objection, the same may be considered as any other properly admitted
 testimony. Others maintain that it is entitled to no more consideration than
if it had been excluded.

The rule prevailing in this jurisdiction is the latter one. Our Supreme Court
held that although the question of admissibility of evidence can not be
raised for the first time on appeal, yet if the evidence is hearsay it has no
probative value and should be disregarded whether objected to or not. "If
no objection is made" — quoting Jones on Evidence — "it (hearsay)
becomes evidence by reason of the want of such objection even though its
admission does not confer upon it any new attribute in point of weight. Its
nature and quality remain the same, so far as its intrinsic weakness and
incompetency to satisfy the mind are concerned, and as opposed to direct
primary evidence, the latter always prevails.

The failure of the defense counsel to object to the presentation of

incompetent evidence, like hearsay evidence or evidence that violates the
rules of res inter alios acta, or his failure to ask for the striking out of the
same does not give such evidence any probative value. But admissibility of
evidence should not be equated with weight of evidence. Hearsay evidence
whether objected to or not has no probative value. 47

Accordingly, as stated at the outset, damages may not be awarded on the basis of
hearsay evidence. 48

Nonetheless, the non-admissibility of said exhibits does not mean that it totally deprives
private respondent of any redress for the loss of its vessel. This is because in Lufthansa
German Airlines v. Court of Appeals, 49 the Court said:

In the absence of competent proof on the actual damage suffered, private

respondent is "entitled to nominal damages which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by defendant, may be vindicated and recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered." [Emphasis
supplied].

Nominal damages are awarded in every obligation arising from law, contracts, quasi-
contracts, acts or omissions punished by law, and quasi-delicts, or in every case where
property right has been invaded. 50Under Article 2223 of the Civil Code, "(t)he adjudication
of nominal damages shall preclude further contest upon the right involved and all
accessory questions, as between the parties to the suit, or their respective heirs and
assigns."

Actually, nominal damages are damages in name only and not in fact. Where these are
allowed, they are not treated as an equivalent of a wrong inflicted but simply in
recognition of the existence of a technical injury. 51 However, the amount to be awarded as
nominal damages shall be equal or at least commensurate to the injury sustained by
private respondent considering the concept and purpose of such damages. 52 The amount
of nominal damages to be awarded may also depend on certain special reasons extant in
the case. 53

Applying now such principles to the instant case, we have on record the fact that
petitioner's vesselPetroparcel was at fault as well as private respondent's complaint
claiming the amount of P692,680.00 representing the fishing nets, boat equipment and
cargoes that sunk with the M/V Maria Efigenia XV. In its amended complaint, private
respondent alleged that the vessel had an actual value of P800,000.00 but it had been paid
insurance in the amount of P200,000.00 and, therefore, it claimed only the amount of
P600,000.00. Ordinarily, the receipt of insurance payments should diminish the total value
of the vessel quoted by private respondent in his complaint considering that such
payment is causally related to the loss for which it claimed compensation. This Court
believes that such allegations in the original and amended complaints can be the basis for
determination of a fair amount of nominal damages inasmuch as a complaint alleges the
ultimate facts constituting the plaintiffs cause of
action. 54 Private respondent should be bound by its allegations on the amount of its
claims.

With respect to petitioner's contention that the lower court did not acquire jurisdiction
over the amended complaint increasing the amount of damages claimed to P600,000.00,
we agree with the Court of Appeals that the lower court acquired jurisdiction over the
case when private respondent paid the docket fee corresponding to its claim in its original
complaint. Its failure to pay the docket fee corresponding to its increased claim for
damages under the amended complaint should not be considered as having curtailed the
lower court's jurisdiction. Pursuant to the ruling in Sun Insurance Office, Ltd. (SIOL) v.
Asuncion, 55 the unpaid docket fee should be considered as a lien on the judgment even
though private respondent specified the amount of P600,000.00 as its claim for damages
in its amended complaint.

Moreover, we note that petitioner did not question at all the jurisdiction of the lower court
on the ground of insufficient docket fees in its answers to both the amended complaint
and the second amended complaint. It did so only in its motion for reconsideration of the
decision of the lower court after it had received an adverse decision. As this Court held
in Pantranco North Express, Inc. v. Court of Appeals, 56 participation in all stages of the
case before the trial court, that included invoking its authority in asking for affirmative
relief, effectively barred petitioner by estoppel from challenging the court's jurisdiction.
Notably, from the time it filed its answer to the second amended complaint on April 16,
1985, 57 petitioner did not question the lower court's jurisdiction. It was only on December
29, 1989 58 when it filed its motion for reconsideration of the lower court's decision that
petitioner raised the question of the lower court's lack of jurisdiction. Petitioner thus
foreclosed its right to raise the issue of jurisdiction by its own inaction.

WHEREFORE, the challenged decision of the Court of Appeals dated October 14, 1992 in
CA-G.R. CV No. 26680 affirming that of the Regional Trial Court of Caloocan City, Branch
121, is hereby MODIFIED insofar as it awarded actual damages to private respondent
Maria Efigenia Fishing Corporation in the amount of P6,438,048.00 for lack of evidentiary
bases therefor. Considering the fact, however, that: (1) technically petitioner sustained
injury but which, unfortunately, was not adequately and properly proved, and (2) this case
has dragged on for almost two decades, we believe that an award of Two Million
(P2,000,000.00) 59 in favor of private respondent as and for nominal damages is in order.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 109093 November 20, 1995

LOPE MACHETE, NICASIO JUMAWID, SANTIAGO JUMAWID, JOHN JUMAWID, PEDRO
GAMAYA, RENATO DELGADO, FERNANDO OMBAHIN, MATIAS ROLEDA, PASIANO
BARO, IGNACIO BARO, MAMERTO PLARAS and JUSTINIANO VILLALON, petitioners,
vs.
COURT OF APPEALS and CELESTINO VILLALON, respondents.

BELLOSILLO, J.:

Are Regional Trial Courts' vested with jurisdiction over cases for collection of back rentals from
leasehold tenants?

On 21 July 1989 private respondent Celestino Villalon filed a complaint for collection of back
rentals and damages before the Regional Trial Court of Tagbilaran City against petitioners Lope
Machete, Nicasio Jumawid, Santiago Jumawid, John Jumawid, Pedro Gamaya, Renato Delgado,
Fernando Ombahin, Matias Roleda, Pasiano Baro, Ignacio Baro, Mamerto Plaras and Justiniano
Villalon. The complaint alleged that the parties entered into a leasehold agreement with respect
to private respondent's landholdings at Poblacion Norte, Carmen, Bohol, under which petitioners
were to pay private respondent a certain amount or percentage of their harvests. However,
despite repeated demands and with no valid reason, petitioners failed to pay their respective
rentals. Private respondent thus prayed that petitioners be ordered to pay him back rentals and
damages.

