admin batch 2.docx

7/28/2019 admin batch 2.docx

http://slidepdf.com/reader/full/admin-batch-2docx 1/28

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 109976 April 26, 2005

PHILIPPINE NATIONAL OIL COMPANY, Petitioner,vs.THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE

and TIRSO S AVELLANO,Respondents.

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

G.R. No. 112800 April 26, 2005

PHILIPPINE NATIONAL BANK, Petitioner,vs.THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B. SAVELLANOand COMMISSIONER OF INTERNAL REVENUE, Respondents.

D E C I S I O N

CHICO-NAZARIO, J. :

This is a consolidation of two Petitions for Review on Certiorari filed by the PhilippineNational Oil Company (PNOC)

1 and the Philippine National Bank (PNB),<

2 assailing the

decisions of the Court of Appeals in CA-G.R. SP No. 2958 33 and CA-G.R. SP No.

29526,4 respectively, which both affirmed the decision of the Court of Tax Appeals (CTA)

in CTA Case No. 4249.5

The Petitions before this Court originated from a sworn statement submitted by privaterespondent Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on 24June 1986. Through his sworn statement, private respondent Savellano informed the BIRthat PNB had failed to withhold the 15% final tax on interest earnings and/or yields fromthe money placements of PNOC with the said bank, in violation of Presidential Decree

(P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew all taxexemptions of government-owned and controlled corporations.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxeson the interests earned by its money placements with PNB and which PNB did notwithhold.

6 PNOC wrote the BIR on 25 September 1986, and made an offer to

compromise its tax liability, which it estimated to be in the sum of P304,419,396.83,

excluding interest and surcharges, as of 31 July 1986. PNOC proposed to set-off its taxliability against a claim for tax refund/credit of the National Power Corporation(NAPOCOR), then pending with the BIR, in the amount ofP335,259,450.21. The amount

of the claim for tax refund/credit was supposedly a receivable account of PNOC fromNAPOCOR.

7

On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the

payment of the final tax on the interest earnings and/or yields from PNOC's moneyplacements with the bank, from 15 October 1984 to 15 October 1986, in the total amountof P376,301,133.33.

8 On the same date, the BIR also mailed a letter to PNOC informing it

of the demand letter sent to PNB.9

PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its taxliability through the set-off of the said tax liability against NAPOCOR'S pending claim for tax refund/credit.

10 The BIR replied on 11 November 1986 that the proposal for set-off

was premature since NAPOCOR's claim was still under process. Once more, BIRrequested PNOC to settle its tax liability in the total amount of P385,961,580.82,

consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15

November 1986.11

On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time,however, PNOC proposed a compromise by paying P91,003,129.89, representing 30% of

the P303,343,766.29 basic tax, in accordance with the provisions of Executive Order

(E.O.) No. 44.12

Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted thecompromise. The BIR received a total tax payment on the interest earnings and/or yieldsfrom PNOC's money placements with PNB in the amount of P93,955,479.12, broken down

as follows:

Previous payment made by PNB P 2,952,349.23

Add: Payment made by PNOC pursuant to the compromiseagreement of June 22, 1987

P 91,003,129.89

Total tax payment P 93,955,479.1213

Private respondent Savellano, through four installments, was paid the informer's reward in

the total amount ofP14,093,321.89, representing 15% of the P93,955,479.12 tax collected

by the BIR from PNOC and PNB. He received the last installment on 01 December 1987.

14

On 07 January 1988, private respondent Savellano, through his legal counsel, wrote theBIR to demand payment of the balance of his informer's reward, computed as follows:

BIR tax assessment P 385,961,580.82

Final tax rate 0.15

Informer's reward due (BIR deficiency tax assessment x Finaltax rate)

P 57,894,237.12

Less: Payment received by private respondent Savellano P 14,093,321.89

Outstanding balance P 43,800,915.2515

BIR Commissioner Tan replied through a letter, dated 08 March 1988, that privaterespondent Savellano was already fully paid the informer's reward equivalent to 15% of the amount of tax actually collected by the BIR pursuant to its compromise agreement withPNOC. BIR Commissioner Tan further explained that the compromise was in accordancewith the provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, andRMO No. 4-87.

16

Private respondent Savellano submitted another letter, dated 24 March 1988, to BIRCommissioner Tan, seeking reconsideration of his decision to compromise the tax liabilityof PNOC. In the same letter, private respondent Savellano questioned the legality of thecompromise agreement entered into by the BIR and PNOC and claimed that the taxliability should have been collected in full.

17

On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with theBIR, private respondent Savellano filed a Petition for Review ad cautelam with the CTA,docketed as CTA Case No. 4249. He claimed therein that BIR Commissioner Tan acted

http://www.lawphil.net/judjuris/juri2005/apr2005/gr_109976_2005.html#fnt1






































































"with grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into acompromise agreement that resulted in "a gross and unconscionable diminution" of hisreward. Private respondent Savellano prayed for the enforcement and collection of thetotal tax assessment against taxpayer PNOC and/or withholding agent PNB; and thepayment to him by the BIR Commissioner of the 15% informer's reward on the total taxcollected.

18 He would later amend his Petition to implead PNOC and PNB as necessary

and indispensable parties since they were parties to the compromise agreement .19

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition statedno cause of action against him, and that private respondent Savellano was already paidthe informer's reward due him. Alleging that the Petition was baseless and malicious, BIRCommissioner Tan filed a counterclaim for exemplary damages against private

respondent Savellano.20

PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide the case.

21 In its Resolution, dated 28 November 1988, the CTA

denied the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not appear to be indubitable.

22

After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to the amended Petition. PNOC averred, among other things, that (1)it had no privity with private respondent Savellano; (2) the BIR Commissioner'sdiscretionary act in entering into the compromise agreement had legal basis under E.O.No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no jurisdiction toresolve the case against it.

23 On the other hand, PNB asserted that (1) the CTA lacked

jurisdiction over the case; and (2) the BIR Commissioner's decision to accept the

compromise was discretionary on his part and, therefore, cannot be reviewed or interferedwith by the courts.

24 PNOC and PNB later filed their amended Answer invoking an opinion

of the Commission on Audit (COA) disallowing the payment by the BIR of informer'sreward to private respondent Savellano.

25

The CTA, thereafter, ordered the parties to submit their evidence,26

to be followed by their respective Memoranda.

27

On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension of Proceedings, claiming that his pending Motion for Reconsideration with theBIR Commissioner may soon be resolved.

