FIRST DIVISION [G.R. No.

86695, September 03, 1992] MARIA ELENA MALAGA, DOING BUSINESS UNDER THE NAME B.E. CONSTRUCTION; JOSIELEEN NAJARRO, DOING BUSINESS UNDER THE NAME BEST BUILT CONSTRUCTION; JOSE N. OCCEA, DOING BUSINESS UNDER THE NAME THE FIRM OF JOSE N. OCCEA; AND THE ILOILO BUILDERS CORPORATION, PETITIONERS, VS. MANUEL R. PENACHOS, JR., ALFREDO MATANGGA, ENRICO TICAR AND TERESITA VILLANUEVA, IN THEIR RESPECTIVE CAPACITIES AS CHAIRMAN AND MEMBERS OF THE PRE-QUALIFICATION BIDS AND AWARDS COMMITTEE (PBAC) - BENIGNO PANISTANTE, IN HIS CAPACITY AS PRESIDENT OF ILOILO STATE COLLEGE OF FISHERIES, AS WELL AS IN THEIR RESPECTIVE PERSONAL CAPACITIES; AND HON. LODRIGIO L. LEBAQUIN, RESPONDENTS. DECISION
CRUZ, J.:

This controversy involves the extent and applicability of P.D. 1818, which prohibits any court from issuing injunctions in cases involving infrastructure projects of the government. The facts are not disputed. The Iloilo State College of Fisheries (henceforth ISCOF) through its Pre-qualification, Bids and Awards Committee (henceforth PBAC) caused the publication in the November 25, 26, 28, 1988 issues of the Western Visayas Daily an Invitation to Bid for the construction of a Micro Laboratory Building at ISCOF. The notice announced that the last day for the submission of pre-qualification requirements (PRE C-1)* was December 2, 1988, and that the bids would be received and opened on December 12, 1988, at 3 o'clock in the afternoon.[1] Petitioners Maria Elena Malaga and Josieleen Najarro, respectively doing business under the name of B.E. Construction and Best Built Construction, submitted their pre-qualification documents at two o'clock in the afternoon of December 2, 1988. Petitioner Jose Occea submitted his own PRE-C1 on December 5, 1988. All three of them were not allowed to participate in the bidding because their documents were considered late, having been submitted after the cut-off time of ten o'clock in the morning of December 2, 1988. On December 12, 1988, the petitioners filed a complaint with the Regional Trial Court of Iloilo against the chairman and members of PBAC in their official and personal capacities. The plaintiffs claimed that although they had submitted their PRE-C1 on time, the PBAC refused without just cause to accept them. As a result, they were not included in the list of pre-qualified bidders, could not secure the needed plans and other documents, and were unable to participate in the scheduled bidding. In their prayer, they sought the resetting of the December 12, 1988 bidding and the acceptance of their PRE-C1 documents. They also asked that if the bidding had already been conducted, the defendants be directed not to award the project pending resolution of their complaint. On the same date, Judge Lodrigio L. Lebaquin issued a restraining order prohibiting PBAC from conducting the bidding and awarding the project.[2] On December 16, 1988, the defendants filed a motion to lift the restraining order on the ground that the court was prohibited from issuing restraining orders, preliminary injunctions and preliminary mandatory injunctions by P.D. 1818.

The decree reads pertinently as follows: Section 1. No Court in the Philippines shall have jurisdiction to issue any restraining order, preliminary injunction, or preliminary mandatory injunction in any case, dispute, or controversy involving an infrastructure project, or a mining, fishery, forest or other natural resource development project of the government, or any public utility operated by the government, including among others public utilities for the transport of the goods or commodities, stevedoring and arrastre contracts, to prohibit any person or persons, entity or government official from proceeding with, or continuing the execution or implementation of any such project, or the operation of such publicutility, or pursuing any lawful activity necessary for such execution, implementation or operation. The movants also contended that the question of the propriety of a preliminary injunction had become moot and academic because the restraining order was received late, at 2 o'clock in the afternoon of December 12, 1988, after the bidding had been conducted and closed at eleven thirty in the morning of that date. In their opposition to the motion, the plaintiffs argued against the applicability of P.D. 1818, pointing out that while ISCOF was a state college, it had its own charter and separate existence and was not part of the national government or of any local political subdivision. Even if P.D.1818 were applicable, the prohibition presumed a valid and legal government project, not one tainted with anomalies like the project at bar. They also cited Filipinas Marble Corp. vs. IAC,[3] where the Court allowed the issuance of a writ of preliminary injunction despite a similar prohibition found in P.D. 385. The Court therein stated that: The government, however, is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government-lending institutions who take over the management of a borrower corporation, lead that corporation to bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use the mandatory provisions of the decree to avoid the consequences of their misdeeds (p. 188, underscoring supplied). On January 2, 1989, the trial court lifted the restraining order and denied the petition for preliminary injunction. It declared that the building sought to be constructed at the ISCOF was an infrastructure project of the government falling within the coverage of P.D. 1818. Even if it were not, the petition for the issuance of a writ of preliminaryinjunction would still fail because the sheriff's return showed that PBAC was served a copy of the restraining order after the bidding sought to be restrained had already been held. Furthermore, the members of the PBAC could not be restrained from awarding the project because the authority to do so was lodged in the President of the ISCOF, who was not a party to the case.[4] In the petition now before us, it is reiterated that P.D. 1818 does not cover the ISCOF because of its separate and distinct corporate personality. It is also stressed again that the prohibition under P.D. 1818 could not apply to the present controversy because the project was vitiated with irregularities, to wit: 1. The invitation to bid as published fixed the deadline of submission of pre-qualification document on December 2, 1988 without indicating any time, yet after 10:00 o'clock of the given date, the PBAC already refused to accept petitioners' documents. 2. The time and date of bidding was published as December 12, 1988 at 3:00 p.m. yet it was held at 10:00 o'clock in the morning. 3. Private respondents, for the purpose of inviting bidders to participate, issued a mimeographed "Invitation to Bid" form, which by law (P.D. 1594 and Implementing Rules, Exh. B-1) is to contain the particulars of the project subject of bidding for the purposes of (i) enabling bidders to make an intelligent and accurate bids; (ii) for PBAC to have a uniform basis for evaluating the bids;