Petitioners moved to dismiss the complaint on the ground of lack of jurisdiction of the trial court
over the subject matter. They contended that the case arose out of or was connected with
agrarian relations, hence, the subject matter of the complaint fell squarely within the jurisdiction
of the Department of Agrarian Reform (DAR) in the exercise of its quasi-judicial powers under
Sec. 1, pars. (a) and (b), Rule II of the Revised Rules of the Department of Agrarian Reform
Adjudication Board (DARAB).

On 22 August 1989 the trial court granted the motion to dismiss,1 and on 28 September 1989
denied the motion for reconsideration.2

Private respondent sought annulment of both orders before respondent Court of Appeals which
on 21 May 1992 rendered judgment reversing the trial court and directing it to assume jurisdiction
over the case3 on the basis of its finding that —

. . . The CARL (RA 6657) and other pertinent laws on agrarian reform cannot be
seen to encompass a case of simple collection of back rentals by virtue of an
agreement, as the one at bar, where there is no agrarian dispute to speak of
(since the allegation of failure to pay the agreed rentals was never controverted in
the motion to dismiss) nor the issue raised on application, implementation,
enforcement or interpretation of these laws.4

On 18 January 1993 the appellate court rejected the motion for

reconsideration.5

Petitioners maintain that the alleged cause of action of private respondent arose from an agrarian
relation and that respondent appellate court failed to consider that the agreement involved is an
agricultural leasehold contract, hence, the dispute is agrarian in nature. The laws governing its
execution and the rights and obligations of the parties thereto are necessarily R.A. 3844,6 R.A.
66577 and other pertinent agrarian laws. Considering that the application, implementation,
enforcement or interpretation of said laws are matters which have been vested in the DAR, this
case is outside the jurisdiction of the trial court.
The petition is impressed with merit. Section 17 of E.O. 2298 vested the DAR with quasi-judicial
powers to determine and adjudicate agrarian reform matters as well as exclusive original
jurisdiction over all matters involving implementation of agrarian reform except those falling under
the exclusive original jurisdiction of the Department of Agriculture and the Department of
Environment and Natural Resources in accordance with law.

Executive Order 129-A, while in the process of reorganizing and strengthening the DAR, created
the DARAB to assume the powers and functions with respect to the adjudication of agrarian
reform cases.9 Section 1, pars. (a) and (b), Rule II of the Revised Rules of the DARAB explicitly
provides —

Sec. 1. Primary, Original and Appellate Jurisdiction. — The Agrarian Reform

Adjudication Board shall have primary jurisdiction, both original and appellate, to
determine and adjudicate all agrarian disputes, cases, controversies, and matters
or incidents involving the implementation of the Comprehensive Agrarian Reform
Program under Republic Act No. 6657, Executive Orders Nos. 229, 228 and 129-
A, Republic Act No. 3844 as amended by Republic Act No. 6389, Presidential
Decree No. 27 and other agrarian laws and their implementing rules and
regulations. Specifically, such jurisdiction shall extend over but not be limited to
the following: (a) Cases involving the rights and obligations of persons engaged
in the cultivation and use of agricultural land covered by the Comprehensive
Agrarian Reform Program (CARP) and other agrarian laws, (b) Cases involving
the valuation of land, and determination and payment of just compensation, fixing
and collection of lease rentals, disturbance compensation, amortization
payments, and similar disputes concerning the functions of the Land Bank . . .

In Quismundo v. Court of Appeals,10 this Court interpreted the effect of Sec. 17 of E.O. 229 on
P.D. 946, which amended R.A. 3844, the agrarian law then in force —

The above quoted provision (Sec. 17) should be deemed to have repealed11 Sec.
12 (a) and (b) of Presidential Decree No. 946 which invested the then courts of
agrarian relations with original exclusive jurisdiction over cases and questions
involving rights granted and obligations imposed by presidential issuances
promulgated in relation to the agrarian reform program.

Formerly, under Presidential Decree No. 946, amending Chapter IX of Republic

Act No. 3844, the courts of agrarian relations had original and exclusive
jurisdiction over "cases involving the rights and obligations of persons in the
cultivation and use of agricultural land except those cognizable by the National
Labor Relations Commission" and "questions involving rights granted and
obligations imposed by laws, Presidential Decrees, Orders, Instructions, Rules
and Regulations issued and promulgated in relation to the agrarian reform
program," except those matters involving the administrative implementation of the
transfer of land to the tenant-farmer under Presidential Decree No. 27 and
amendments thereto which shall be exclusively cognizable by the Secretary of
Agrarian Reform.12

In 1980, upon the passage of Batas Pambansa Blg. 129, otherwise known as the
Judiciary Reorganization Act, the courts of agrarian relations were integrated into
the regional trial courts and the jurisdiction of the former was vested in the latter
courts.13

However, with the enactment of Executive Order No. 229, which took effect on
August 29, 1987, fifteen (15) days after its release for publication in the Official
Gazette,14 the regional trial courts were divested of their general jurisdiction to try
 agrarian reform matters. The said jurisdiction is now vested in the Department of
Agrarian Reform.

On 15 June 1988 R.A. 6657 was passed containing provisions which evince and support the
intention of the legislature to vest in the DAR exclusive jurisdiction over all agrarian reform
matters.15 Section 50 thereof substantially reiterates Sec. 17 of E.O. 229 thus —

Sec. 50. Quasi-Judicial Powers of the DAR. — The DAR is hereby vested with
primary jurisdiction to determine and adjudicate agrarian reform matters and shall
have exclusive original jurisdiction over all matters involving the implementation
of agrarian reform, except those falling under the exclusive jurisdiction of the
Department of Agriculture (DA) and the Department of Environment and Natural
Resources
(DENR) . . .

Section 3, par. (d), thereof defines the term "agrarian dispute" as referring to any
controversy relating to tenurial arrangements, whether leasehold, tenancy, stewardship
or otherwise, over lands devoted to agriculture, including disputes concerning farm
workers' associations or representation of persons in negotiating, fixing, maintaining,
changing or seeking to arrange terms or conditions of such tenurial arrangements.

However it may be mentioned in passing that the Regional Trial Courts have not been completely
divested of jurisdiction over agrarian reform matters. Section 56 of R.A. 6657 confers "special
jurisdiction" on "Special Agrarian Courts," which are Regional Trial Courts designated by this
Court — at least one (1) branch within each province — to act as such. These Regional Trial
Courts designated as Special Agrarian Courts have, according to Sec. 57 of the same law,
original and exclusive jurisdiction over: (a) all petitions for the determination of just compensation
to landowners, and (b) the prosecution of all criminal offenses under the Act.16

Consequently, there exists an agrarian dispute in the case at bench which is exclusively
cognizable by the DARAB. The failure of petitioners to pay back rentals pursuant to the leasehold
contract with private respondent is an issue which is clearly beyond the legal competence of the
trial court to resolve. The doctrine of primary jurisdiction does not warrant a court to arrogate unto
itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an
administrative body of special competence.17