28 Both PNOC and PNB opposed the said

Motion.29

Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16January 1991, demanded that PNB pay deficiency withholding tax on the interest earningsand/or yields from PNOC's money placements, in the amount of P294,958,450.73,computed as follows:

Withholding tax, plus interest under the letter of demand datedNovember 11, 1986

P 385,961,580.82

Less: Amount paid under E.O. No. 44 P 91,003,129.89

Amount still due and collectible P 294,958,450.7330

This BIR letter was received by PNB on 06 February 1991,31

and was protested by itthrough a letter, dated 11 April 1991.

32 The BIR denied PNB's protest on the ground that it

was filed out of time and, thus, the assessment had already become final.33

Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving towithdraw his previous Motion for Suspension of Proceeding since BIR Commissioner Ong

had finally resolved his Motion for Reconsideration, and submitting by way of supplemental offer of evidence (1) the letter of BIR Commissioner Ong, dated 13 February1991, informing private respondent Savellano of the action on his Motion for Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to PNB, dated 16January 1991.

34

Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991,resolved to allow private respondent Savellano to withdraw his previous Motion for Suspension of Proceeding and to admit the supplementary evidence being offered by thesame party.

35

In its Order, dated 03 June 1991, the CTA considered the case submitted for decision asof the following day, 04 June 1991.

36

On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment,dated 16 January 1991, for deficiency withholding tax in the sum of P294,958,450.73.

PNB alleged that its appeal to the DOJ was sanctioned under P.D. No. 242, whichprovided for the administrative settlement of disputes between government offices,agencies, and instrumentalities, including government-owned and controlledcorporations.

37

Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings beforethe CTA since it had a pending appeal before the DOJ.

38 On 04 July 1991, PNB filed with

the CTA a Motion for Reconsideration of its Order, dated 03 June 1991, submitting thecase for decision as of 04 June 1991, and prayed that the CTA hold its resolution of the

case in view of PNB's appeal pending before the DOJ.

39

On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR. Italleged that despite its request for reconsideration of the deficiency withholding taxassessment, dated 16 January 1991, BIR Commissioner Ong sent another letter, dated 23

April 1991, demanding payment of the P294,958,450.73 deficiency withholding tax on the

interest earnings and/or yields from PNOC's money placements. The same letter informed PNB that this was the BIR Commissioner's final decision on the matter and thatthe BIR Commissioner was set to issue a warrant of distraint and/or levy against PNB'sdeposits with the Central Bank of the Philippines. PNB further alleged that the levy anddistraint of PNB's deposits, unless restrained by the CTA, would cause great andirreparable prejudice not only to PNB, a government-owned and controlled corporation,but also to the Government itself .

40

Pursuant to the Order of the CTA, during the hearing on 19 July 1991,

41

the partiessubmitted their respective Memoranda on PNB's Motion to Suspend Proceedings.42

On 20 September 1991, private respondent Savellano filed another Omnibus Motioncalling the attention of the CTA to the fact that the BIR already issued, on 12 August 1991,a warrant of garnishment addressed to the Central Bank Governor and against PNB. Incompliance with the said warrant, the Central Bank issued, on 23 August 1991, a debitadvice against the demand deposit account of PNB with the Central Bank for the amountofP294,958,450.73, with a corresponding transfer of the same amount to the demand

deposit-in-trust of BIR with the Central Bank. Since the assessment had already beenenforced, PNB's Motion to Suspend Proceedings became moot and academic. Privaterespondent Savellano, thus, moved for the denial of PNB's Motion to SuspendProceedings and for an order requiring BIR to deposit with the CTA the amountof P44,243,767.00 as his informer's reward, representing 15% of the deficiency

withholding tax collected.43

Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion, dated 20September 1991, arguing that the DOJ already ordered the suspension of the collection of











































































































the tax deficiency. There was therefore no basis for private respondent Savellano'sMotion as the same was premised on the erroneous assumption that the tax deficiencyhad been collected. When the DOJ denied the BIR Commissioner's Motion to Dismiss andrequired him to file his answer, the DOJ assumed jurisdiction over PNB's appeal, and theCTA should first suspend its proceedings to give the DOJ the opportunity to decide thevalidity and propriety of the tax assessment against PNB .

44

The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction anddisposed of the case as follows:

WHEREFORE, judgment is rendered declaring the COMPROMISE

AGREEMENT between the Bureau of Internal Revenue, on the one hand, andthe Philippine National Oil Company and Philippine National Bank, on the other,as WITHOUT FORCE AND EFFECT;

The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16, 1991 against Philippine National Bank which hasbecome final and unappealable by collecting from Philippine National Bank thedeficiency withholding tax, plus interest totalling (sic) P294,958,450.73;

Petitioner may be paid, upon collection of the deficiency withholding tax, thebalance of his entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding total tax collected in this case or P44,243.767.00

subject to existing rules and regulations governing payment of reward toinformers.

45

In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration filed by PNOC and PNB since they substantially raised the same issuesin their previous pleadings and which had already been passed upon and resolvedadversely against them.

46

PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision in CTA Case No. 4249, dated 28 May 1992, and the CTA Resolution inthe same case, dated 16 November 1992. PNOC's appeal was docketed as CA-G.R. SPNo. 29583, while PNB's appeal was CA-G.R. SP No. 29526. In both cases, the Court of

Appeals affirmed the decision of the CTA.

In the meantime, the Central Bank again issued on 02 September 1992 a debit adviceagainst the demand deposit account of PNB with the Central Bank for the amount

of P294,958,450.73,47 and on 15 September 1992, credited the same amount to the

demand deposit account of the Treasurer of the Republic of the Philippines.48

On 04November 1992, the Treasurer of the Republic issued a journal voucher transferring P294,958,450.73 to the account of the BIR.

49 PNB, in turn,

debited P294,958,450.73 from the deposit account of PNOC with PNB .50

PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court,praying that the decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R.SP No. 29526, respectively, both affirming the decision of the CTA in CTA Case No. 4249,be reversed and set aside. These two Petitions were consolidated since they involvedidentical parties and factual background, and the resolution of related, if not exactly, thesame issues.