(iii) to prevent collusion between a bidder and the PBAC, by opening to all the particulars of a project. Additionally, the Invitation to Bid prepared by the respondents and the Itemized Bill of Quantities therein were left blank.[5] And although the project in question was a "Construction," the private respondents used an Invitation to Bid form for "Materials."[6] The petitioners also point out that the validity of the writ of preliminary injunction had not yet become moot and academic because even if the bids had been opened before the restraining order was issued, the project itself had not yet been awarded. The ISCOF president was not an indispensable party because the signing of the award was merely a ministerial function which he could perform only upon the recommendation of the Award Committee. At any rate, the complaint had already been duly amended to include him as a party defendant. In their Comment, the private respondents maintain that since the members of the board of trustees of the ISCOF are all government officials under Section 7 of P.D. 1523 and since the operations and maintenance of the ISCOF are provided for in the General Appropriations Law, it should be considered a government institution whose infrastructure project is covered by P.D. 1818. Regarding the schedule for pre-qualification, the private respondents insist that PBAC posted on the ISCOF bulletin board an announcement that the deadline for the submission of pre-qualification documents was at 10 o'clock of December 2, 1988, and the opening of bids would be held at 1 o'clock in the afternoon of December 12, 1988. As of ten o'clock in the morning of December 2, 1988, B.E. Construction and Best Built Construction had filed only their letters of intent. At two o'clock in the afternoon, B.E. and Best Built file through their common representative, Nenette Garuello, their pre-qualification documents which were admitted but stamped "submitted late." The petitioners were informed of their disqualification on the same date, and the disqualification became final on December 6, 1988. Having failed to take immediate action to compel PBAC to pre-qualify them despite their notice of disqualification, they cannot now come to this Court to question the bidding proper in which they had not participated. In the petitioners' Reply, they raise as an additional irregularity the violation of the rule that where the estimated project cost is from P1M to P5M, the issuance of plans, specifications and proposal book forms should be made thirty days before the date of bidding.[7] They point out that these forms were issued only on December 2, 1988, and not at the latest on November 12, 1988, the beginning of the 30-day period prior to the scheduled bidding. In their Rejoinder, the private respondents aver that the documents of B.E. and Best Built were received although filed late and were reviewed by the Award Committee, which discovered that the contractors had expired licenses. B.E.'s temporary certificate of Renewal of Contractor's License was valid only until September 30, 1988, while Best Built's license was valid only up to June 30, 1988. The Court has considered the arguments of the parties in light of their testimonial and documentary evidence and the applicable laws and jurisprudence. It finds for the petitioners. The 1987 Administrative Code defines a government instrumentality as follows: Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with specialfunctions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions, and government-owned or controlled corporations. (Sec. 2 (5) Introductory Provisions). The same Code describes a chartered institution thus:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the state. (Sec. 2 (12) Introductory Provisions). It is clear from the above definitions that ISCOF is a chartered institution and is therefore covered by P.D. 1818. There are also indications in its charter that ISCOF is a government instrumentality. First, it was created in pursuance of the integrated fisheries development policy of the State, a priority program of the government to effect the socio-economic life of the nation. Second, the Treasurer of the Republic of the Philippines shall also be the ex-officio Treasurer of the state college with its accounts and expenses to be audited by the Commission on Audit or its duly authorized representative. Third, heads of bureaus and offices of the National Government are authorized to loan or transfer to it, upon request of the president of the state college, such apparatus, equipment, or supplies and even the services of such employees as can be spared without serious detriment to public service. Lastly, an additional amount of P1.5M had been appropriated out of the funds of the National Treasury and it was also decreed in its charter that the funds and maintenance of the state college would henceforth be included in the General Appropriations Law.[8] Nevertheless, it does not automatically follow that ISCOF is covered by the prohibition in the said decree. In the case of Datiles and Co. vs. Sucaldito,[9] this Court interpreted a similar prohibition contained in P.D. 605, the law after which P.D. 1818 was patterned. It was there declared that the prohibition pertained to the issuance of injunctions or restraining orders by courts against administrative acts in controversies involving facts or the exercise of discretion in technical cases. The Court observed that to allow the courts to judge these matters would disturb the smooth functioning of the administrative machinery. Justice Teodoro Padilla made it clear, however, that on issues definitely outside of this dimension and involving questions of law, courts could not be prevented by P.D. No. 605 from exercising their power to restrain or prohibit administrative acts. We see no reason why the above ruling should not apply to P.D. 1818. There are at least two irregularities committed by PBAC that justified injunction of the bidding and the award of the project. First, PBAC set deadlines for the filing of the PRE-C1 and the opening of bids and then changed these deadlines without prior notice to prospective participants. Under the Rules Implementing P.D. 1594, prescribing policies and guidelines for government infrastructure contracts, PBAC shall provide prospective bidders with the Notice to Pre-qualification and other relevant information regarding the proposed work. Prospective contractors shall be required to file their ARCContractors Confidential Application for Registration & Classifications & the PRE-C2 Confidential Prequalification Statement for the Project (prior to the amendment of the rules, this was referred to as Pre-C1) not later than the deadline set in the published Invitation to Bid, after which date no PRE-C2 shall be submitted and received. Invitations to Bid shall be advertised for at least three times within a reasonable period but in no case less than two weeks in at least two newspapers of general circulations.[10] PBAC advertised the pre-qualification deadline as December 2, 1988, without stating the hour thereof, and announced that the opening of bids would be at 3 o'clock in the afternoon of December 12, 1988. This schedule was changed and a notice of such change was merely posted at the ISCOF bulletin board. The notice advanced the cut-off time for the submission of pre-qualification documents to 10 o'clock in the morning of December 2, 1988, and the opening of bids to 1 o'clock in the afternoon of December 12, 1988.

The new schedule caused the pre-disqualification of the petitioners as recorded in the minutes of the PBAC meeting held on December 6, 1988. While it may be true that there were fourteen contractors who were pre-qualified despite the change in schedule, this fact did not cure the defect of the irregular notice. Notably, the petitioners were disqualified because they failed to meet the new deadline and not because of their expired licenses.** We have held that where the law requires a previous advertisement before government contracts can be awarded, non-compliance with the requirement will, as a general rule, render the same void and of no effect.[11] The fact that an invitation forbids has been communicated to a number of possible bidders is not necessarily sufficient to establish compliance with the requirements of the law if it is shown that other possible bidders have not been similarly notified.[12] Second, PBAC was required to issue to pre-qualified applicants the plans, specifications and proposal book forms for the project to be bid thirty days before the date of bidding if the estimated project cost was between P1M and P5M. PBAC has not denied that these forms were issued only on December 2, 1988, or only ten days before the bidding scheduled for December 12, 1988. At the very latest, PBAC should have issued them on November 12, 1988, or 30 days before the scheduled bidding. It is apparent that the present controversy did not arise from the discretionary acts of the administrative body nor does it involve merely technical matters. What is involved here is non-compliance with the procedural rules on bidding which required strict observance. The purpose of the rules implementing P.D. 1594 is to secure competitive bidding and to prevent favoritism, collusion and fraud in the award of these contracts to the detriment of the public. This purpose was defeated by the irregularities committed by PBAC. It has been held that the three principles in public bidding are the offer to the public, an opportunity for competition and a basis for exact comparison of bids. A regulation of the matter which excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its adoption.[13] In the case at bar, it was the lack of proper notice regarding the pre-qualification requirement and the bidding that caused the elimination of petitioners B.E. and Best Built. It was not because of their expired licenses, as private respondents now claim. Moreover, the plans and specifications which are the contractors' guide to an intelligent bid, were not issued on time, thus defeating the guaranty that contractors be placed on equal footing when they submit their bids. The purpose of competitive bidding is negated if some contractors are informed ahead of their rivals of the plans and specifications that are to be the subject of their bids. P.D. 1818 was not intended to shield from judicial scrutiny irregularites committed by administrative agencies such as the anomalies above described. Hence, the challenged restraining order was not improperly issued by the respondent judge and the writ of preliminary injunction should not have been denied. We note from Annex Q of the private respondent's memorandum, however, that the subject project has already been "100% completed as to the Engineering Standard." This fait accomplihas made the petition for a writ of preliminary injunction moot and academic. We come now to the liabilities of the private respondents. It has been held in a long line of cases that a contract granted without the competitive bidding required by law is void, and the party to whom it is awarded cannot benefit from it.[14] It has not been shown that the irregularities committed by PBAC were induced by or participated in by any of the contractors. Hence, liability shall attach only to the private respondents for the prejudice sustained by the petitioners as a result of the anomalies described above.

As there is no evidence of the actual loss suffered by the petitioners, compensatory damage may not be awarded to them. Moral damages do not appear to be due either. Even so, the Court cannot close its eyes to the evident bad faith that characterized the conduct of the private respondents, including the irregularities in the announcement of the bidding and their efforts to persuade the ISCOF president to award the project after two days from receipt of the restraining order and before they moved to lift such order. For such questionable acts, they are liable in nominal damages at least in accordance with Article 2221 of the Civil Code, which states: Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant may be vindicated or, recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. These damages are to be assessed against the private respondents in the amount of P10,000.00 each, to be paid separately for each of petitioners B.E. Construction and Best Built Construction. The other petitioner, Occea Builders, is not entitled to relief because it admittedly submitted its pre-qualification documents on December 5, 1988, or three days after the deadline. WHEREFORE, judgment is hereby rendered: a) upholding the restraining order dated December 12, 1988, as not covered by the prohibition in P.D. 1818; b) ordering the chairman and the members of the PBAC board of trustees, namely, Manuel R. Penachos, Jr., Alfredo Matangga, Enrico Ticar, and Teresita Villanueva, to each pay separately to petitioners Maria Elena Malaga and Josieleen Najarro nominal damages of P10,000.00 each; and c) removing the said chairman and members from the PBAC board of trustees, or whoever among them is still incumbent therein, for their malfeasance in office. Costs against PBAC. Let a copy of this decision be sent to the Office of the Ombudsman. 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. 1104-88 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 DOTCAAB 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 qualifiedlyrules 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 mayelevate 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-1049-89 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.

Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr. and Nocon JJ., concur. Padilla and Bellosillo, JJ., took no part. Feliciano, J., is on leave.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. Nos. L-10123 and L-10355 April 26, 1957

GENARO URSAL, as City Assessor of Cebu, petitioner, vs. COURT OF TAX APPEALS and CONSUELO NOEL, respondents. GENARO URSAL, as City Assessor of Cebu, petitioner, vs. COURT OF TAX APPEALS and JESUSA SAMSON, respondents. City Fiscal of Cebu Jose L. Abad for petitioner. Francisco M. Alonso for respondents. BENGZON, J.: In these two cases Genaro Ursal as City Assessor of Cebu challenges the correctness of the order of the Court of Tax Appeals dismissing his appeals to that body from two rulings of the Cebu Board of Assessment Appeals. The record shows that said city assessors in the exercise of his powers assessed for taxation certain real properties of Consuelo Noel and Jesusa Samson in the City of Cebu, and that upon protest of the taxpayers, the Cebu Board of Assessment Appeals reduced the assessments. It also shows he took the matter to the Court of Tax Appeals insisting on his valuation; but said Court refused to entertain the appeal saying it was late, and, besides, the assessor had no personality to bring the matter before it under section 11 of Republic Act No. 1125, which reads as follows: SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was the City of Cebu1 that had been adversely affected in the sense that it could not thereafter collect higher realty taxes from the abovementioned property owners. His opinion, it is true had been overruled; but the overruling inflicted no material damage upon him or his office. And the Court of Tax Appeals was not created to decide mere conflicts of opinion between administrative officers or agencies. Imagine an income tax examiner resorting to the Court of Tax Appeals whenever the Collector of Internal Revenue modifies, or lower his assessment on the return of a tax payer! Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and all tax disputes. Defining such special court's jurisdiction, the Act necessarily limited its authority to those matters enumerated therein. In line with this idea we recently approved said court's order rejecting an appeal to it by Lopez & Sons from the decision of the Collector of Customs, because in our opinion its jurisdiction extended only to a review of the decisions of the Commissioner of