Thus, respondent appellate court erred in directing the trial court to assume jurisdiction over this
case. At any rate, the present legal battle is "not altogether lost" on the part of private respondent
because as this Court was quite emphatic in Quismundo v. Court of Appeals,18 the resolution by
the DAR is to the best advantage of the parties since it is in a better position to resolve agrarian
disputes, being the administrative agency presumably possessing the necessary expertise on the
matter. Further, the proceedings therein are summary in nature and the department is not bound
by the technical rules of procedure and evidence, to the end that agrarian reform disputes and
other issues will be adjudicated in a just, expeditious and inexpensive proceeding.19

WHEREFORE, the decision of respondent Court of Appeals as well as its resolution denying
reconsideration is REVERSED and SET ASIDE. The orders of the Regional Trial Court of
Tagbilaran City dated 22 August and 28 September 1989 are REINSTATED. Consequently, let
the records of this case be immediately transmitted to the appropriate Department of Agrarian
Reform Adjudication Board (DARAB) for proper adjudication in accordance with the ruling
in Vda. de Tangub v. Court of Appeals 20 and reiterated in Quismundo v. Court of Appeals,21 as well as pertinent
agrarian laws.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 83234 April 18, 1989

OSIAS ACADEMY, petitioner,

vs.
THE DEPARTMENT OF LABOR AND EMPLOYMENT, CONCHITA G. MERCADO and
CELERIO MERCADO,respondents.

Jose P. Villamor, Jr. for petitioner.

The Solicitor General for public respondent.

NARVASA, J.:

The award by the respondent Minister of Labor 1 of separation pay, on grounds of equity, to two
employees 2 of petitioner Osias Academy despite the avowedly correct grant of clearance to it to
terminate the services of said employees on the ground of loss of confidence based on a
satisfactory showing of embezzlement of company funds, serious misconduct, etc., is challenged
in the special civil action of certiorari at bar. The award is made to rest on this Court's ruling
in San Miguel Corporation vs. the Deputy Minister of Labor and Employment et al., G.R. Nos. L-
61232-33, December 29,1983,145 SCRA 196.

A similar issue was involved in a case recently decided by this Court en banc Philippine Long
Distance Telephone Company vs. NLRC, et al., G.R. No. 80609, August 23,1988. In that case,
this Court undertook a review of past precedents, sanctioning the grant of separation pay to
employees dismissed for some just cause, namely, Firestone Tire and Rubber Company of the
Philippines vs. Lariosa 3 Soco v. Mercantile Corporation of Davao,4 Filipro, Inc. vs. NLRC 5 Metro
Drug Corporation vs. NLRC,6 Engineering Equipment, Inc, vs. NLRC 7 New Frontier Mines, Inc.
vs. NLRC 8 and San Miguel Corporation vs. Deputy Minister of Labor and Employment, et al. 9 It
was noted that these cases constituted an exception to the rule in the Labor Code that a person
dismissed for cause is not entitled to separation pay, the exception being based on
considerations of equity. The Court observed, however, that the cited decisions had "not been
consistent as to the justification for the grant of separation pay in the amount and rate of such
award," and pointed out the need for a re-examination of the policy therein enunciated, in order
to rationalize the exception, "to make it fair to both labor and management, especially to labor."
The Court then proceeded to lay down the following principles 10 which are hereby re-affirmed:

There should be no question that where it comes to such valid but not iniquitous
causes as failure to comply with work standards, the grant of separation pay to
the dismissed employee may be both just and compassionate, particularly if he
has worked for some time with the company. For example, a subordinate who
has irreconcilable policy or personal differences with his employer may be validly
dismissed for demonstrated loss of confidence, which is an allowable ground. A
working mother who has to be frequently absent because she has also to take
care of her child may also be removed because of her poor attendance, this
being another authorized ground. It is not the employee's fault if he does not have
the necessary aptitude for his work but on the other hand the company cannot be
required to maintain him just the same at the expense of the efficiency of its
operations. He too may be validly replaced. Under these and similar
 circumstances, however, the award to the employee of separation pay would be
sustainable under the social justice policy even if the separation is for cause.

But where the cause of the separation is more serious than mere inefficiency, the
generosity of the law must be more discerning. There is no doubt it is
compassionate to give separation pay to a salesman if he is dismissed for his
inability to fill his quota but surely he does not deserve such generosity if his
offense is misappropriation of the receipts of his sales. This is no longer mere
incompetence but clear dishonesty. A security guard found sleeping on the job is
doubtless subject to dismissal but may be allowed separation pay since his
conduct, while inept, is not depraved. But if he was in fact not really sleeping but
sleeping with a prostitute during his tour of duty and in the company premises,
the situation is changed completely. This is not only inefficiency but immorality
and the grant of separation pay would be entirely unjustified.

We hold that henceforth separation pay shall be allowed as a measure of social

justice only in those instances where the employee is validly dismissed for
causes other than serious misconduct or those reflecting on his moral character.
Where the reason for the valid dismissal is, for example, habitual intoxication or
an offense involving moral turpitude, like theft or illicit sexual relations with a
fellow worker, the employer may not be required to give the dismissed employee
separation pay, or financial assistance, or whatever other name it is called, on the
ground of social justice.

A contrary rule would, as the petitioner correctly argues, have the effect of
rewarding rather than punishing the erring employee for his offense. And we do
not agree that the punishment is his dismissal only and that the separation pay
has nothing to do with the wrong he has committed. Of course it has. Indeed, if
the employee who steals from the company is granted separation pay even as he
is validly dismissed, it is not unlikely that he will commit a similar offense in his
next employment because he thinks he can expect a little leniency if he is again
found out. This kind of misplaced compassion is not going to do labor in general
any good as it will encourage the infiltration of its ranks by those who do not
deserve the protection and concern of the Constitution.

The policy of social justice is not intended to countenance wrongdoing simply

because it is committed by the underprivileged. At best it may mitigate the
penalty but it certainly will not condone the offense. Compassion for the poor is
an imperative of every humane society but only when the recipient is not a rascal
claiming an undeserved privilege. Social justice cannot be permitted to be the
refuge of scoundrels any more than can equity be an impediment to the
punishment of the guilty. Those who invoke social justice may do so only if their
hands are clean and their motives blameless and not simply because they
happen to be poor. This great policy of our Constitution is not meant for the
protection of those who have proved they are not worthy of it, like the workers
who have tainted the cause of labor with the blemishes of their own character.

In light of the foregoing propositions, it is evident that the grant of separation pay to the private
respondents is unjustified, they having been dismissed for causes reflecting on their moral
character.

WHEREFORE, the order of respondent Minister of Labor dated January 16, 1987, upholding the
grant by the Regional Director to petitioner Academy of clearance to terminate the services of the
respondent spouses, is AFFIRMED except for the grant of separation pay to the latter which is
hereby DISALLOWED.
IT IS SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 130866 September 16, 1998

ST. MARTIN FUNERAL HOME, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and BIENVENIDO ARICAYOS, respondents.