In its Petition for Review, PNOC alleged the following errors committed by the Court of

Appeals in CA-G.R. SP No. 29583:

1. The Court of Appeals erred in holding that the deficiency taxes of PNOCcould not be the subject of a compromise under Executive Order No. 44; and

2. The Court of Appeals erred in holding that Savellano is entitled to additionalinformer's reward.

51

PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R. SP No. 29526, assigning the following errors:

1. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the controversy involving BIR and PNB (both government

instrumentalities) regarding the new assessment of BIR against PNB;

2. The respondent Court erred in not finding that the Court of Tax Appeals hasno jurisdiction to question the compromise agreement entered into by theCommissioner of Internal Revenue; and

3. The respondent Court erred in not ruling that the Commissioner of InternalRevenue cannot unilaterally annul tax compromises validly entered into by hispredecessor .

52

The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No.29526, affirmed the decision of the CTA in CTA Case No. 4249. The resolution, therefore,of the assigned errors in the Court of Appeals' decisions essentially requires a review of

the CTA decision itself.

In consolidating the present Petitions, this Court finds that PNOC and PNB are basicallyquestioning the (1) Jurisdiction of the CTA in CTA Case No. 4249; (2) Declaration by theCTA that the compromise agreement was without force and effect; (3) Finding of the CTAthat the deficiency withholding tax assessment against PNB had already become final andunappealable and, thus, enforceable; and (4) Order of the CTA directing payment of additional informer's reward to private respondent Savellano.

I

Jurisdiction of the CTA

A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB.

The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249is that the BIR demand letter, dated 16 January 1991,

53 should be considered as a new

assessment against PNB. As a new assessment, it gave rise to a new dispute andcontroversy solely between the BIR and PNB that should be administratively settled or adjudicated, as provided in P.D. No. 242.

This argument is without merit. The issuance by the BIR of the demand letter, dated 16January 1991, was merely a development in the continuing effort of the BIR to collect thetax assessed against PNOC and PNB way back in 1986.

BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its

tax liability. The BIR subsequently sent another letter, dated 08 October 1986, to PNB, aswithholding agent, demanding payment of the tax it had failed to withhold on the interestearnings and/or yields from PNOC's money placements. PNOC wrote the BIR threesucceeding letters offering to compromise its tax liability; PNB, on the other hand, did not











































act on the demand letter it received, dated 08 October 1986. The BIR and PNOCeventually reached a compromise agreement on 22 June 1987. Private respondentSavellano questioned the validity of the compromise agreement because the reducedamount of tax collected from PNOC, by virtue of the compromise agreement, alsoproportionately reduced his informer's reward. Private respondent Savellano thenrequested the BIR Commissioner to review and reconsider the compromise agreement.

Acting on the request of private respondent Savellano, the new BIR Commissioner declared the compromise agreement to be without basis and issued the demand letter,dated 16 January 1991, against PNB, as the withholding agent for PNOC.

It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could notstand alone as a new assessment. It should always be considered in the factual context

summarized above.

In fact, the demand letter, dated 16 January 1991, actually referred to the withholding taxassessment first issued in 1986 and its eventual settlement through a compromiseagreement. In addition, the computation of the deficiency withholding tax was based onthe figures from the 1986 assessments against PNOC and PNB, and BIR no longer conducted a new audit or investigation of either PNOC and PNB before it issued thedemand letter on 16 January 1991.

These constant references to past events and circumstances demonstrate that thedemand letter, dated 16 January 1991, was not a new assessment, but rather, the latestaction taken by the BIR to collect on the tax assessments issued against PNOC and PNBin 1986.

PNB argues that the demand letter, dated 16 January 1991, introduced a newcontroversy. We see it differently as the said demand letter presented the resolution byBIR Commissioner Ong of the previous controversy involving the compromise of the 1986tax assessments. BIR Commissioner Ong explicitly declared therein that the compromiseagreement was without legal basis, and requested PNB, as the withholding agent, to paythe amount of withholding tax still due.

B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125.

Having established that the BIR demand letter, dated 16 January 1991, did not constitutea new assessment, then, there could be no basis for PNB's claim that any dispute arisingfrom the new assessment should only be between BIR and PNB.

Still proceeding from the argument that there was a new dispute between PNB and BIR,PNB sought the suspension of the proceedings in CTA Case No. 4249, after it contestedthe deficiency withholding tax assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however, correctly sustained its

jurisdiction and continued the proceedings in CTA Case No. 4249; and, in effect, rejectedDOJ's claim of jurisdiction to administratively settle or adjudicate BIR's assessmentagainst PNB.

The CTA assumed jurisdiction over the Petition for Review filed by private respondentSavellano based on the following provision of Rep. Act No. 1125, the Act creating theCourt of Tax Appeals:

SECTION 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive

appellate jurisdiction to review by appeal, as herein provided -

(1) Decisions of the Collector of Internal Revenue in cases involvingdisputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other mattersarising under the National Internal Revenue Code or other law or part

of law administered by the Bureau of Internal Revenue; . .. (Underscoring ours.)

In his Petition before the CTA, private respondent Savellano requested a review of thedecisions of then BIR Commissioner Tan to enter into a compromise agreement withPNOC and to reject his claim for additional informer's reward. He submitted before theCTA questions of law involving the interpretation and application of (1) E.O. No. 44, andits implementing rules and regulations, which authorized the BIR Commissioner to

compromise delinquent accounts and disputed assessments pending as of 31 December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended, which granted to the informer a reward equivalent to 15% of theactual amount recovered or collected by the BIR.

54 These should undoubtedly be

considered as matters arising from the NIRC and other laws being administered by theBIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No. 1125.

PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiencywithholding tax assessment by virtue of P.D. No. 242. Provisions on jurisdiction of P.D.No. 242 read:

SECTION 1. Provisions of law to the contrary notwithstanding, all disputes,claims and controversies solely between or among the departments, bureaus,offices, agencies, and instrumentalities of the National Government, including

government-owned or controlled corporations, but excluding constitutionaloffices or agencies, arising from the interpretation and application of statutes,contracts or agreements, shall henceforth be administratively settled or adjudicated as provided hereinafter; Provided , That this shall not apply to casesalready pending in court at the time of the effectivity of this decree.

SECTION 2. In all cases involving only questions of law, the same shall besubmitted to and settled or adjudicated by the Secretary of Justice, as AttorneyGeneral and ex officio legal adviser of all government-owned or controlledcorporations and entities, in consonance with Section 83 of the Revised

Administrative Code. His ruling or determination of the question in each caseshall be conclusive and binding upon all the parties concerned.