Customs, as provided by the statute and not to decisions of theCollector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065). The appellant invites attention to the fact that the Court of Appeals is the successor of the former Central Board of Tax Appeals created by Commonwealth Act No. 530 and of the Board of Tax Appeals established by Executive Order No. 401-A, and that said Commonwealth Act No. 530 (section 2) explicitly authorized the city assessor to appeal to the Central Board of Tax Appeals. Here is precisely another argument against his position: as Republic Act No. 1125 failed to reenact such express permission, it is deemed with held. Oversight could not have been the clause of such withholding, since there were proper grounds therefor: (a) discipline and command responsibility in the executive branches; and (b) instead of being another superior administrative agency as was the former Board of Tax Appeals2 the Court of Tax Appeals as created by Republic Act No. 1125 is a part of the judicial system presumably to act only on protests of private persons adversely affected by the tax, custom, or assessment. There is no merit to the contention that section 2 of Commonwealth Act No. 530 is still in force and justifies Ursal's appeal. Apart from the reasons already advanced, Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the Court of Tax Appeals may consider; such enumeration excludes all others by implication. Expressio unius est exclusio alterius. parts of an original act which act omitted from the act as revised are to be considered as annulled and repealed, provided it clearly appears to have been the intention of the legislature to cover the whole subject by the revision. (82 C. J. S. p. 501.) Inasmuch as we agree to the appellant's lack of personality before the Court of Tax Appeals, we find it unnecessary to review the question whether or not his appeal had been perfected in due time. Wherefore, the challenge order is hereby affirmed. Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ.,concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 108164 February 23, 1995 FAR EAST BANK AND TRUST COMPANY, petitioner, vs. THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents.

VITUG, J.: Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a FAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a supplemental card to private respondent Clarita S. Luna. In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the lost card, Clarita submitted an affidavit of loss. In cases of this nature, the bank's internal security procedures and policy would appear to be to meanwhile so record the lost card, along with the principal card, as a "Hot Card" or "Cancelled Card" in its master file. On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified through a telephone call to the bank's Credit Card Department. Since the card was not honored, Luis was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt embarrassed by this incident. In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank, expressed the bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said: In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary action to avert its unauthorized use (such as tagging the card as hotlisted), as it is always our intention to protect our cardholders.
An investigation of your case however, revealed that FAREASTCARD failed to inform you about its security policy. Furthermore, an overzealous employee of the Bank's Credit Card Department did not consider the possibility that it may have been you who was presenting the card at that time (for which reason, the unfortunate incident occurred). 1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that private respondents were "very valued clients" of FEBTC. William Anthony King, Food and Beverage Manager of the Intercontinental Hotel, wrote back to say that the credibility of private respondent had never been "in question." A copy of this reply was sent to Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC. On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees. On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court. Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this Court with this petition for review. There is merit in this appeal. In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of the contract. 2 The Civil Code provides: Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied) Bad faith, in this context, includes gross, but not simple, negligence. 3 Exceptionally, in a contract of carriage, moral damages are also allowed in case of death of a passenger attributable to the fault (which is presumed 4) of the common carrier. 5 Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's cancellation. Nothing in the findings of the trial court and the appellate court, however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents. Neither could FEBTC's negligence in failing to give personal notice to Luis be considered so gross as to amount to malice or bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. 6 We are not unaware of the previous rulings of this Court, such as in American Express International, Inc., vs.Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine Islands vs. Intermediate Appellate Court(206 SCRA 408), sanctioning the application of Article 21, in relation to Article 2217 and Article 2219 7 of the Civil Code to a contractual breach similar to the case at bench. Article 21 states: Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to assume that the provision could properly relate to a breach of contract, its application can be warranted only when the defendant's disregard of his contractual obligation is so deliberate as to approximate a degree of misconduct certainly no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a general principle in human relations that clearly must, in any case,

give way to the specific provision of Article 2220 of the Civil Code authorizing the grant of moral damages in culpa contractual solely when the breach is due to fraud or bad faith. Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8 explained with great clarity the predominance that we should give to Article 2220 in contractual relations; we quote: Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023), that moral damages are not recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code, which provide as follows: Art. 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; xxx xxx xxx Art. 2220. Wilful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. By contrasting the provisions of these two articles it immediately becomes apparent that: (a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and (b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes the cases where there is a "preexisitng contractual relations between the parties." Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the deceased passenger to "demand moral damages for mental anguish by reason of the death of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution on motion to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are not recoverable unless it is

proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art. 2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation. xxx xxx xxx The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code. Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract in bad faith. It is true that negligence may be occasionally so gross as to amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that the contract was breached through negligence of the carrier's employees. The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract that might thereby permit the application of applicable principles on tort 9 even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private respondents' case for it can aptly govern only where the act or omission complained of would constitute an actionable tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-existing contract between two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the parties are contractually bound is no bar to the application of quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely on their contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of action or as an independent actionable tort. The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the appellate court, to be inordinate and substantially devoid of legal basis. Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in addition to moral, temperate, liquidated or compensatory damages (Art. 2229, Civil Code; seePrudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed when the crime is

committed with one or more aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross negligence as to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778). In contracts and quasicontracts, the court may award exemplary damages if the defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449). Given the above premises and the factual circumstances here obtaining, it would also be just as arduous to sustain the exemplary damages granted by the courts below (see De Leon vs. Court of Appeals, 165 SCRA 166). Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis should entitle him to recover a measure of damages sanctioned under Article 2221 of the Civil Code providing thusly: Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of the appellate court in allowing the award thereof by the trial court. WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by deleting the award of moral and exemplary damages to private respondents; in its stead, petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal damages. In all other respects, the appealed decision is AFFIRMED. No costs. SO ORDERED. Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan, Mendoza and Francisco, JJ., concur.

Republic of the Philippines SUPREME COURT

FIRST DIVISION G.R. No. 129130 December 9, 2005 FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,Respondents. DECISION AZCUNA, J.: This is a Petition for Review on Certiorari assailing the decision of the Court of Appeals (CA) dated May 7, 1997 in CA-G.R. SP No. 41666. The CA affirmed in toto the decision of the Court of Tax Appeals (CTA) dated January 24, 1996 and its resolution of July 31, 1996, dismissing petitioner Far East Bank and Trust Companys claim for refund of excess creditable withholding taxes in the aggregate amount of Seven Hundred Fifty-Five Thousand Seven Hundred and Fifteen Pesos (P755,715) allegedly paid and remitted to the Bureau of Internal Revenue (BIR) sometime in 1990 and 1991. The antecedent facts are as follows: Petitioner is a domestic banking corporation duly organized and existing under and by virtue of Philippine laws. In the early part of 1992, the Cavite Development Bank [CDB], also a domestic banking corporation, was merged with Petitioner with the latter as its surviving entity [under] the merger. Petitioner being the surviving entity[, it] acquired all [the] assets of CDB. During the period from 1990 to 1991, CDB sold some acquired assets in the course of which it allegedly withheld the creditable tax from the sales proceeds which amounted to P755,715.00. In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or offset the taxes withheld by CDB, the result was that CDB, according to petitioner, had excess creditable withholding tax. Thus, petitioner, being the surviving entity of the merger, filed this Petition for Review after its administrative claim for refund was not acted upon.1 In denying petitioners claim, the CA held that the evidence presented by petitioner consisting of (1) confirmation receipts, payment orders, and official receipts issued by the Central Bank and the BIR with CDB as the payor; 2 (2) Income Tax Returns for 1990 and 1991 with attached financial statements filed by petitioner with the BIR;3 and, (3) a list prepared by the Accounting Department of petitioner purportedly showing the CDB schedule of creditable withholding tax applied for refund for 1990 and 1991,4 all failed to clearly establish that the taxes arising from the sale of its acquired assets sometime in 1990 and 1991 were properly withheld and remitted to the BIR. The CA likewise ruled that it was incumbent upon petitioner to present BIR Form No. 1743.1 as required under Revenue Regulation 685 to conclusively prove its right to the refund. It held that petitioners failure to do so was fatal to its cause. Hence, this Petition.