REGALADO, J.:

The present petition for certiorari stemmed from a complaint for illegal dismissal filed by herein
private respondent before the National Labor Relations Commission (NLRC), Regional
Arbitration Branch No. III, in San Fernando, Pampanga. Private respondent alleges that he
started working as Operations Manager of petitioner St. Martin Funeral Home on February 6,
1995. However, there was no contract of employment executed between him and petitioner nor
was his name included in the semi-monthly payroll. On January 22, 1996, he was dismissed from
his employment for allegedly misappropriating P38,000.00 which was intended for payment by
petitioner of its value added tax (VAT) to the Bureau of Internal Revenue (BIR). 1

Petitioner on the other hand claims that private respondent was not its employee but only the
uncle of Amelita Malabed, the owner of petitioner St. Martin's Funeral Home. Sometime in 1995,
private respondent, who was formerly working as an overseas contract worker, asked for
financial assistance from the mother of Amelita. Since then, as an indication of gratitude, private
respondent voluntarily helped the mother of Amelita in overseeing the business.

In January 1996, the mother of Amelita passed away, so the latter then took over the
management of the business. She then discovered that there were arrears in the payment of
taxes and other government fees, although the records purported to show that the same were
already paid. Amelita then made some changes in the business operation and private
respondent and his wife were no longer allowed to participate in the management thereof. As a
consequence, the latter filed a complaint charging that petitioner had illegally terminated his
employment.2

Based on the position papers of the parties, the labor arbiter rendered a decision in favor of
petitioner on October 25, 1996 declaring that no employer-employee relationship existed
between the parties and, therefore, his office had no jurisdiction over the case. 3

Not satisfied with the said decision, private respondent appealed to the NLRC contending that
the labor arbiter erred (1) in not giving credence to the evidence submitted by him; (2) in holding
that he worked as a "volunteer" and not as an employee of St. Martin Funeral Home from
February 6, 1995 to January 23, 1996, or a period of about one year; and (3) in ruling that there
was no employer-employee relationship between him and petitioner.4
On June 13, 1997, the NLRC rendered a resolution setting aside the questioned decision and
remanding the case to the labor arbiter for immediate appropriate proceedings.5 Petitioner then
filed a motion for reconsideration which was denied by the NLRC in its resolution dated August
18, 1997 for lack of merit,6 hence the present petition alleging that the NLRC committed grave
abuse of discretion.7

Before proceeding further into the merits of the case at bar, the Court feels that it is now exigent
and opportune to reexamine the functional validity and systemic practicability of the mode of
judicial review it has long adopted and still follows with respect to decisions of the NLRC. The
increasing number of labor disputes that find their way to this Court and the legislative changes
introduced over the years into the provisions of Presidential Decree (P.D.) No. 442 (The Labor
Code of the Philippines and Batas Pambansa Blg. (B.P. No.) 129 (The Judiciary Reorganization
Act of 1980) now stridently call for and warrant a reassessment of that procedural aspect.

We prefatorily delve into the legal history of the NLRC. It was first established in the Department
of Labor by P.D. No. 21 on October 14, 1972, and its decisions were expressly declared to be
appealable to the Secretary of Labor and, ultimately, to the President of the Philippines.

On May 1, 1974, P.D. No. 442 enacted the Labor Code of the Philippines, the same to take effect
six months after its promulgation. 8 Created and regulated therein is the present NLRC which was
attached to the Department of Labor and Employment for program and policy coordination
only.9 Initially, Article 302 (now, Article 223) thereof also granted an aggrieved party the remedy
of appeal from the decision of the NLRC to the Secretary of Labor, but P.D. No. 1391
subsequently amended said provision and abolished such appeals. No appellate review has
since then been provided for.

Thus, to repeat, under the present state of the law, there is no provision for appeals from the
decision of the NLRC. 10 The present Section 223, as last amended by Section 12 of R.A. No.
6715, instead merely provides that the Commission shall decide all cases within twenty days
from receipt of the answer of the appellee, and that such decision shall be final and executory
after ten calendar days from receipt thereof by the parties.

When the issue was raised in an early case on the argument that this Court has no jurisdiction to
review the decisions of the NLRC, and formerly of the Secretary of Labor, since there is no legal
provision for appellate review thereof, the Court nevertheless rejected that thesis. It held that
there is an underlying power of the courts to scrutinize the acts of such agencies on questions of
law and jurisdiction even though no right of review is given by statute; that the purpose of judicial
review is to keep the administrative agency within its jurisdiction and protect the substantial rights
of the parties; and that it is that part of the checks and balances which restricts the separation of
powers and forestalls arbitrary and unjust adjudications. 11

Pursuant to such ruling, and as sanctioned by subsequent decisions of this Court, the remedy of
the aggrieved party is to timely file a motion for reconsideration as a precondition for any further
or subsequent remedy, 12 and then seasonably avail of the special civil action of certiorari under
Rule 65, 13 for which said Rule has now fixed the reglementary period of sixty days from notice of
the decision. Curiously, although the 10-day period for finality of the decision of the NLRC may
already have lapsed as contemplated in Section 223 of the Labor Code, it has been held that this
Court may still take cognizance of the petition for certiorari on jurisdictional and due process
considerations if filed within the reglementary period under Rule 65. 14

Turning now to the matter of judicial review of NLRC decisions, B.P. No. 129 originally provided
as follows:

Sec. 9. Jurisdiction. — The Intermediate Appellate Court shall exercise:

 (1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas
corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid
of its appellate jurisdiction;

(2) Exclusive original jurisdiction over actions for annulment of judgments of

Regional Trial Courts; and

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders, or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards, or commissions, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution,
the provisions of this Act, and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of
1948.

The Intermediate Appellate Court shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to resolve
factual issues raised in cases falling within its original and appellate jurisdiction,
including the power to grant and conduct new trials or further proceedings.

These provisions shall not apply to decisions and interlocutory orders issued
under the Labor Code of the Philippines and by the Central Board of Assessment
Appeals. 15

Subsequently, and as it presently reads, this provision was amended by R.A. No. 7902 effective
March 18, 1995, to wit:

Sec. 9. Jurisdiction. — The Court of Appeals shall exercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas

corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid
of its appellate jurisdiction;

(2) Exclusive original jurisdiction over actions for annulment of judgments of

Regional Trial Courts; and

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including the Securities and Exchange
Commission, the Social Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution,
the Labor Code of the Philippines under Presidential Decree No. 442, as
amended, the provisions of this Act, and of subparagraph (1) of the third
paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the
Judiciary Act of 1948.

The Court of Appeals shall have the power to try cases and conduct hearings,
receive evidence and perform any and all acts necessary to resolve factual
issues raised in cases falling within its original and appellate jurisdiction, including
the power to grant and conduct new trials or further proceedings. Trials or
hearings in the Court of Appeals must be continuous and must be completed
within, three (3) months, unless extended by the Chief Justice.
It will readily be observed that, aside from the change in the name of the lower appellate
court, 16 the following amendments of the original provisions of Section 9 of B.P. No. 129 were
effected by R.A. No. 7902, viz.:

1. The last paragraph which excluded its application to the Labor Code of the Philippines and the
Central Board of Assessment Appeals was deleted and replaced by a new paragraph granting
the Court of Appeals limited powers to conduct trials and hearings in cases within its jurisdiction.