SECTION 3. Cases involving mixed questions of law and of fact or only factual

issues shall be submitted to and settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claimscontroversies between or among the departments, bureaus, officesand other agencies of the National Government;

(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or among government-owned or controlled corporations or entities being served by the Office of theGovernment Corporate Counsel; and

(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under the categoriesmentioned in paragraphs (a) and (b).







The PNB and DOJ are of the same position that P.D. No. 242, the more recent law,repealed Section 7(1) of Rep. Act No. 1125,

55 based on the pronouncement of this Court

in Development Bank of the Philippines v. Court of Appeals, et al., 56]

quoted below:

The Court … expresses its entire agreement with the conclusion of the Court of Appeals — and the basic premises thereof — that there is an "irreconcilablerepugnancy…between Section 7(2) of R.A. No. 1125 and P.D. No. 242," andhence, that the later enactment (P.D. No. 242), being the latest expression of the legislative will, should prevail over the earlier.

In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of

Rep. Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA over decisions of the Commissioner of Customs. PNB contends that P.D. No. 242 should bedeemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate jurisdiction of the CTA over decisions of the BIR Commissioner .

57

After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242,this Court finds itself in disagreement with the pronouncement made in Development Bank of the Philippines v. Court of Appeals, et al. ,

58and refers to the earlier case of Lichauco &

Company, Inc. v. Apostol, et al.,59

for the guidelines in determining the relation betweenthe two statutes in question, to wit:

The cases relating to the subject of repeal by implication all proceed on theassumption that if the act of later date clearly reveals an intention on the part of the law making power to abrogate the prior law, this intention must be given

effect; but there must always be a sufficient revelation of this intention, and ithas become an unbending rule of statutory construction that the intention torepeal a former law will not be imputed to the Legislature when it appears thatthe two statutes, or provisions, with reference to which the question arises bear

to each other the relation of general to special. (Underscoring ours.)

When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a general law, while the other is a special law, then repeal by implication isnot the primary rule applicable. The following rule should principally govern instead:

Specific legislation upon a particular subject is not affected by a general lawupon the same subject unless it clearly appears that the provisions of the twolaws are so repugnant that the legislators must have intended by the later tomodify or repeal the earlier legislation. The special act and the general law must

stand together, the one as the law of the particular subject and the other as thegeneral law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281;Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S. F.R. Co., 204 Fed. Rep., 970.)

Where there are two acts or provisions, one of which is special and particular,and certainly includes the matter in question, and the other general, which, if standing alone, would include the same matter and thus conflict with the specialact or provision, the special must be taken as intended to constitute anexception to the general act or provision, especially when such general andspecial acts or provisions are contemporaneous, as the Legislature is not to bepresumed to have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich.,322, 334; University of Utah vs. Richards , 77 Am. St. Rep., 928.)

60

It has, thus, become an established rule of statutory construction that between a generallaw and a special law, the special law prevails – Generalia specialibus non derogant .61

Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is ageneral law that deals with administrative settlement or adjudication of disputes, claimsand controversies between or among government offices, agencies and instrumentalities,including government-owned or controlled corporations. Its coverage is broad andsweeping, encompassing all disputes, claims and controversies. It has been incorporatedas Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised AdministrativeCode of the Philippines.

62 On the other hand, Rep. Act No. 1125 is a special la w

63 dealing

with a specific subject matter – the creation of the CTA, which shall exercise exclusiveappellate jurisdiction over the tax disputes and controversies enumerated therein.

Following the rule on statutory construction involving a general and a special lawpreviously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act

No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes anexception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government offices, agencies, andinstrumentalities, including government-owned and controlled corporations, remain in theexclusive appellate jurisdiction of the CTA. Such a construction resolves the allegedinconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is themore recent law is no longer significant.

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No.1125, the present dispute would still not be covered by P.D. No. 242. Section 1 of P.D.No. 242 explicitly provides that only disputes, claims and controversies solely between or

among departments, bureaus, offices, agencies, and instrumentalities of the NationalGovernment, including constitutional offices or agencies, as well as government-ownedand controlled corporations, shall be administratively settled or adjudicated. While the BIR

is obviously a government bureau, and both PNOC and PNB are government-owned andcontrolled corporations, respondent Savellano is a private citizen. His standing in thecontroversy could not be lightly brushed aside. It was private respondent Savellano whogave the BIR the information that resulted in the investigation of PNOC and PNB; whorequested the BIR Commissioner to reconsider the compromise agreement in question;and who initiated CTA Case No. 4249 by filing a Petition for Review.

In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al. ,64]

this Court upheldthe jurisdiction of the Court of Industrial Relations over the ordinary courts and justified itsdecision in the following manner:

We are unprepared to break away from the teaching in the cases just advertedto. To draw a tenuous jurisdictional line is to undermine stability in labor litigations. A piecemeal resort to one court and another gives rise to multiplicity

of suits. To force the employees to shuttle from one court to another to securefull redress is a situation gravely prejudicial. The time to be lost, effort wasted,anxiety augmented, additional expense incurred – these are considerationswhich weigh heavily against split jurisdiction. Indeed, it is more in keeping withorderly administration of justice that all the causes of action here "be cognizableand heard by only one court: the Court of Industrial Relations."

The same justification is used in the present case to reject DOJ's jurisdiction over the BIRand PNB, to the exclusion of the other parties. The rights of all four parties in CTA CaseNo. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the withholdingagent; and private respondent Savellano, the informer claiming his reward; arose from thesame factual background and were so closely interrelated, that a pronouncement as toone would definitely have repercussions on the others. The ends of justice were bestserved when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. TheCTA, which had assumed jurisdiction over all the parties to the controversy, could render

a comprehensive resolution of the issues raised and grant complete relief to the parties.

II









































Validity of the Compromise Agreement

A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account or a disputed assessment as of 31December 1985.

PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No.4249 declaring the compromise agreement between BIR and PNOC without force andeffect.

PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and

its implementing rules and regulations, and should be binding upon the parties thereto.

E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives thepower to compromise any disputed assessment or delinquent account pending as of 31December 1985, upon the payment of an amount equal to 30% of the basic tax assessed;in which case, the corresponding interests and penalties shall be condoned. E.O. No. 44took effect on 04 September 1986 and remained effective until 31 March 1987.

The disputed assessments or delinquent accounts that the BIR Commissioner couldcompromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-86, asfollows:

a) Delinquent account – Refers to the amount of tax due on or before

December 31, 1985 from a taxpayer who failed to pay the same within the timeprescribed for its payment arising from (1) a self assessed tax, whether or not atax return was filed, or (2) a deficiency assessment issued by the BIR which hasbecome final and executory.