Petitioner anchors its arguments on the following grounds: 1. THE DECISION OF MAY 7,1997 WHEREBY RESPONDENT CA DISMISSED PETITIONERS APPEAL, AND RESPONDENT CTAS DECISION DATED JANUARY 24, 1996 AND RESOLUTION OF JULY 31,1996, ARE NOT BASED ON THE FACTS AND THE LAW. 2. PETITIONER HAS ADDUCED EVIDENCE A QUO WHICH SUFFICIENTLY AND SUBSTANTIALLY ESTABLISH[ES] THE FACT THAT THE CREDITABLE WITHHOLDING TAX ON THE SALE OF ACQUIRED ASSETS WAS WITHHELD AND THEN REMITTED TO THE BUREAU OF INTERNAL REVENUE; AND, 3. THE DISMISSAL OF THE CLAIM FOR REFUND BEFORE RESPONDENT CTA ARISES FROM AN UNDULY STRICT APPLICATION OF THE REGULATIONS WHICH IS NOT WARRANTED IN VIEW OF THE CLEAR PROOFS ADDUCED BY PETITIONER WHICH ESTABLISH THE BASIS FOR THE RELIEFS SOUGHT.5 Petitioner contends that the confirmation receipts presented by it constitute "competent and irrefutable proof of the fact that taxes were withheld and remitted to the BIR."6 It is admitted that the taxes reflected on the confirmation receipts as well as on the payment orders and official receipts issued by the BIR were withheld by CDB. Petitioner maintains that these pertained to the proceeds of the sale of its acquired assets in 1990 and 1991. According to petitioner, CDB took the initiative of paying the withholding tax accruing thereon notwithstanding the fact that it was the recipient of the income, to ensure that the correct taxes were remitted to the BIR. Petitioner further argues that the list prepared by its Accounting Department identifying the persons to whom the various sales were made and indicating the amount of taxes withheld for each transaction should have been given more weight by the court a quo as this document, when taken with the tax withholding forms, indubitably establishes the fact of withholding and the basis for the claims for refund.7 Considering, therefore, that petitioner had adequately established by other evidence the basis for the grant of the claim for tax refund, petitioner asserts that its failure to submit BIR Form No. 1743.1 is not fatal to its cause. The crucial issue in this case turns on a question of fact, that is, whether petitioner adduced sufficient evidence to prove its entitlement to a refund. The findings of fact of the CTA, a special court exercising particular expertise on the subject of tax, are generally regarded as final, binding and conclusive8 upon this Court, especially if these are substantially similar to the findings of the CA which is normally the final arbiter of questions of fact.9 The findings shall not be reviewed nor disturbed on appeal10 unless a party can show that these are not supported by evidence,11 or when the judgment is premised on a misapprehension of facts, or when the lower courts failed to notice certain relevant facts which if considered would justify a different conclusion.12 Petitioner has not sufficiently presented a case for the application of an exception from the rule. Firstly, the CA cannot be faulted for not lending credence to petitioners contention that it withheld, for its own account, the creditable withholding taxes on the sale of its acquired assets. In our withholding tax system, possession of the amount that is used to settle the tax liability is acquired by the payor as the withholding agent of the government.13 For this reason, the Tax Code imposes, among others, certain obligations upon the withholding agent to monitor its compliance with this duty. These include the filing of the quarterly withholding tax returns,14the submission to the payee, in respect of his or its receipts during the calendar quarter or year, of a written statement showing the income or other payments made by the withholding agent during such quarter or year and the amount of the tax deducted and withheld therefrom,15 and the filing with the BIR of a reconciliation statement of quarterly

payments and a list of payees and income payments.16 Codal provisions on withholding tax are mandatory and must be complied with by the withholding agent. This is significant in that a taxpayer cannot be compelled to answer for the non-performance by the withholding agent of its legal duty to withhold unless there is collusion or bad faith. In addition, the former could not be deemed to have evaded the tax had the withholding agent performed its duty. 17 On the other hand, it is incumbent upon the payee to reflect in his or its own return the income upon which any creditable tax is required to be withheld at the source. Only when there is an excess of the amount of tax so withheld over the tax due on the payees return can a refund become possible. A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding.18 On this score, the relevant revenue regulation provides as follows: Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom.19 As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official receipts and payment orders to support its case. Standing alone, however, these documents only establish that CDB withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the confirmation receipts relate to the creditable withholding taxes arising from the sale of the acquired properties. The claim that CDB had excess creditable withholding taxes can only be upheld if it were clearly and positively shown that the amounts on the various confirmation receipts were the amounts withheld by virtue of the sale of the acquired assets. On this point, the CA correctly pronounced: The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income tax returns are the same taxes withheld from CDBs income payments from the sale of its acquired assets. This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the tax paid, or at the very least, the income payments from which the taxes paid were withheld are not reflected therein. If these are the only entries that are found on these proferred documents, We cannot begrudge the Respondent Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it declared, in part, in its Decision (Annex "A" of the Petition) that, It can not well be said that the amounts paid and remitted to the BIR were for CDBs account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent x x x . 20 Petitioner, apparently aware of the foregoing deficiency, offered into evidence a CDB Schedule of Creditable Withholding Tax for the period 1990 to 199121 prepared by petitioners representative to show that the taxes CDB withheld did, indeed, pertain to the taxes accruing on the sale of the acquired assets. The CA, however, found the same to be "self-serving and unverifiable" and therefore "barren of evidentiary weight."22 We accord this finding on an issue of fact the highest respect and we will not set it aside lightly. It bears emphasis that questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are without doubt questions of fact. This is true regardless of whether the body of proofs presented by a party, weighed and analyzed

in relation to contrary evidence submitted by the adverse party, may be said to be strong, clear and convincing. Whether certain documents presented by one side should be accorded full faith and credit in the face of protests as to their spurious character by the other side; whether inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weightall these are issues of fact. Questions like these are not reviewable by us. As a rule, we confine our review of cases decided by the CA only to questions of law raised in the petition and therein distinctly set forth.23 We note that without the CDB Schedule, no evidence links the Confirmation Receipts, Payment Orders and Official Receipts to the taxes allegedly withheld by CDB on the sale of the acquired assets. As to the annual income tax returns for 1990 and 1991 24 presented by petitioner, we must stress that the mere admission into the records of these returns does not automatically make their contents or entries undisputed and binding facts. Mere allegations by petitioner of the figures in its returns are not a sufficient proof of the amount of its refund entitlement. They do not even constitute evidence adverse to respondent, against whom these are being presented.25 Furthermore, we note that in the proceedings below, respondent Commissioner of Internal Revenue (CIR) raised the fact that there was a discrepancy in the excess creditable withholding tax reflected in the returns with the amounts sought to be refunded by petitioner. Whereas the 1990 and 1991 Income Tax Returns indicated that CDB had excess creditable withholding tax in the amounts of P535,310 and P357,511, respectively, the amounts claimed by petitioner as indicated in the CDB Schedule were P512,940.50 for 1990 and P242,774.50 for 1991.26The records are bereft of any explanation for such discrepancy. This further undermines petitioners contentions, and its reliance on the CDB Schedule. Petitioner also asserts that the confusion or difficulty in the implementation of Revenue Memorandum Circular 7-9027 was the reason why CDB took upon itself the task of withholding the taxes arising from the sale, to ensure accuracy. Assuming this were true, CDB should have, nevertheless, accomplished the necessary returns to clearly identify the nature of the payments made and file the same with the BIR. Section 2 of the circular clearly provides that the amount of withholding tax paid by a corporation to the BIR during the quarter on sales or exchanges of property and which are creditable against the corporations tax liability are evidenced by Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and 1743-B. On the other hand, Revenue Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding. Since no competent evidence was adduced by petitioner, the failure to offer these returns as evidence of the amount of petitioners entitlement during the trial phase of this case is fatal to its cause. For its negligence, petitioner "cannot be allowed to seek refuge in a liberal application of the [r]ules."28 The liberal interpretation and application of rules apply only in proper cases of demonstrable merit and under justifiable causes and circumstances.29 We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority.30 In the event, petitioner has not met its burden of proof in establishing the factual basis for its claim for refund and we find no reason to disturb the ruling of the lower courts. WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals dated May 7, 1997 in CA-G.R. SP No. 41666 is AFFIRMED. No pronouncement as to costs. SO ORDERED. ADOLFO S. AZCUNA Associate Justice

WE CONCUR:

FIRST DIVISION

[G.R. No. 122605. April 30, 2001]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. DECISION
PARDO, J.:

The Case

Appeal via certiorari from the decision of the Court of Appeals affirming in toto that of the Court of Tax Appeals which denied petitioners claim for tax credit or refund of income tax paid on its gross Philippine billings for taxable year 1984, in the amount of P870,093.12.[1]
The Facts

The facts, as found by the Court of Appeals, are as follows: Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U. S. military personnel assigned to the Subic Naval Base. From the aforesaid contract, SEA-LAND derived an income for the taxable year 1984 amounting to P58,006,207.54. During the taxable year in question, SEA-LAND filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12. Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner-appellant filed a petition for review with the CTA docketed as CTA Case No. 4149, to judicially pursue its claim for refund and to stop the running of the twoyear prescriptive period under the then Section 243 of the NIRC. On 21 February 1995, CTA rendered its decision denying SEA-LANDs claim for refund of the income tax it paid in 1984.[2]