2. The reference to the Labor Code in that last paragraph was transposed to paragraph (3) of the
section, such that the original exclusionary clause therein now provides "except those falling
within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the
Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of
this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth
paragraph of Section 17 of the Judiciary Act of 1948." (Emphasis supplied).

3. Contrarily, however, specifically added to and included among the quasi-judicial agencies over
which the Court of Appeals shall have exclusive appellate jurisdiction are the Securities and
Exchange Commission, the Social Security Commission, the Employees Compensation
Commission and the Civil Service Commission.

This, then, brings us to a somewhat perplexing impassè, both in point of purpose and
terminology. As earlier explained, our mode of judicial review over decisions of the NLRC has for
some time now been understood to be by a petition for certiorari under Rule 65 of the Rules of
Court. This is, of course, a special original action limited to the resolution of jurisdictional issues,
that is, lack or excess of jurisdiction and, in almost all cases that have been brought to us, grave
abuse of discretion amounting to lack of jurisdiction.

It will, however, be noted that paragraph (3), Section 9 of B.P. No. 129 now grants
exclusive appellate jurisdiction to the Court of Appeals over all final adjudications of the Regional
Trial Courts and the quasi-judicial agencies generally or specifically referred to therein except,
among others, "those falling within the appellate jurisdiction of the Supreme Court in accordance
with . . . the Labor Code of the Philippines under Presidential Decree No. 442, as amended, . . .
." This would necessarily contradict what has been ruled and said all along that appeal does not
lie from decisions of the NLRC. 17 Yet, under such excepting clause literally construed, the appeal
from the NLRC cannot be brought to the Court of Appeals, but to this Court by necessary
implication.

The same exceptive clause further confuses the situation by declaring that the Court of Appeals
has no appellate jurisdiction over decisions falling within the appellate jurisdiction of the Supreme
Court in accordance with the Constitution, the provisions of B.P. No. 129, and those specified
cases in Section 17 of the Judiciary Act of 1948. These cases can, of course, be properly
excluded from the exclusive appellate jurisdiction of the Court of Appeals. However, because of
the aforementioned amendment by transposition, also supposedly excluded are cases falling
within the appellate jurisdiction of the Supreme Court in accordance with the Labor Code. This is
illogical and impracticable, and Congress could not have intended that procedural gaffe, since
there are no cases in the Labor Code the decisions, resolutions, orders or awards wherein are
within the appellate jurisdiction of the Supreme Court or of any other court for that matter.

A review of the legislative records on the antecedents of R.A. No. 7902 persuades us that there
may have been an oversight in the course of the deliberations on the said Act or an imprecision
in the terminology used therein. In fine, Congress did intend to provide for judicial review of the
adjudications of the NLRC in labor cases by the Supreme Court, but there was an inaccuracy in
the term used for the intended mode of review. This conclusion which we have reluctantly but
prudently arrived at has been drawn from the considerations extant in the records of Congress,
more particularly on Senate Bill No. 1495 and the Reference Committee Report on S. No.
1495/H. No. 10452. 18
In sponsoring Senate Bill No. 1495, Senator Raul S. Roco delivered his sponsorship
speech 19 from which we reproduce the following excerpts:

The Judiciary Reorganization Act, Mr. President, Batas Pambansa Blg. 129,
reorganized the Court of Appeals and at the same time expanded its jurisdiction
and powers. Among others, its appellate jurisdiction was expanded to cover not
only final judgment of Regional Trial Courts, but also all final judgment(s),
decisions, resolutions, orders or awards of quasi-judicial agencies,
instrumentalities, boards and commissions, except those falling within the
appellate jurisdiction of the Supreme Court in accordance with the Constitution,
the provisions of BP Blg. 129 and of subparagraph 1 of the third paragraph and
subparagraph 4 of Section 17 of the Judiciary Act of 1948.

Mr. President, the purpose of the law is to ease the workload of the Supreme
Court by the transfer of some of its burden of review of factual issues to the Court
of Appeals. However, whatever benefits that can be derived from the expansion
of the appellate jurisdiction of the Court of Appeals was cut short by the last
paragraph of Section 9 of Batas Pambansa Blg. 129 which excludes from its
coverage the "decisions and interlocutory orders issued under the Labor Code of
the Philippines and by the Central Board of Assessment Appeals.

Among the highest number of cases that are brought up to the Supreme Court
are labor cases. Hence, Senate Bill No. 1495 seeks to eliminate the exceptions
enumerated in Section 9 and, additionally, extends the coverage of appellate
review of the Court of Appeals in the decision(s) of the Securities and Exchange
Commission, the Social Security Commission, and the Employees Compensation
Commission to reduce the number of cases elevated to the Supreme Court.
(Emphases and corrections ours)

xxx xxx xxx

Senate Bill No. 1495 authored by our distinguished Colleague from Laguna
provides the ideal situation of drastically reducing the workload of the Supreme
Court without depriving the litigants of the privilege of review by an appellate
tribunal.

In closing, allow me to quote the observations of former Chief Justice Teehankee

in 1986 in the Annual Report of the Supreme Court:

. . . Amendatory legislation is suggested so as to relieve the

Supreme Court of the burden of reviewing these cases which
present no important issues involved beyond the particular fact
and the parties involved, so that the Supreme Court may wholly
devote its time to cases of public interest in the discharge of its
mandated task as the guardian of the Constitution and the
guarantor of the people's basic rights and additional task
expressly vested on it now "to determine whether or not there has
been a grave abuse of discretion amounting to lack of jurisdiction
on the part of any branch or instrumentality of the Government.

We used to have 500,000 cases pending all over the land, Mr. President. It has
been cut down to 300,000 cases some five years ago. I understand we are now
back to 400,000 cases. Unless we distribute the work of the appellate courts, we
shall continue to mount and add to the number of cases pending.
 In view of the foregoing, Mr. President, and by virtue of all the reasons we have
submitted, the Committee on Justice and Human Rights requests the support and
collegial approval of our Chamber.

xxx xxx xxx

Surprisingly, however, in a subsequent session, the following Committee Amendment was

introduced by the said sponsor and the following proceedings transpired: 20

Senator Roco. On page 2, line 5, after the line "Supreme Court in accordance
with the Constitution," add the phrase "THE LABOR CODE OF THE
PHILIPPINES UNDER P.D. 442, AS AMENDED." So that it becomes clear, Mr.
President, that issues arising from the Labor Code will still be appealable to the
Supreme Court.

The President. Is there any objection? (Silence) Hearing none, the amendment is
approved.

Senator Roco. On the same page, we move that lines 25 to 30 be deleted. This
was also discussed with our Colleagues in the House of Representatives and as
we understand it, as approved in the House, this was also deleted, Mr. President.

The President. Is there any objection? (Silence) Hearing none, the amendment is
approved.

Senator Roco. There are no further Committee amendments, Mr. President.

Senator Romulo. Mr. President, I move that we close the period of Committee
amendments.