Where no return was filed, the taxpayer shall be considered delinquent as of thetime the tax on such return was due, and in availing of the compromise, a taxreturn shall be filed as a basis for computing the amount of compromise to bepaid.

b) Disputed assessment – refers to a tax assessment disputed or protested onor before December 31, 1985 under any of the following categories:

1) if the same is administratively protested within thirty (30) days from the

date the taxpayer received the assessment, or

2.) if the decision of the BIR on the taxpayer's administrative protest isappealed by the taxpayer before an appropriate court.

PNOC's tax liability could not be considered a delinquent account since (1) it was not self-assessed, because the BIR conducted an investigation and assessment of PNOC andPNB after obtaining information regarding the non-withholding of tax from privaterespondent Savellano; and (2) the demand letter, issued against it on 08 August 1986,could not have been a deficiency assessment that became final and executory by 31December 1985.

The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-

assessed tax, and is, therefore, a delinquent account as of 31 December 1985, qualifyingfor a compromise under E.O. No. 44. It anchors its argument on the declaration made bythis Court in Tupaz v. Ulep,

65 that internal revenue taxes are self-assessing.

It is not denied herein that the self-assessing system governs Philippine internal revenuetaxes. The dissenting opinion itself defines self-assessed tax as, "a tax that the taxpayer himself assesses or computes and pays to the taxing authority." Clearly, such a systemimposes upon the taxpayer the obligation to conduct an assessment of himself so hecould determine and declare the amount to be used as tax basis, any deductionstherefrom, and finally, the tax due.

E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase"whether or not a tax return was filed" only refers to the compliance by the taxpayer withthe obligation to file a return on the dates specified by law, but it does not do away withthe requisite that the tax must be self-assessed in order for the taxpayer to avail of thecompromise. The second paragraph of Section 2(a) of RR No. 17-86 expressly

commands, and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who has not previously filed any return, the duty to conduct self-assessment by filing a tax return that would be used as the basis for computing theamount of compromise to be paid.

Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-assessment, discovers or becomes aware that he had failed to pay a taxdue on or before 31 December 1985, regardless of whether he had previously filed areturn to reflect such tax; voluntarily comes forward and admits to the BIR his tax liability;and applies for a compromise thereof. In case the taxpayer has not previously filed anyreturn, he must fill out such a return reflecting therein his own declaration of the taxableamount and computation of the tax due. The compromise payment shall be computedbased on the amount reflected in the tax return submitted by the taxpayer himself.

Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conductedself-assessment in this case. There is no showing that in the absence of the taxassessment issued by the BIR against them, that PNOC and/or PNB would havevoluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as of 15

November 1986, and would have offered to compromise the same. In fact, both PNOCand PNB were conspicuously silent about their tax liabilities until they were assessedthereon.

Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilitieshad already been overtaken by the BIR's conduct of its audit and investigation andsubsequent issuance of the assessments, dated 08 August 1986 and 08 October 1986,against PNOC and PNB, respectively. The said tax assessments, uncontested andundisputed, presented the results of the BIR audit and investigation and the computationof the total amount of tax liabilities of PNOC and PNB. They should be controlling in thiscase, and should not be so easily and conveniently ignored and set aside. It would be acontradiction to claim that the tax liabilities of PNOC and PNB are self-assessed and, atthe same time, BIR-assessed; when it is clear and simple that it had been the BIR thatconducted the assessment and determined the tax liabilities of PNOC and PNB.

That the BIR-assessed tax liability should be differentiated from a self-assessed one, issupported by the provisions of RR No. 17-86 on the basis for computing the amount of compromise payment. Note that where tax liabilities are self-assessed, the compromisepayment shall be computed based on the tax return filed by the taxpayer .

66 On the other

hand, where the BIR already issued an assessment, the compromise payment shall becomputed based on the tax due on the assessment notice.

67

For instances where the BIR had already issued an assessment against the taxpayer, thetax liability could still be compromised under E.O. No. 44 only if: (1) the assessment hadbeen final and executory on or before 31 December 1985 and, therefore, considered adelinquent account as of said date;68 or (2) the assessment had been disputed or protested on or before 31 December 1985.

69

http://www.supremecourt.gov.ph/jurisprudence/1999/oct99/127777.html

























RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44,does mention different types of assessments that may be compromised under said statute(i.e., jeopardy assessments, arbitrary assessments, and tax assessments of doubtfulvalidity). RMO No. 39-86 may not have expressly stated any qualification for theseparticular types of assessments; nonetheless, E.O. No. 44 specifically refers only toassessments that were delinquent or disputed as of 31 December 1985 .

E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so thatthey are harmonized and consistent with each other. Accordingly, this Court finds that thedifferent types of assessments mentioned in RMO No. 39-86 would still have to qualify asdelinquent accounts or disputed assessments as of 31 Dcember 1985, so that they couldbe compromised under E.O. No. 44.

The BIR had first written to PNOC on 08 August 1986, demanding payment of the incometax on the interest earnings and/or yields from PNOC's money placements with PNB from15 October 1984 to 15 October 1986. This demand letter could be regarded as the firstassessment notice against PNOC.

Such an assessment, issued only on 08 August 1986, could not have been final andexecutory as of 31 December 1985 so as to constitute a delinquent account. Neither wasthe assessment against PNOC an assessment that could have been disputed or protestedon or before 31 December 1985, having been issued on a later date.

Given that PNOC's tax liability did not constitute a delinquent account or a disputedassessment as of 31 December 1985, then it could not be compromised under E.O. No.

44.

The assessment against PNOC, instead, was more appropriately covered by RevenueMemorandum Circular (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availmentof the tax amnesty under E.O. No. 41

70 and compromise payments on delinquent

accounts and disputed assessments under E.O. No. 44. The third paragraph of RMC No.31-86 reads:

[T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle their tax liabilities by way of compromise under Section 246 of the Tax Code as amended by paying 30% of the basicassessment excluding surcharge, interest, penalties and other incrementsthereto.

The above-quoted paragraph supports the position that only assessments that weredisputed or that were final and executory by 31 December 1985 could be the subject of acompromise under E.O. No. 44. Assessments issued between 01 January to 21 August1986 could still be compromised by payment of 30% of the basic tax assessed, notanymore pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, asamended.

Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner theauthority to compromise the payment of any internal revenue tax under the followingcircumstances: (1) there exists a reasonable doubt as to the validity of the claim againstthe taxpayer; or (2) the financial position of the taxpayer demonstrates a clear inability topay the assessed tax.

71

There are substantial differences in circumstances under which compromises may be

granted under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44. AlthoughPNOC and PNB have extensively argued their entitlement to compromise under E.O. No.44, neither of them has alleged, much less, has presented any evidence to prove that itmay compromise its tax liability under Section 246 of the NIRC of 1977, as amended.

B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44.

Before proceeding any further, this Court reconsiders the conclusion made by BIRCommissioner Ong in his demand letter, dated 16 January 1991, that the compromisesettlement executed between the BIR and PNOC was without legal basis becausewithholding taxes were not actually taxes that could be compromised, but a penalty for PNB's failure to withhold and for which it was made personally liable.

E.O. No. 44 covers disputed or delinquency cases where the person assessed washimself the taxpayer rather than a mere agent.

72 RMO No. 39-86 expressly allows a

withholding agent, who failed to withhold the required tax because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for acompromise settlement of his withholding tax liability under E.O. No. 44. A withholdingagent, in such a situation, may compromise the withholding tax assessment against himprecisely because he is being held directly accountable for the tax.

73

RMO No. 39-86 distinguishes between the withholding agent in the foregoing situationfrom the withholding agent who withheld the tax but failed to remit the amount to theGovernment. A withholding agent in the latter situation is the one disqualified fromapplying for a compromise settlement because he is being made accountable as anagent, who held funds in trust for the Government.

74

Both situations, however, involve withholding agents. The right to compromise under these provisions should have been claimed by PNB, the withholding agent for PNOC. The

BIR held PNB personally accountable for its failure to withhold the tax on the interestearnings and/or yields from PNOC's money placements with PNB. The BIR sent ademand letter, dated 08 October 1986, addressed directly to PNB, for payment of thewithholding tax assessed against it, but PNB failed to take any action on the said demandletter. Yet, all the offers to compromise the withholding tax assessment came from PNOCand PNOC did not claim that it made the offers to compromise on behalf of PNB.

Moreover, the general requirement of E.O. No. 44 still applies to withholding agents – thatthe withholding tax liability must either be a delinquent account or a disputed assessmentas of 31 December 1985 to qualify for compromise settlement. The demand letter againstPNB, which also served as its assessment notice, had been issued on 08 October 1986 or two months later than PNOC's. PNB's withholding tax liability could not be considered adelinquent account or a disputed assessment, as defined under RR No. 17-86, for thesame reasons that PNOC's tax liability did not constitute as such. The tax liability of PNB,therefore, was also not eligible for compromise settlement under E.O. No. 44.

C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No.44, their application for compromise was filed beyond the deadline.

Despite already ruling that the tax liabilities of PNOC and PNB could not be compromisedunder E.O. No. 44, this Court still deems it necessary to discuss the finding of the CTAthat the compromise agreement had been filed beyond the effectivity of E.O. No. 44, sincethe CTA made a declaration in relation thereto that paragraph 2 of RMO No. 39-86 wasnull and void for unduly extending the effectivity of E.O. No. 44.

Paragraph 2 of RMO No. 39-86 provides that:

2. Period for availment. – Filing of application for compromise settlement under

the said law shall be effective only until March 31, 1987. Applications filed on or before this date shall be valid even if the payment or payments of thecompromise amount shall be made after the said date, subject, however, to the























provisions of Executive Order No. 44 and its implementing RevenueRegulations No. 17-86.

It is well-settled in this jurisdiction that administrative authorities are vested with the power to make rules and regulations because it is impracticable for the lawmakers to providegeneral regulations for various and varying details of management. The interpretationgiven to a rule or regulation by those charged with its execution is entitled to the greatestweight by the court construing such rule or regulation, and such interpretation will befollowed unless it appears to be clearly unreasonable or arbitrary .

75

RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or

arbitrary. It does not unduly expand the coverage of E.O. No. 44 by merely providing thatapplications for compromise filed until 31 March 1987 are still valid, even if payment of thecompromised amount is made on a later date.

It cannot be expected that the compromise allowed under E.O. No. 44 can beautomatically granted upon mere filing of the application by the taxpayer. Irrefutably, theapplications would still have to be processed by the BIR to determine compliance with therequirements of E.O. No. 44. As it is uncontested that a taxpayer could still file anapplication for compromise on 31 March 1987, the very last day of effectivity of E.O. No.44, it would be unreasonable to expect the BIR to process and approve the taxpayer'sapplication within the same date considering the volume of applications filed and pendingapproval, plus the other matters the BIR personnel would also have to attend to. Thus,RMO No. 39-86 merely assures the taxpayers that their applications would still beprocessed and could be approved on a later date. Payment, of course, shall be made bythe taxpayer only after his application had been approved and the compromised amount

had been determined.

Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to beaddressed is whether PNOC had been able to submit an application for compromise on or before 31 March 1987 in compliance thereof. Although the compromise agreement wasexecuted only on 22 June 1987, PNOC is claiming that it had already written a letter to theBIR, as early as 25 September 1986, offering to compromise its tax liability, and that thesaid letter should be considered as PNOC's application for compromise settlement.

A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that theterms of its proposed compromise did not conform to those authorized by E.O. No. 44.PNOC did not offer to pay outright 30% of the basic tax assessed against it as required byE.O. No. 44; and instead, made the following offer:

(2) That PNOC be permitted to set-off its foregoing mentioned tax liabilityof P304,419,396.83 against the tax refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to NPCtotaling P335,259,450.21, which tax refunds/credits are actually receivableaccounts of our Company from NPC.

76

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986 .77

The BIR, in itsletters to PNOC, dated 8 October 1986

78 and 11 November 1986,

79 consistently denied

PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so that the offer to set-off such claim against PNOC's tax liability was premature.

Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a taxliability against a claim for tax refund/credit. Compromise under E.O. No. 44 may beavailed of only in the following circumstances:

SEC. 3. Who may avail. – Any person, natural or juridical, may settle thru acompromise any delinquent account or disputed assessment which has been

due as of December 31, 1985, by paying an amount equal to thirty percent(30%) of the basic tax assessed.

…

SEC. 6. Mode of Payment. – Upon acceptance of the proposed compromise,the amount offered as compromise in complete settlement of the delinquentaccount shall be paid immediately in cash or manager's certified check.