On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals to the Court of Appeals.[3] After due proceedings, on October 26, 1995, the Court of Appeals promulgated its decision dismissing the appeal and affirming in toto the decision of the Court of Tax Appeals.[4] Hence, this petition.[5]
The Issue

The issue raised is whether or not the income that petitioner derived from services in transporting the household goods and effects of U. S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement.
The Courts Ruling

We deny the petition. The RP-US Military Bases Agreement provides: No national of the United States, or corporation organized under the laws of the United States, resident in the United States, shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the government of the United States in connection with the construction, maintenance, operation and defense of the bases, or any tax in the nature of a license in respect of any service or work for the United States in connection with the construction, maintenance, operation and defense of the bases.[6] Petitioner Sea-Land Service, Inc. a US shipping company licensed to do business in the Philippines earned income during taxable year 1984 amounting to P58,006,207.54, and paid income tax thereon of 1.5% amounting to P870,093.12. The question is whether petitioner is exempted from the payment of income tax on its revenue earned from the transport or shipment of household goods and effects of US personnel assigned at Subic Naval Base. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception.[7] The law does not look with favor on tax exemptions

and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. [8] Under Article XII (4) of the RPUS Military Bases Agreement, the Philippine Government agreed to exempt from payment of Philippine income tax nationals of the United States, or corporations organized under the laws of the United States, residents in the United States in respect of any profit derived under a contract made in the United States with the Government of the United States in connection with the construction, maintenance, operation and defense of the bases. It is obvious that the transport or shipment of household goods and effects of U. S. military personnel is not included in the term construction, maintenance, operation and defense of the bases. Neither could the performance of this service to the U. S. government be interpreted as directly related to the defense and security of the Philippine territories. When the law speaks in clear and categorical language, there is no reason for interpretation or construction, but only for application. [9] Any interpretation that would give it an expansive construction to encompass petitioners exemption from taxation would be unwarranted. The avowed purpose of tax exemption is some public benefit or interest, which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the exemption.[10] The hauling or transport of household goods and personal effects of U. S. military personnel would not directly contribute to the defense and security of the Philippines. We see no reason to reverse the ruling of the Court of Appeals, which affirmed the decision of the Court of Tax Appeals. The Supreme Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.[11] Hence, the Court of Appeals did not err or gravely abuse its discretion in dismissing the petition for review. We can not grant the petition.
The Judgment

WHEREFORE, the Court DENIES the petition for lack of merit. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

FIRST DIVISION [G.R. No. 126212. March 2, 2000]

SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS, A.P. MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY (FILIPINAS), INC., respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari seeks to annul and set aside the decision of the Court of Appeals dated September 29, 1995 in CA-G.R. SP No. 35777, dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of Quezon City, Branch 216, in Civil Case No. Q-92-12593.
[1]

The facts are as follows: On April 29, 1991, petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line (hereinafter referred to as "AMML"), both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, "Co-operation in the Pacific" (hereinafter referred to as the "Agreement"), a vessel sharing agreement whereby they mutually agreed to purchase, share and exchange needed space for cargo in their respective containerships. Under the Agreement, they could be, depending on the occasion, either a principal carrier (with a negotiable bill of lading or other contract of carriage with respect to cargo) or a containership operator (owner, operator or charterer of containership on which the cargo is carried).
[2]

During the lifetime of the said Agreement, or on 18 May 1991, Florex International, Inc. (hereinafter referred to as "Florex") delivered to private respondent AMML cargo of various foodstuffs, with Oakland, California as port of discharge and San Francisco as place of delivery. The corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the Agreement, respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier while petitioner was the containership operator. The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, on June 26, 1992, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges. According to Florex, the cargo was received by the consignee only on June 28, 1991, since it was discharged in
[3]

Long Beach, California, instead of in Oakland, California on June 5, 1991 as stipulated. Respondent AMML filed its Answer alleging that even on the assumption that Florex was entitled to reimbursement, it was petitioner who should be liable. Accordingly, respondent AMML filed a Third Party Complaint against petitioner on November 10, 1992, averring that whatever damages sustained by Florex were caused by petitioner, which actually received and transported Florexs cargo on its vessels and unloaded them.
[4] [5]

On January 1, 1993, petitioner filed a Motion to Dismiss the Third Party Complaint on the ground of failure to state a cause of action and lack of jurisdiction, the amount of damages not having been specified therein. Petitioner also prayed either for dismissal or suspension of the Third Party Complaint on the ground that there exists an arbitration agreement between it and respondent AMML. On September 27, 1993, the lower court issued an Order denying petitioners Motion to Dismiss. Petitioners Motion for Reconsideration was likewise denied by the lower court in its August 22, 1994 Order.
[6]

Undaunted, petitioner filed a petition for certiorari with the Court of Appeals on November 23, 1994. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court.
[7]

On September 29, 1995, respondent Court of Appeals rendered the assailed Decision dismissing the petition for certiorari. With the denial of its Motion for Reconsideration, petitioner filed the instant petition for review, raising the following issues
I.

THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE IN VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING THAT ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH AN AGREEMENT TO ARBITRATE EXISTS.
II.

THE COURT OF APPEALS HAS RULED IN A MANNER NOT IN ACCORD WITH JURISPRUDENCE WHEN IT REFUSED TO HAVE THE THIRD-PARTY COMPLAINT DISMISSED FOR

FAILURE TO STATE A CAUSE OF ACTION AND FOR RULING THAT THE FAILURE TO STATE A CAUSE OF ACTION MAY BE REMEDIED BY REFERENCE TO ITS ATTACHMENTS.
[8]

Resolving first the issue of failure to state a cause of action, respondent Court of Appeals did not err in reading the Complaint of Florex and respondent AMMLs Answer together with the Third Party Complaint to determine whether a cause of action is properly alleged. In Fil-Estate Golf and Development, Inc. vs. Court of Appeals, this Court ruled that in the determination of whether or not the complaint states a cause of action, the annexes attached to the complaint may be considered, they being parts of the complaint.
[9]

Coming now to the main issue of arbitration, the pertinent clauses of the "Cooperation in the Pacific" contract entered into by the parties provide: 16.2 For the purposes of this agreement the Containership Operator shall be deemed to have issued to the Principal Carrier for good consideration and for both loaded and empty containers its non-negotiable memo bills of lading in the form attached hereto as Appendix 6, consigned only to the Principal Carrier or its agents, provisions of which shall govern the liability between the Principal Carrier and the Containership Operator and that for the purpose of determining the liability in accordance with either Lines memo bill of lading, the number of packages or customary freight units shown on the bill of lading issued by the Principal Carrier to its shippers shall be controlling. 16.3 The Principal Carrier shall use all reasonable endeavours to defend all in personam and in rem suits for loss of or damage to cargo carried pursuant to bills of lading issued by it, or to settle such suits for as low a figure as reasonably possible. The Principal Carrier shall have the right to seek damages and/or an indemnity from the Containership Operator by arbitration pursuant to Clause 32 hereof. Notwithstanding the provisions of the Lines memo bills of lading or any statutory rules incorporated therein or applicable thereto, the Principal Carrier shall be entitled to commence such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration award or judgment, such award or judgment not being the subject of appeal, provided that the Containership Operator has been given notice of the said claim in writing by the Principal Carrier within three months of

the Principal Carrier receiving notice in writing of the claim. Further the Principal Carrier shall have the right to grant extensions of time for the commencement of suit to any third party interested in the cargo without prior reference to the Containership Operator provided that notice of any extension so granted is given to the Containership Operator within 30 days of any such extension being granted. xxx 32. xxx xxx ARBITRATION

32.1 If at any time a dispute or claim arises out of or in connection with the Agreement the Lines shall endeavour to settle such amicably, failing which it shall be referred to arbitration by a single arbitrator in London, such arbitrator to be appointed by agreement between the Lines within 14 days after service by one Line upon the other of a notice specifying the nature of the dispute or claim and requiring reference of such dispute or claim to arbitration pursuant to this Article. 32.2 Failing agreement upon an arbitrator within such period of 14 days, the dispute shall be settled by three Arbitrators, each party appointing one Arbitrator, the third being appointed by the President of the London Maritime Arbitrators Association. 32.3 If either of the appointed Arbitrators refuses or is incapable of acting, the party who appointed him shall appoint a new Arbitrator in his place. 32.4 If one of the parties fails to appoint an Arbitrator either originally or by way of substitution for two weeks after the other party having appointed his Arbitrator has sent the party making default notice by mail, fax or telex to make the appointment, the party appointing the third Arbitrator shall, after application from the party having appointed his Arbitrator, also appoint an Arbitrator in behalf of the party making default. 32.5 Any such arbitration shall be in accordance with the Arbitration Act 1950 as amended by the Arbitration Act 1979 or any other subsequent legislation and the arbitrators award shall be final and binding upon Lines. To the extent permitted by the Arbitration