The President. Is there any objection? (Silence) Hearing none, the amendment is
approved. (Emphasis supplied).

xxx xxx xxx

Thereafter, since there were no individual amendments, Senate Bill No. 1495 was passed on
second reading and being a certified bill, its unanimous approval on third reading followed. 21 The
Conference Committee Report on Senate Bill No. 1495 and House Bill No. 10452, having
theretofore been approved by the House of Representatives, the same was likewise approved by
the Senate on February 20, 1995, 22 inclusive of the dubious formulation on appeals to the
Supreme Court earlier discussed.

The Court is, therefore, of the considered opinion that ever since appeals from the NLRC to the
Supreme Court were eliminated, the legislative intendment was that the special civil action
of certiorari was and still is the proper vehicle for judicial review of decisions of the NLRC. The
use of the word "appeal" in relation thereto and in the instances we have noted could have been
a lapsus plumae because appeals by certiorari and the original action for certiorari are both
modes of judicial review addressed to the appellate courts. The important distinction between
them, however, and with which the Court is particularly concerned here is that the special civil
action of certiorari is within the concurrent original jurisdiction of this Court and the Court of
Appeals; 23 whereas to indulge in the assumption that appeals by certiorari to the Supreme Court
are allowed would not subserve, but would subvert, the intention of Congress as expressed in
the sponsorship speech on Senate Bill No. 1495.
Incidentally, it was noted by the sponsor therein that some quarters were of the opinion that
recourse from the NLRC to the Court of Appeals as an initial step in the process of judicial review
would be circuitous and would prolong the proceedings. On the contrary, as he commendably
and realistically emphasized, that procedure would be advantageous to the aggrieved party on
this reasoning:

On the other hand, Mr. President, to allow these cases to be appealed to the
Court of Appeals would give litigants the advantage to have all the evidence on
record be reexamined and reweighed after which the findings of facts and
conclusions of said bodies are correspondingly affirmed, modified or reversed.

Under such guarantee, the Supreme Court can then apply strictly the axiom that
factual findings of the Court of Appeals are final and may not be reversed on
appeal to the Supreme Court. A perusal of the records will reveal appeals which
are factual in nature and may, therefore, be dismissed outright by minute
resolutions. 24

While we do not wish to intrude into the Congressional sphere on the matter of the wisdom of a
law, on this score we add the further observations that there is a growing number of labor cases
being elevated to this Court which, not being a trier of fact, has at times been constrained to
remand the case to the NLRC for resolution of unclear or ambiguous factual findings; that the
Court of Appeals is procedurally equipped for that purpose, aside from the increased number of
its component divisions; and that there is undeniably an imperative need for expeditious action
on labor cases as a major aspect of constitutional protection to labor.

Therefore, all references in the amended Section 9 of B.P. No. 129 to supposed appeals from
the NLRC to the Supreme Court are interpreted and hereby declared to mean and refer to
petitions for certiorari under Rule 65. Consequently, all such petitions should hence forth be
initially filed in the Court of Appeals in strict observance of the doctrine on the hierarchy of courts
as the appropriate forum for the relief desired.

Apropos to this directive that resort to the higher courts should be made in accordance with their
hierarchical order, this pronouncement in Santiago vs. Vasquez, et al. 25 should be taken into
account:

One final observation. We discern in the proceedings in this case a propensity on

the part of petitioner, and, for that matter, the same may be said of a number of
litigants who initiate recourses before us, to disregard the hierarchy of courts in
our judicial system by seeking relief directly from this Court despite the fact that
the same is available in the lower courts in the exercise of their original or
concurrent jurisdiction, or is even mandated by law to be sought therein. This
practice must be stopped, not only because of the imposition upon the precious
time of this Court but also because of the inevitable and resultant delay, intended
or otherwise, in the adjudication of the case which often has to be remanded or
referred to the lower court as the proper forum under the rules of procedure, or as
better equipped to resolve the issues since this Court is not a trier of facts. We,
therefore, reiterate the judicial policy that this Court will not entertain direct resort
to it unless the redress desired cannot be obtained in the appropriate courts or
where exceptional and compelling circumstances justify availment of a remedy
within and calling for the exercise of our primary jurisdiction.

WHEREFORE, under the foregoing premises, the instant petition for certiorari is hereby
REMANDED, and all pertinent records thereof ordered to be FORWARDED, to the Court of
Appeals for appropriate action and disposition consistent with the views and ruling herein set
forth, without pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 97149 March 31, 1992

FIDENCIO Y. BEJA, SR., petitioner,

vs.
COURT OF APPEALS, HONORABLE REINERIO O. REYES, in his capacity as Secretary of
the Department of Transportation and Communications; COMMODORE ROGELIO A.
DAYAN, in his capacity as General Manager of the Philippine Ports Authority;
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ADMINISTRATIVE
ACTION BOARD; and JUSTICE ONOFRE A. VILLALUZ, in his capacity as Chairman of the
Administrative Action Board, DOTC, respondents.

ROMERO, J.:

The instant petition for certiorari questions the jurisdiction of the Secretary of the Department of
Transportation and Communications (DOTC) and/or its Administrative Action Board (AAB) over
administrative cases involving personnel below the rank of Assistant General Manager of the
Philippine Ports Authority (PPA), an agency attached to the said Department.

Petitioner Fidencio Y. Beja, Sr. 1 was first employed by the PPA as arrastre supervisor in 1975.
He became Assistant Port Operations Officer in 1976 and Port Operations Officer in 1977. In
February 1988, as a result of the reorganization of the PPA, he was appointed Terminal
Supervisor.

On October 21, 1988, the PPA General Manager, Rogelio A. Dayan, filed Administrative Case
No. 11-04-88 against petitioner Beja and Hernando G. Villaluz for grave dishonesty, grave
misconduct, willful violation of reasonable office rules and regulations and conduct prejudicial to
the best interest of the service. Beja and Villaluz allegedly erroneously assessed storage fees
resulting in the loss of P38,150.77 on the part of the PPA. Consequently, they were preventively
suspended for the charges. After a preliminary investigation conducted by the district attorney for
Region X, Administrative Case No. 11-04-88 was "considered closed for lack of merit."

On December 13, 1988, another charge sheet, docketed as Administrative Case No. 12-01-88,
was filed against Beja by the PPA General Manager also for dishonesty, grave misconduct,
violation of reasonable office rules and regulations, conduct prejudicial to the best interest of the
service and for being notoriously undesirable. The charge consisted of six (6) different
specifications of administrative offenses including fraud against the PPA in the total amount of
P218,000.00. Beja was also placed under preventive suspension pursuant to Sec. 41 of P.D. No.
807.

The case was redocketed as Administrative Case No. PPA-AAB-1-049-89 and thereafter, the
PPA general manager indorsed it to the AAB for "appropriate action." At the scheduled hearing,
Beja asked for continuance on the ground that he needed time to study the charges against him.
The AAB proceeded to hear the case and gave Beja an opportunity to present evidence.
However, on February 20, 1989, Beja filed a petition for certiorari with preliminary injunction
before the Regional Trial Court of Misamis Oriental. 2 Two days later, he filed with the AAB a
manifestation and motion to suspend the hearing of Administrative Case No. PPA-AAB-1-049-89
on account of the pendency of the certiorari proceeding before the court. AAB denied the motion
and continued with the hearing of the administrative case.