Deferred or staggered payments of compromise amounts over P50,000 may beconsidered on a case to case basis in accordance with the extant regulations of

the Bureau upon approval of the Commissioner of Internal Revenue, his Deputyor Assistant as delineated in their respective jurisdictions.

If the Compromise amount is not paid as required herein, the compromiseagreement is automatically nullified and the delinquent account reverted to theoriginal amount plus the statutory increments, which shall be collected thru thesummary and/or judicial processes provided by law.

E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liabilityby paying the compromise amount equivalent to 30% of the basic tax. It also benefits theGovernment by making collection of delinquent accounts and disputed assessmentssimpler, easier, and faster. Payment of the compromise amount must be madeimmediately, in cash or in manager's check. Although deferred or staggered paymentsmay be allowed on a case-to-case basis, the mode of payment remains unchanged, and

must still be made either in cash or in manager's check.

PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. Theoffer defeated the purpose of E.O. No. 44 because it would not only delay collection, butmore importantly, it would not guarantee collection. First of all , BIR's collection wascontingent on whether the claim for tax refund/credit of NAPOCOR would be subsequentlygranted. Second , collection could not be made immediately and would have to wait untilthe resolution of the claim for tax refund/credit of NAPOCOR. Third , there is no proof,other than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is anaccount receivable of PNOC. A possible dispute between NAPOCOR and PNOC as tothe proceeds of the tax refund/credit would only delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise itstax liability in accordance with the terms and circumstances prescribed by E.O. No. 44 and

its implementing rules and regulations, by stating that:

Consequently, we reiterate our previous request for compromise under E.O. No.44, and convey our preparedness to settle the subject tax assessment liabilityby payment of the compromise amount ofP91,003,129.89, representing thirtypercent (30%) of the basic tax assessment of P303,343,766.29, in accordancewith E.O. No. 44 and its implementing BIR Revenue Memorandum Order No.39-86.

80

PNOC claimed in the same letter that it had previously requested for a compromise under the terms of E.O. No. 44, but this Court could not find evidence of such previous request.There are stark and substantial differences in the terms of PNOC's offer to compromise inits earlier letters, dated 25 September 1986 and 14 October 1986 (set-off of the entireamount of its tax liability against the claim for tax refund/credit of NAPOCOR), to those in

its letter, dated 09 June 1987 (payment of the compromise amount representing 30% of the basic tax assessed against it), making it difficult for this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's offer to compromise in its earlier letters.



























This Court likewise cannot give credence to PNOC's allegation that beginning 25September 1986, the date of its first letter to the BIR, there were continuing negotiationsbetween PNOC and BIR that culminated in the compromise agreement on 22 June 1987.

Aside from the exchange of letters recounted in the preceding paragraphs, both PNOCand PNB failed to present any other proof of the supposed negotiations.

After the BIR denied the second offer of PNOC to set-off its tax liability against the claimfor tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is no other evidence of subsequent communication between PNOC and the BIR. It was only after almost seven months, or on 09 June 1987, that PNOC again wrote a letter to the BIR, thistime offering to pay the compromise amount of 30% of the basic tax assessed against.This letter was already filed beyond 31 March 1987, after the lapse of the effectivity of

E.O. No. 44 and the deadline for filing applications for compromise under the said statute.

Evidence of meetings between PNOC and the BIR, or any other form of communication,wherein the parties presented their offer and counter-offer to the other, would have beenvery valuable in explaining and supporting BIR Commissioner Tan's decision to acceptPNOC's third offer to compromise after denying the previous two. The absence of suchevidence herein negates PNOC's claim of actual negotiations with the BIR.

Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify asdelinquent accounts or disputed assessments as of 31 December 1985, the application for compromise filed by PNOC on 09 June 1987, and accepted by then BIR Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, the expiration date of theeffectivity of E.O. No. 44 and the deadline for filing of applications for compromise under RMO No. 39-86.

D. The BIR Commissioner's discretionary authority to enter into a compromiseagreement is not absolute and the CTA may inquire into allegations of abusethereof.

The foregoing discussion supports the CTA's conclusion that the compromise agreementbetween PNOC and the BIR was indeed without legal basis. Despite this lack of legalsupport for the execution of the said compromise agreement, PNB argues that the CTAstill had no jurisdiction to review and set aside the compromise agreement. It contendsthat the authority to compromise is purely discretionary on the BIR Commissioner and thecourts cannot interfere with his exercise thereof.

It is generally true that purely administrative and discretionary functions may not beinterfered with by the courts; but when the exercise of such functions by the administrativeofficer is tainted by a failure to abide by the command of the law, then it is incumbent onthe courts to set matters right, with this Court having the last say on the matter .

81

The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a compromise was brought under the scrutiny of the CTA amidst allegations of "graveabuse of discretion and/or whimsical exercise of jurisdiction."

82 The discretionary power of

the BIR Commissioner to enter into compromises cannot be superior over the power of judicial review by the courts.

The discretionary authority to compromise granted to the BIR Commissioner is never meant to be absolute, uncontrolled and unrestrained. No such unlimited power may bevalidly granted to any officer of the government, except perhaps in cases of nationalemergency.

83 In this case, the BIR Commissioner's authority to compromise, whether

under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can only beexercised under certain circumstances specifically identified in said statutes. The BIRCommissioner would have to exercise his discretion within the parameters set by the law,

and in case he abuses his discretion, the CTA may correct such abuse if the matter isappealed to them.

84

Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercisedhis authority to enter into a compromise specially granted by E.O. No. 44. Since thisCourt has already made a determination that the compromise agreement did not qualifyunder E.O. No. 44, BIR Commissioner Tan's decision to agree to the compromise shouldhave been reviewed in the light of the general authority granted to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of 1977, as amended. Then again,petitioners PNOC and PNB failed to allege, much less present evidence, that BIRCommissioner Tan acted in accordance with Section 246 of the NIRC of 1977, asamended, when he entered into the compromise agreement with PNOC.

E. The CTA may set aside a compromise agreement that is contrary to law and public policy.

PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreemententered into in good faith. It relies on the decision of this Court in Republic v.Sandiganbayan

85 that a compromise agreement cannot be set aside merely because it is

too one-sided. A compromise agreement should be respected by the courts as the res judicata between the parties thereto.

This Court, though, finds that there are substantial differences in the factual background of Republic v. Sandiganbayan and the present case.