Act 1979 the Lines hereto exclude pursuant to S 3(1) of that Act the jurisdiction of the English High Court of Justice to entertain any appeal or application under Section 1 and 2 of the Arbitration Act 1979.
[10]

From the foregoing, the following matters are clear: First, disputes between the Principal Carrier and the Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading issued to the Principal Carrier by the Containership Operator. Second, the Principal Carrier shall use its best efforts to defend or settle all suits against it for loss of or damage to cargo pursuant to bills of lading issued by it. Third, the Principal Carrier shall have the right to seek damages and/or indemnity from the Containership Operator by arbitration, pursuant to Clause 32 of the agreement. Fourth, the Principal Carrier shall have the right to commence such arbitration any time until one year after its liability has been finally determined by agreement, arbitration award or judgment, provided that the Containership Operator was given notice in writing by the Principal Carrier within three months of the Principal Carrier receiving notice in writing of said claim. Prescinding from the foregoing matters, we find that both the trial court and the Court of Appeals erred in denying petitioners prayer for arbitration. To begin with, allowing respondent AMMLs Third Party Claim against petitioner to proceed would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides that whatever dispute there may be between the Principal Carrier and the Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier by the Containership Operator. On the other hand, to sustain the Third Party Complaint would be to allow private respondent to hold petitioner liable under the provisions of the bill of lading issued by the Principal Carrier to Florex, under which the latter is suing in its Complaint, not under the bill of lading petitioner, as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what is contemplated in Clause 16.2. The Court of Appeals ruled that the terms of the Agreement "explicitly required that the principal carriers claim against the containership operator first be finally determined by, among others, a court judgment, before the right to arbitration accrues." However, the Court of Appeals failed to consider that, precisely, arbitration is the mode by which the liability of the Containership Operator may be finally determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to seek damages and/or an indemnity from

the Containership Operator by arbitration" and that it "shall be entitled to commence such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration award or judgment". For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a condition precedent to judicial action is erroneous. In the light of the Agreement clauses aforequoted, it is clear that arbitration is the mode provided by which respondent AMML as Principal Carrier can seek damages and/or indemnity from petitioner, as Containership Operator. Stated differently, respondent AMML is barred from taking judicial action against petitioner by the clear terms of their Agreement. As the Principal Carrier with which Florex directly dealt with, respondent AMML can and should be held accountable by Florex in the event that it has a valid claim against the former. Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit "shall use all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible". In turn, respondent AMML can seek damages and/or indemnity from petitioner as Containership Operator for whatever final judgment may be adjudged against it under the Complaint of Florex. The crucial point is that collection of said damages and/or indemnity from petitioner should be by arbitration. All told, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any other intention that would contradict its plain import. Arbitration being the mode of settlement between the parties expressly provided for by their Agreement, the Third Party Complaint should have been dismissed.
[11]

This Court has previously held that arbitration is one of the alternative methods of dispute resolution that is now rightfully vaunted as "the wave of the future" in international relations, and is recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward.
[12]

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 35777 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City, Branch 77, is ordered to DISMISS Respondent AMMLs Third Party Complaint in Civil Case No. Q-92-12593. No pronouncement as to costs. SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

SECOND DIVISION
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI CITY, Petitioner, G.R. No. 154993 Present: PUNO, J., Chairman, AUSTRIA-MARTINEZ,

- versus -

CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ.

BA LEPANTO CONDOMINUM Promulgated: CORPORATION, Respondent. October 25, 2005 x-------------------------------------------------------------------x

DECISION
TINGA, J.:

Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for resolution of this Court two novel questions: one procedural, the other substantive, yet both of obvious significance. The first pertains to the proper mode of judicial review undertaken from decisions of the regional trial courts resolving the denial of tax protests made by local government treasurers, pursuant to the Local Government Code. The second is whether a local government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes.[1] While we agree with the City Treasurers position on the first issue, there ultimately is sufficient justification for the Court to overlook what is essentially a procedural error. We uphold respondents on the second issue. Indeed, there are disturbing aspects in both procedure and substance that attend the attempts by the City of Makati to flex its taxing muscle.

Considering that the tax imposition now in question has utterly no basis in law, judicial relief is imperative. There are fewer indisputable causes for the exercise of judicial review over the exercise of the taxing power than when the tax is based on whim, and not on law. The facts, as culled from the record, follow. Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly organized condominium corporation constituted in accordance with the Condominium Act,[2] which owns and holds title to the common and limited common areas of the BA-Lepanto Condominium (the Condominium), situated in Paseo de Roxas, Makati City. Its membership comprises the various unit owners of the Condominium. The Corporation is authorized, under Article V of its Amended By-Laws, to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium. On 15 December 1998, the Corporation received a Notice of Assessment dated 14 December 1998 signed by the City Treasurer. The Notice of Assessment stated that the Corporation is liable to pay the correct city business taxes, fees and charges, computed as totaling P1,601,013.77 for the years 1995 to 1997.[3] The Notice of Assessment was silent as to the statutory basis of the business taxes assessed. Through counsel, the Corporation responded with a written tax protest dated 12 February 1999, addressed to the City

Treasurer. It was evident in the protest that the Corporation was perplexed on the statutory basis of the tax assessment.
With due respect, we submit that the Assessment has no basis as the Corporation is not liable for business taxes and surcharges and interest thereon, under the Makati [Revenue] Code or even under the [Local Government] Code. The Makati [Revenue] Code and the [Local Government] Code do not contain any provisions on which the Assessment could be based. One might argue that Sec. 3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or operators of any business not specified in the said code. We submit, however, that this is not applicable to the Corporation as the Corporation is not an owner or operator of any business in the contemplation of the Makati [Revenue] Code and even the [Local Government] Code.[4]

Proceeding from the premise that its tax liability arose from Section 3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue that under both the Makati Code and the Local Government Code, business is defined as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. It was submitted that the Corporation, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses.[5]

The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She insisted that the collection of dues from the unit owners was effected primarily to sustain and maintain the expenses of the common areas, with the end in view [sic] of getting full appreciative living values [sic] for the individual condominium occupants and to command better marketable [sic] prices for those occupants who would in the future sell their respective units.[6] Thus, she concluded since the chances of getting higher prices for well-managed common areas of any condominium are better and more effective that condominiums with poor [sic] managed common areas, the corporation activity is a profit venture making [sic].[7] From the denial of the protest, the Corporation filed an Appeal with the Regional Trial Court (RTC) of Makati. [8] On 1 March 2000, the Makati RTC Branch 57 rendered [9] a Decision dismissing the appeal for lack of merit. Accepting the premise laid by the City Treasurer, the RTC acknowledged, in sadly risible language:
Herein appellant, to defray the improvements and beautification of the common areas, collect [sic] assessments from its members. Its end view is to get appreciate living rules for the unit owners [sic], to give an impression to outsides [sic] of the quality of service the condominium offers, so as to allow present owners to command better prices in the event of sale.[10]

With this, the RTC concluded that the activities of the Corporation fell squarely under the definition of business under Section 13(b) of the Local Government Code, and thus subject to local business taxation.[11]

From this Decision of the RTC, the Corporation filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the petition was dismissed outright[12] on the ground that only decisions of the RTC brought on appeal from a first level court could be elevated for review under the mode of review prescribed under Rule 42.[13] However, the Corporation pointed out in its Motion for Reconsideration that under Section 195 of the Local Government Code, the remedy of the taxpayer on the denial of the protest filed with the local treasurer is to appeal the denial with the court of competent jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the petition.[15]

On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the Decision[16] now assailed before this Court. The appellate court reversed the RTC and declared that the Corporation was not liable to pay business taxes to the City of Makati.[17] In doing so, the Court of Appeals delved into jurisprudential definitions of profit,[18] and concluded that the Corporation was not engaged in profit. For one, it was held that the very statutory concept of a condominium corporation showed that it was not a juridical entity intended to make profit, as its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium. [19] The Court of Appeals likewise cited provisions from the Corporations Amended Articles of Incorporation and Amended ByLaws that, to its estimation, established that the Corporation was not engaged in business and the assessment collected from unit

owners limited to those necessary to defray the expenses in the maintenance of the common areas and management the condominium. [20]

Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the present Petition for Review under Rule 45. It is argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in full appreciative living values for the condominium units which would command better market prices should they be sold in the future. The City Treasurer likewise avers that the rationale for business taxes is not on the income received or profit earned by the business, but the privilege to engage in business. The fact that the Corporation is empowered to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or personal property allegedly qualifies as incident to the fact of [the Corporations] act of engaging in business.[22] The City Treasurer also claims that the Corporation had filed the wrong mode of appeal before the Court of Appeals when the latter filed its Petition for Review under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in the exercise of original jurisdiction, it being the first court which took cognizance

of the case. Accordingly, with the Corporation having pursued an erroneous mode of appeal, the RTC Decision is deemed to have become final and executory. First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises original jurisdiction or appellate jurisdiction. The question assumes a measure of importance to this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become final and executory by reason of the failure of the Corporation to file a notice of appeal. [23] There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is to appeal with the court of competent jurisdiction.[24] Apparently though, the Local Government Code does not elaborate on how such appeal should be undertaken. The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in character. This is the first time that the position has been presented to the court for adjudication. Still, this argument does find jurisprudential

mooring in our ruling in Garcia v. De Jesus,[25] where the Court proffered the following distinction between original jurisdiction and appellate jurisdiction: Original jurisdiction is the power of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or judgment of a lower Court which tried the case now elevated for judicial review.[26] The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall within that courts original jurisdiction. In short, the review is the initial judicial cognizance of the matter. Moreover, labeling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment or order of a lower court, but of a local government official. The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129),[27] ineluctably confers appellate jurisdiction on the Court of Appeals over final rulings of quasijudicial agencies, instrumentalities, boards or commission, by explicitly using the phrase appellate jurisdiction.[28] The power to create or characterize jurisdiction of courts belongs to the

legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of decisions of officers in the executive branches of government. Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities. From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

Republic Act No. 9282 definitively proves in its Section 7(a) (3) that the CTA exercises exclusive appellate jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases original decided or resolved by them in the exercise of their originally or appellate jurisdiction. Moreover, the provision also states that the review is triggered by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure.[29] Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implications,[30] and this settled rule would be needlessly emasculated should we declare that the Corporations position is correct in law. Be that as it may, characteristic of all procedural rules is adherence to the precept that they should not be enforced blindly, especially if mechanical application would defeat the higher ends that animates our civil procedurethe just, speedy and inexpensive disposition of every action and proceeding. [31] Indeed, we have repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take cognizance of petitions raised on an erroneous mode of appeal and instead treat these petitions in the manner as they should have appropriately been filed.[32] The Court

of Appeals could very well have treated the Corporations petition for review as an ordinary appeal. Moreover, we recognize that the Corporations error in elevating the RTC decision for review via Rule 42 actually worked to the benefit of the City Treasurer. There is wider latitude on the part of the Court of Appeals to refuse cognizance over a petition for review under Rule 42 than it would have over an ordinary appeal under Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an ordinary appeal prior to the transmission of the case records are when the appeal was taken out of time or when the docket fees were not paid. [33] On the other hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow due course to the petition for review, it must first make a prima facie finding that the lower court has committed an error that would warrant the reversal or modification of the decision under review.[34] There is no similar requirement of a prima facie determination of error in the case of ordinary appeal, which is perfected upon the filing of the notice of appeal in due time.[35] Evidently, by employing the Rule 42 mode of review, the Corporation faced a greater risk of having its petition rejected by the Court of Appeals as compared to having filed an ordinary appeal under Rule 41. This was not an error that worked to the prejudice of the City Treasurer. We now proceed to the substantive issue, on whether the City of Makati may collect business taxes on condominium corporations.

We begin with an overview of the power of a local government unit to impose business taxes.

The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.[36] These guidelines and limitations as provided by Congress are in main contained in the Local Government Code of 1991 (the Code), which provides for comprehensive instances when and how local government units may impose taxes. The significant limitations are enumerated primarily in Section 133 of the Code, which include among others, a prohibition on the imposition of income taxes except when levied on banks and other financial institutions. [37] None of the other general limitations under Section 133 find application to the case at bar. The most well-known mode of local government taxation is perhaps the real property tax, which is governed by Title II, Book II of the Code, and which bears no application in this case. A different set of provisions, found under Title I of Book II, governs other taxes imposable by local government units, including business taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy the same taxes fees and charges as

provinces and municipalities. It is in Article II, Title II, Book II of the Code, governing municipal taxes, where the provisions on business taxation relevant to this petition may be found.[38] Section 143 of the Code specifically enumerates several types of business on which municipalities and cities may impose taxes. These include manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of essential commodities; contractors and other independent contractors; banks and financial institutions; and peddlers engaged in the sale of any merchandise or article of commerce. Moreover, the local sanggunian is also authorized to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax. The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code (Revenue Code), enacted through Municipal Ordinance No. 92-072. The Revenue Code remains in effect as of this writing. Article A, Chapter III of the Revenue Code governs business taxes in Makati, and it is quite specific as to the particular businesses which are covered by business taxes. To give a sample of the specified businesses under the Revenue Code which are not enumerated under the Local Government Code, we cite Section 3A.02(f) of the Code, which levies a gross receipt tax :
(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of Chapter III of this Code, and on owners or operators of business establishments rendering or offering services such as: advertising agencies; animal

hospitals; assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders; booking officers for film exchange; booking offices for transportation on commission basis; breeding of game cocks and other sporting animals belonging to others; business management services; collecting agencies; escort services; feasibility studies; consultancy services; garages; garbage disposal contractors; gold and silversmith shops; inspection services for incoming and outgoing cargoes; interior decorating services; janitorial services; job placement or recruitment agencies; landscaping contractors; lathe machine shops; management consultants not subject to professional tax; medical and dental laboratories; mercantile agencies; messsengerial services; operators of shoe shine stands; painting shops; perma press establishments; rent-a-plant services; polo players; school for and/or horse-back riding academy; real estate appraisers; real estate brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing services; rental of bicycles and/or tricycles, furniture, shoes, watches, household appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies; shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics; video rentals and/or coverage services; dancing schools/speed reading/EDP; nursery, vocational and other schools not regulated by the Department of Education, Culture and Sports, (DECS), day care centers; etc.[39]

Other provisions of the Revenue Code likewise subject hotel and restaurant owners and operators[40], real estate dealers, and lessors of real estate[41] to business taxes. Should the comprehensive listing not prove encompassing enough, there is also a catch-all provision similar to that under the Local Government Code. This is found in Section 3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall pay the tax at the rate of two percent (2%) for 1993, two and one-half percent (2 %) for 1994 and 1995, and three percent (3%)

for 1996 and the years thereafter of the gross receipts during the preceding year.[42]

The initial inquiry is what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes. Even at this point, there already stands a problem with the City Treasurers cause of action. Our careful examination of the record reveals a highly disconcerting fact. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. We have examined all of the pleadings submitted by the City Treasurer in all the antecedent judicial proceedings, as well as in this present petition, and also the communications by the City Treasurer to the Corporation which form part of the record. Nowhere therein is there any citation made by the City Treasurer of any provision of the Revenue Code which would serve as the legal authority for the collection of business taxes from condominiums in Makati. Ostensibly, the notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent

to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. Hence, we could appreciate the Corporations confusion, as expressed in its protest, as to the exact legal basis for the tax.[43] Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by thesanggunian, and not by the Local Government Code alone.[44] What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which provides for a different tax rate from that of the former provision, may be construed to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation etc., or et cetera. We do note our discomfort with the unlimited breadth and the dangerous uncertainty which are the twin hallmarks of the words et cetera. Certainly, we cannot be disposed to uphold any tax imposition that derives its authority from enigmatic and uncertain words such as et cetera. Yet we cannot even say with definiteness whether the tax imposed on the Corporation in this case is based on et cetera, or on Section 3A.02(m), or on any

other provision of the Revenue Code. Assuming that the assessment made on the Corporation is on a provision other than Section 3A.02(m), the main legal issue takes on a different complexion. For example, if it is based on et cetera under Section 3A.02(f), we would have to examine whether the Corporation faces analogous comparison with the other businesses listed under that provision. Certainly, the City Treasurer has not been helpful in that regard, as she has been silent all through out as to the exact basis for the tax imposition which she wishes that this Court uphold. Indeed, there is only one thing that prevents this Court from ruling that there has been a due process violation on account of the City Treasurers failure to disclose on paper the statutory basis of the taxthat the Corporation itself does not allege injury arising from such failure on the part of the City Treasurer. We do not know why the Corporation chose not to put this issue into litigation, though we can ultimately presume that no injury was sustained because the City Treasurer failed to cite the specific statutory basis of the tax. What is essential though is that the local treasurer be required to explain to the taxpayer with sufficient particularity the basis of the tax, so as to leave no doubt in the mind of the taxpayer as to the specific tax involved. In this case, the Corporation seems confident enough in litigating despite the failure of the City Treasurer to admit on what exact provision of the Revenue Code the tax liability ensued. This is perhaps because the Corporation has anchored its central argument on the position that the Local Government Code itself does not sanction the imposition of business taxes against it. This

position was sustained by the Court of Appeals, and now merits our analysis. As stated earlier, local tax on businesses is authorized under Section 143 of the Local Government Code. The word business itself is defined under Section 131(d) of the Code as trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit.[45] This definition of business takes on importance, since Section 143 allows local government units to impose local taxes on businesses other than those specified under the provision. Moreover, even those business activities specifically named in Section 143 are themselves susceptible to broad interpretation. For example, Section 143(b) authorizes the imposition of business taxes on wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the very statutory nature of a condominium corporation. The creation of the condominium corporation is sanctioned by Republic Act No. 4726, otherwise known as the Condominium Act. Under the law, a condominium is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. [46] To enable the orderly administration over these common areas which are jointly owned by the various unit owners, the Condominium Act permits