Thereafter, Beja moved for the dismissal of the certiorari case below and proceeded to file before
this Court a petition for certiorari with preliminary injunction and/or temporary restraining order.
The case was docketed as G.R. No. 87352 captioned "Fidencio Y. Beja v. Hon. Reinerio 0.
Reyes, etc., et al." In the en banc resolution of March 30, 1989, this Court referred the case to
the Court of Appeals for "appropriate action." 3 G.R. No. 87352 was docketed in the Court of
Appeals as CA-G.R. SP No. 17270.

Meanwhile, a decision was rendered by the AAB in Administrative Case No. PPA-AAB-049-89.
Its dispositive portion reads:

WHEREFORE, judgment is hereby rendered, adjudging the following, namely:

a) That respondents Geronimo Beja, Jr. and Hernando Villaluz are exonerated
from the charge against them;

b) That respondent Fidencio Y. Beja be dismissed from the service;

c) That his leave credits and retirement benefits are declared forfeited;

d) That he be disqualified from re-employment in the government service;

e) That his eligibility is recommended to be cancelled.

Pasig, Metro Manila, February 28, 1989.

On December 10, 1990, after appropriate proceedings, the Court of Appeals also rendered a
decision 4 in CA-G.R. SP No. 17270 dismissing the petition for certiorari for lack of merit. Hence,
Beja elevated the case back to this Court through an "appeal by certiorari with preliminary
injunction and/or temporary restraining order."

We find the pleadings filed in this case to be sufficient bases for arriving at a decision and hence,
the filing of memoranda has been dispensed with.

In his petition, Beja assails the Court of Appeals for having "decided questions of substance in a
way probably not in accord with law or with the applicable decisions" of this Court. 5 Specifically,
Beja contends that the Court of Appeals failed to declare that: (a) he was denied due process; (b)
the PPA general manager has no power to issue a preventive suspension order without the
necessary approval of the PPA board of directors; (c) the PPA general manager has no power to
refer the administrative case filed against him to the DOTC-AAB, and (d) the DOTC Secretary,
the Chairman of the DOTC-AAB and DOTC-AAB itself as an adjudicatory body, have no
jurisdiction to try the administrative case against him. Simply put, Beja challenges the legality of
the preventive suspension and the jurisdiction of the DOTC Secretary and/or the AAB to initiate
and hear administrative cases against PPA personnel below the rank of Assistant General
Manager.

Petitioner anchors his contention that the PPA general manager cannot subject him to a
preventive suspension on the following provision of Sec. 8, Art. V of Presidential Decree No. 857
reorganizing the PPA:
 (d) the General Manager shall, subject to the approval of the Board, appoint and
remove personnel below the rank of Assistant General Manager. (Emphasis
supplied.)

Petitioner contends that under this provision, the PPA Board of Directors and not the PPA
General Manager is the "proper disciplining authority. 6

As correctly observed by the Solicitor General, the petitioner erroneously equates "preventive
suspension" as a remedial measure with "suspension" as a penalty for administrative dereliction.
The imposition of preventive suspension on a government employee charged with an
administrative offense is subject to the following provision of the Civil Service Law, P.D. No. 807:

Sec. 41. Preventive Suspension. — The proper disciplining authority may

preventively suspend any subordinate officer or employee under his authority
pending an investigation, if the charge against such officer or employee involves
dishonesty, oppression or grave misconduct, or neglect in the performance of
duty, or if there are reasons to believe that the respondent is guilty of charges
which would warrant his removal from the service.

Imposed during the pendency of an administrative investigation, preventive suspension is not a

penalty in itself. It is merely a measure of precaution so that the employee who is charged may
be separated, for obvious reasons, from the scene of his alleged misfeasance while the same is
being investigated. 7 Thus, preventive suspension is distinct from the administrative penalty of
removal from office such as the one mentioned in Sec. 8(d) of P.D. No 857. While the former
may be imposed on a respondent during the investigation of the charges against him, the latter is
the penalty which may only be meted upon him at the termination of the investigation or the final
disposition of the case.

The PPA general manager is the disciplining authority who may, by himself and without the
approval of the PPA Board of Directors, subject a respondent in an administrative case to
preventive suspension. His disciplinary powers are sanctioned, not only by Sec. 8 of P.D. No.
857 aforequoted, but also by Sec. 37 of P.D. No. 807 granting heads of agencies the "jurisdiction
to investigate and decide matters involving disciplinary actions against officers and employees"
in the PPA.

Parenthetically, the period of preventive suspension is limited. It may be lifted even if the
disciplining authority has not finally decided the administrative case provided the ninety-day
period from the effectivity of the preventive suspension has been exhausted. The employee
concerned may then be reinstated. 8 However, the said ninety-day period may be interrupted. Section 42 of P.D. No. 807
also mandates that any fault, negligence or petition of a suspended employee may not be considered in the computation of the said
period. Thus, when a suspended employee obtains from a court of justice a restraining order or a preliminary injunction inhibiting
proceedings in an administrative case, the lifespan of such court order should be excluded in the reckoning of the permissible period of
the preventive suspension. 9

With respect to the issue of whether or not the DOTC Secretary and/or the AAB may initiate and
hear administrative cases against PPA Personnel below the rank of Assistant General Manager,
the Court qualifiedly rules in favor of petitioner.

The PPA was created through P.D. No. 505 dated July 11, 1974. Under that Law, the corporate
powers of the PPA were vested in a governing Board of Directors known as the Philippine Port
Authority Council. Sec. 5(i) of the same decree gave the Council the power "to appoint, discipline
and remove, and determine the composition of the technical staff of the Authority and other
personnel."

On December 23, 1975, P.D. No. 505 was substituted by P.D. No. 857, See. 4(a) thereof created
the Philippine Ports Authority which would be "attached" to the then Department of Public Works,
Transportation and Communication. When Executive Order No. 125 dated January 30, 1987
reorganizing the Ministry of Transportation and Communications was issued, the PPA retained
its "attached" status. 10 Even Executive Order No. 292 or the Administrative Code of 1987
classified the PPA as an agency "attached" to the Department of Transportation and
Communications (DOTC). Sec. 24 of Book IV, Title XV, Chapter 6 of the same Code provides
that the agencies attached to the DOTC "shall continue to operate and function in accordance
with the respective charters or laws creating them, except when they conflict with this Code."