the creation of a condominium corporation, which is specially formed for the purpose of holding title to the common area, in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units.[47] The necessity of a condominium corporation has not gained widespread acceptance[48], and even is merely permissible under the Condominium Act.[49] Nonetheless, the condominium corporation has been resorted to by many condominium projects, such as the Corporation in this case. In line with the authority of the condominium corporation to manage the condominium project, it may be authorized, in the deed of restrictions, to make reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owners fractional interest in any common areas.[50] It is the collection of these assessments from unit owners that form the basis of the City Treasurers claim that the Corporation is doing business. The Condominium Act imposes several limitations on the condominium corporation that prove crucial to the disposition of this case. Under Section 10 of the law, the corporate purposes of a condominium corporation are limited to the holding of the common areas, either in ownership or any other interest in real property recognized by law; to the management of the project; and to such other purposes as may be necessary, incidental or convenient to the accomplishment of such purpose. [51] Further, the same provision prohibits the articles of incorporation or by-laws of the condominium corporation from

containing any provisions which are contrary to the provisions of the Condominium Act, the enabling or master deed, or the declaration of restrictions of the condominium project.[52] We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act. The Court has examined the particular Articles of Incorporation and By-Laws of the Corporation, and these documents unmistakably hew to the limitations contained in the Condominium Act. Per the Articles of Incorporation, the Corporations corporate purposes are limited to: (a) owning and holding title to the common and limited common areas in the Condominium Project; (b) adopting such necessary measures for the protection and safeguard of the unit owners and their property, including the power to contract for security services and for insurance coverage on the entire project; (c) making and adopting needful rules and regulations concerning the use, enjoyment and occupancy of the units and common areas, including the power to fix penalties and assessments for violation of such rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness of the common and limited common areas; (e) to provide and contract for public utilities and other services to the common areas; (f) to contract for the services of

persons or firms to assist in the management and operation of the Condominium Project; (g) to discharge any lien or encumbrances upon the Condominium Project; (h) to enforce the terms contained in the Master Deed with Declaration of Restrictions of the Project; (i) to levy and collect those assessments as provided in the Master Deed, in order to defray the costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy, lease operate and maintain, and to convey, sell transfer, mortgage or otherwise dispose of real or personal property in connection with the purposes and activities of the corporation; and (k) to exercise and perform such other powers reasonably necessary, incidental or convenient to accomplish the foregoing purposes.[53] Obviously, none of these stated corporate purposes are geared towards maintaining a livelihood or the obtention of profit. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project. Just as much is confirmed by Section 1, Article V of the Amended ByLaws, which enumerate the particular expenses to be defrayed by the regular assessments collected from the unit owners. These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.[54] The City Treasurer nonetheless contends that the collection of these assessments and dues are with the end view of getting full appreciative living values for the condominium units, and as

a result, profit is obtained once these units are sold at higher prices. The Court cites with approval the two counterpoints raised by the Court of Appeals in rejecting this contention. First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner. Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit.[55]

Moreover, the logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon resale. There is an evident distinction between persons who spend on repairs and improvements on their personal and real property for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes. The profit motive in such cases is hardly the driving factor behind such improvements, if it were contemplated at all. Any profit that would be derived under such circumstances would merely be incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the basis of the standard of full appreciative living values, a phrase that defies statutory explication, commonsensical meaning, the English language, or even definition from Google. The exercise of the power of taxation constitutes a deprivation of property under the

due process clause,[56] and the taxpayers right to due process is violated when arbitrary or oppressive methods are used in assessing and collecting taxes.[57] The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. Full appreciative living values is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive. The City Treasurer also contends that the fact that the Corporation is engaged in business is evinced by the Articles of Incorporation, which specifically empowers the Corporation to acquire, own, hold, enjoy, lease, operate and maintain, and to convey, sell, transfer mortgage or otherwise dispose of real or personal property.[58] What the City Treasurer fails to add is that every corporation

organized under the Corporation Code[59] is so specifically empowered. Section 36(7) of the Corporation Code states that every corporation incorporated under the Code has the power and capacity to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property . . . as the transaction of the lawful business of the corporation may reasonably and necessarily require . . . .[60] Without this power, corporations, as juridical persons, would be deprived of the capacity to engage in most meaningful legal relations. Again, whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit. Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. Still, we can note a possible exception to the rule. It is not unthinkable that the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation.[61] Such activity would be prohibited under the Condominium Act, but if the fact is established, we see

no reason why the condominium corporation may be made liable by the local government unit for business taxes. Even though such activities would be considered as ultra vires, since they are engaged in beyond the legal capacity of the condominium corporation[62], the principle of estoppel would preclude the corporation or its officers and members from invoking the void nature of its undertakings for profit as a means of acquitting itself of tax liability. Still, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporations collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas. There is no contemplation of business, no orientation towards profit in this case. Hence, the assailed tax assessment has no basis under the Local Government Code or the Makati Revenue Code, and the insistence of the city in its collection of the void tax constitutes an attempt at deprivation of property without due process of law.

WHEREFORE, the petition is DENIED. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10759 May 20, 1957

LEONARDO MONTES, petitioner-appellant, vs. THE CIVIL SERVICE BOARD OF APPEALS and THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, respondents-appellees. Gonzalo U. Garcia for appellant. Office of the Solicitor General Ambrosia Padilla and Solicitor Eriberto D. Ignacio for appellees. LABRADOR, J.: Petitioner-appellant was on and before January, 1953, a watchman of the Floating Equipment Section, Ports and Harbors Division, Bureau of Public Works. In Administrative Case No. R-8182 instituted against him for negligence in the performance of duty (Dredge No. 6 under him had sunk because of water in the bilge, which he did not pump out while under his care), the Commissioner of Civil Service exonerated him, on the basis of findings made by a committee. But the Civil Service Board of Appeals modified the decision, finding petitioner guilty of contributory negligence in not pumping the water from the bilge, and ordered that he be considered resigned effective his last day of duty with pay, without prejudice to reinstatement at the discretion of the appointing officer. Petitioner filed an action in the Court of First Instance of Manila to review the decision, but the said court dismissed the action on a motion to dismiss, on the ground that petitioner had not exhausted all his administrative remedies before he instituted the action. The case is now before us on appeal against the order of dismissal. The law which was applied by the lower court is Section 2 of Commonwealth Act No. 598, which provides: The Civil Service Board of Appeals shall have the power and authority to hear and decide all administrative cases brought before it on appeal, and its decisions in such cases shall be final, unless revised or modified by the President of the Philippines. It is urged on the appeal that there is no duty imposed on a party against whom a decision has been rendered by the Civil Service Board of Appeals to appeal to the President, and that the tendency of the courts has been not to subject the decision of the President to judicial review. It is further argued that if decisions of the Auditor General may be appealed to the courts, those of the Civil Service Board of Appeals need not be acted upon by the President also, before recourse may be had to the courts because such a courts. It is also argued that if a case is appealed to the President, his action should

be final and not reviewable by the courts because such a course of action, would be derogatory to the high office of the President. The objection to a judicial review of a Presidential act arises from a failure to recognize the most important principle in our system of government, i.e., the separation of powers into three co-equal departments, the executive, the legislative and the judicial, each supreme within its own assigned powers and duties. When a presidential act is challenged before the courts of justice, it is not to be implied therefrom that the Executive is being made subject and subordinate to the courts. The legality of his acts are under judicial review, not because the Executive is inferior to the courts, but because the law is above the Chief Executive himself, and the courts seek only to interpret, apply or implement it (the law). A judicial review of the President's decision on a case of an employee decided by the Civil Service Board of Appeals should be viewed in this light and the bringing of the case to the courts should be governed by the same principles as govern the judicial review of all administrative acts of all administrative officers. The doctrine of exhaustion, of administrative remedies requires where an administrative remedy is provided by statute, as in this case, relief must be sought by exhausting this remedy before the courts will act. (42 Am. Jur. 580-581.) The doctrine is a device based on considerations of comity and convenience. If a remedy is still available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to the courts. (Ibid.) Section 2 of Commonwealth Act No. 598 above-quoted is a clear expression of the policy or principle of exhaustion of administrative remedies. If the President, under whom the Civil Service directly falls in our administrative system as head of the executive department, may be able to grant the remedy that petitioner pursues, reasons of comity and orderly procedure demand that resort be made to him before recourse can be had to the courts. We have applied this same rule in De la Paz, vs. Alcaraz, et al., 99 Phil., 130, 52 Off. Gaz., 3037, Miguel et al., vs. Reyes, et al., 93 Phil., 542, and especially in Ang Tuan Kai & Co. vs. The Import Control Commission, 91 Phil., 143, and we are loathe to deviate from the rule we have consistently followed, especially in view of the express provision of the law (section 2, Commonwealth Act No. 598). The judgment appealed from is affirmed, with costs against appellant. Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ.,concur.