Attachment of an agency to a Department is one of the three administrative relationships

mentioned in Book IV, Chapter 7 of the Administrative Code of 1987, the other two being
supervision and control and administrative supervision. "Attachment" is defined in Sec. 38
thereof as follows:

(3) Attachment. — (a) This refers to the lateral relationship between the
Department or its equivalent and the attached agency or corporation for purposes
of policy and program coordination. The coordination shall be accomplished by
having the department represented in the governing board of the attached
agency or corporation, either as chairman or as a member, with or without voting
rights, if this is permitted by the charter; having the attached corporation or
agency comply with a system of periodic reporting which shall reflect the
progress of programs and projects; and having the department or its equivalent
provide general policies through its representative in the board, which shall serve
as the framework for the internal policies of the attached corporation or agency;

(b) Matters of day-to-day administration or all those pertaining to internal

operations shall he left to the discretion or judgment of the executive officer of the
agency or corporation. In the event that the Secretary and the head of the board
or the attached agency or corporation strongly disagree on the interpretation and
application of policies, and the Secretary is unable to resolve the disagreement,
he shall bring the matter to the President for resolution and direction;

(c) Government-owned or controlled corporations attached to a department shall

submit to the Secretary concerned their audited financial statements within sixty
(60) days after the close of the fiscal year; and

(d) Pending submission of the required financial statements, the corporation shall
continue to operate on the basis of the preceding year's budget until the financial
statements shall have been submitted. Should any government-owned or
controlled corporation incur an operation deficit at the close of its fiscal year, it
shall be subject to administrative supervision of the department; and the
corporation's operating and capital budget shall be subject to the department's
examination, review, modification and approval. (emphasis supplied.)

An attached agency has a larger measure of independence from the Department to which it is
attached than one which is under departmental supervision and control or administrative
supervision. This is borne out by the "lateral relationship" between the Department and the
attached agency. The attachment is merely for "policy and program coordination." With respect
to administrative matters, the independence of an attached agency from Departmental control
and supervision is further reinforced by the fact that even an agency under a Department's
administrative supervision is free from Departmental interference with respect to appointments
and other personnel actions "in accordance with the decentralization of personnel functions"
under the Administrative Code of 1987. 11 Moreover, the Administrative Code explicitly provides
that Chapter 8 of Book IV on supervision and control shall not apply to chartered institutions
attached to a Department. 12
Hence, the inescapable conclusion is that with respect to the management of personnel, an
attached agency is, to a certain extent, free from Departmental interference and control. This is
more explicitly shown by P.D. No. 857 which provides:

Sec. 8. Management and Staff. — a) The President shall, upon the

recommendation of the Board, appoint the General Manager and the Assistant
General Managers.

(b) All other officials and employees of the Authority shall be selected and
appointed on the basis of merit and fitness based on a comprehensive and
progressive merit system to be established by the Authority immediately upon its
organization and consistent with Civil Service rules and regulations. The
recruitment, transfer, promotion, and dismissal of all personnel of the Authority,
including temporary workers, shall be governed by such merit system.

(c) The General Manager shall, subject to the approval of the Board, determine
the staffing pattern and the number of personnel of the Authority, define their
duties and responsibilities, and fix their salaries and emoluments. For
professional and technical positions, the General Manager shall recommend
salaries and emoluments that are comparable to those of similar positions in
other government-owned corporations, the provisions of existing rules and
regulations on wage and position classification notwithstanding.

(d) The General Manager shall, subject to the approval by the Board, appoint and
remove personnel below the rank of Assistant General Manager.

xxx xxx xxx

(emphasis supplied.)

Although the foregoing section does not expressly provide for a mechanism for an administrative
investigation of personnel, by vesting the power to remove erring employees on the General
Manager, with the approval of the PPA Board of Directors, the law impliedly grants said officials
the power to investigate its personnel below the rank of Assistant Manager who may be charged
with an administrative offense. During such investigation, the PPA General Manager, as earlier
stated, may subject the employee concerned to preventive suspension. The investigation should
be conducted in accordance with the procedure set out in Sec. 38 of P.D. No. 807. 13 Only after
gathering sufficient facts may the PPA General Manager impose the proper penalty in
accordance with law. It is the latter action which requires the approval of the PPA Board of
Directors. 14

From an adverse decision of the PPA General Manager and the Board of Directors, the
employee concerned may elevate the matter to the Department Head or Secretary. Otherwise,
he may appeal directly to the Civil Service Commission. The permissive recourse to the
Department Secretary is sanctioned by the Civil Service Law (P.D. No. 807) under the following
provisions:

Sec. 37. Disciplinary Jurisdiction. — (a) The Commission shall decide upon
appeal all administrative disciplinary cases involving the imposition of a penalty of
suspension for more than thirty days, or fine in an amount exceeding thirty days
salary, demotion in rank or salary or transfer, removal or dismissal from office. A
complaint may be filed directly with the Commission by a private citizen against a
government official or employee in which case it may hear and decide the case or
it may deputize any department or agency or official or group of officials to
conduct the investigation. The results of the investigation shall be submitted to
 the Commission with recommendation as to the penalty to be imposed or other
action to be taken.

(b) The heads of departments, agencies and instrumentalities, provinces, cities

and municipalities shall have jurisdiction to investigate and decide matters
involving disciplinary action against officers and employees under their
jurisdiction. The decisions shall be final in case the penalty imposed is
suspension for not more than thirty days or fine in an amount not exceeding thirty
days' salary. In case the decision rendered by a bureau or office head is
appealable to the Commission, the same may be initially appealed to the
department and finally to the Commission and pending appeal, the same shall be
executory except when the penalty is removal, in which case the same shall be
executory only after confirmation by the department head.

xxx xxx xxx

(Emphasis supplied.)

It is, therefore, clear that the transmittal of the complaint by the PPA General Manager to the
AAB was premature. The PPA General Manager should have first conducted an investigation,
made the proper recommendation for the imposable penalty and sought its approval by the PPA
Board of Directors. It was discretionary on the part of the herein petitioner to elevate the case to
the then DOTC Secretary Reyes. Only then could the AAB take jurisdiction of the case.

The AAB, which was created during the tenure of Secretary Reyes under Office Order No. 88-
318 dated July 1, 1988, was designed to act, decide and recommend to him "all cases of
administrative malfeasance, irregularities, grafts and acts of corruption in the Department."
Composed of a Chairman and two (2) members, the AAB came into being pursuant to
Administrative Order No. 25 issued by the President on May 25, 1987. 15 Its special nature as
a quasi-judicial administrative body notwithstanding, the AAB is not exempt from the observance
of due process in its proceedings. 16 We are not satisfied that it did so in this case the
respondents protestation that petitioner waived his right to be heard notwithstanding. It should be
observed that petitioner was precisely questioning the AAB's jurisdiction when it sought judicial
recourse.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED insofar as it upholds the
power of the PPA General Manager to subject petitioner to preventive suspension and
REVERSED insofar as it validates the jurisdiction of the DOTC and/or the AAB to act on
Administrative Case No. PPA-AAB-1-049-89 and rules that due process has been accorded the
petitioner.

The AAB decision in said case is hereby declared NULL and VOID and the case in REMANDED
to the PPA whose General Manager shall conduct with dispatch its reinvestigation.

The preventive suspension of petitioner shall continue unless after a determination of its
duration, it is found that he had served the total of ninety (90) days in which case he shall be
reinstated immediately.

SO ORDERED.