The compromise agreement executed between the Presidential Commission on GoodGovernment (PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was

judicially approved by the Sandiganbayan. The Sandiganbayan had ample opportunity toexamine the validity of the compromise agreement since two years elapsed from the timethe agreement was executed up to the time it was judicially approved. This Court evenstated in the said case that, "We are not dealing with the usual compromise agreementperfunctorily submitted to a court and approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed before therespondent court. There could be no deception or misrepresentation foisted on either thePCGG or the Sandiganbayan."

86

In addition, the new PCGG Chairman originally prayed for the re-negotiation of thecompromise agreement so that it could be more just, fair, and equitable, an actionconsidered by this Court as an implied admission that the agreement was not contrary tolaw, public policy or morals nor was there any circumstance which had vitiated consent.

87

The above-mentioned circumstances strongly supported the validity of the compromiseagreement in Republic v. Sandiganbayan, which was why this Court refused to set itaside. Unfortunately for the petitioners in the present case, the same cannot be saidherein.

The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromiseagreement, ruled that:

We are unable to accept petitioner's submissions. Its formulation of the issueson CIR and CTA's lack of jurisdiction to disturb a compromise agreementpresupposes a compromise agreement validly entered into by the CIR and not,when as in this case, it was indubitably shown that the supposed compromise

agreement is without legal support. In case of arbitrary or capricious exerciseby the Commissioner or if the proceedings were fatally defective, thecompromise can be attacked and reversed through the judicial process(Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982];































Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed.582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18 of decision) … .

88

Although the general rule is that compromises are to be favored, and that compromisesentered into in good faith cannot be set aside,

89 this rule is not without qualification. A

court may still reject a compromise or settlement when it is repugnant to law, morals, goodcustoms, public order, or public policy.

90

The compromise agreement between the BIR and PNOC was contrary to law having beenentered into by BIR Commissioner Tan in excess or in abuse of the authority granted tohim by legislation. E.O. No. 44 and the NIRC of 1977, as amended, had identified the

situations wherein the BIR Commissioner may compromise tax liabilities, and none of these situations existed in this case.

The compromise, moreover, was contrary to public policy. The primary duty of the BIR isto collect taxes, since taxes are the lifeblood of the Government and their prompt andcertain availability are imperious needs.

91 In the present case, however, BIR

Commissioner Tan, by entering into the compromise agreement that was bereft of anylegal basis, would have caused the Government to lose almost P300 million in taxrevenues and would have deprived the Government of much needed monetary resources.

Allegations of good faith and previous execution of the terms of the compromiseagreement on the part of PNOC would not be enough for this Court to disregard thedemands of law and public policy. Compromise may be the favored method to settledisputes, but when it involves taxes, it may be subject to closer scrutiny by the courts. A

compromise agreement involving taxes would affect not just the taxpayer and the BIR, butalso the whole nation, the ultimate beneficiary of the tax revenues collected.

F . The Government cannot be estopped from collecting taxes by the mistake,negligence, or omission of its agents.

The new BIR Commissioner, Commissioner Ong, had acted well within his powers whenhe set aside the compromise agreement, dated 22 June 1987, after finding that the saidcompromise agreement was without legal basis. When he took over from hispredecessor, there was still a pending motion for reconsideration of the said compromiseagreement, filed by private respondent Savellano on 24 March 1988. To resolve the saidmotion, he reviewed the compromise agreement and, thereafter, came upon theconclusion that it did not comply with E.O. No. 44 and its implementing rules andregulations.

It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,92

thatan administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogatethe acts or previous rulings of his predecessor in office. The construction of a statute bythose administering it is not binding on their successors if, thereafter, the latter becomessatisfied that a different construction should be given.

It is evident in this case that the new BIR Commissioner, Commissioner Ong, construedE.O. No. 44 and its implementing rules and regulations differently from that of hispredecessor, former Commissioner Tan, which led to Commissioner Ong's revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a revocationwas only proper considering that the former BIR Commissioner's decision to approve thesaid compromise agreement was based on the erroneous construction of the law ( i.e.,E.O. No. 44 and its implementing rules and regulations) and should not give rise to anyvested right on PNOC.

93

Furthermore, approval of the compromise agreement and acceptance of the compromisepayment by his predecessor cannot estop BIR Commissioner Ong from setting aside the

compromise agreement, dated 22 June 1987, for lack of legal basis; and from demandingpayment of the deficiency withholding tax from PNB. As a general rule, the Governmentcannot be estopped from collecting taxes by the mistake, negligence, or omission of itsagents

94 because:

. . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes shouldnot be allowed to bring harm or detriment to the people, in the same manner asprivate persons may be made to suffer individually on account of his ownnegligence, the presumption being that they take good care of their personalaffairs. This should not hold true to government officials with respect to matters

not of their own personal concern. This is the philosophy behind thegovernment's exception, as a general rule, from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc.vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs.Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA571; Balmaceda vs. Corominas & Co., Inc. , 66 SCRA 553; Auyong Hian vs.Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines,Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company ,L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals , L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).

95

III

Finality of the Tax Assessment

A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for the first time on appeal and should not be given duecourse.

PNB, in another effort to block the collection of the deficiency withholding tax, this timeraises doubts as to the validity of the deficiency withholding tax assessment issuedagainst it on 16 January 1991. It submits that the BIR failed to comply with the noticerequirements set forth in RR No. 12-85.

96

Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a newissue raised by PNB only before this Court. Such a question has not been ventilatedbefore the lower courts. For an appellate tribunal to consider a legal question, it shouldhave been raised in the court below.

97 If raised earlier, the matter would have been

seriously delved into by the CTA and the Court of Appeals.98

B. The assessment against PNB had become final and unappealable, and therefore, enforceable.

The CTA and the Court of Appeals declared as final and unappealable, and thus,enforceable, the assessment against PNB, dated 16 January 1991, since PNB failed toprotest said assessment within the 30-day prescribed period. This Court, though, findsthat the significant BIR assessment, as far as this case is concerned, should be the oneissued by the BIR against PNB on 08 October 1986.

The BIR issued on 08 October 1986 an assessment against PNB for its withholding taxliability on the interest earnings and/or yields from PNOC's money placements with thebank. It had 30 days from receipt to protest the BIR's assessment.

99 PNB, however, did

not take any action as to the said assessment so that upon the lapse of the period to



















































protest, the withholding tax assessment against it, dated 8 October 1986, became finaland unappealable, and could no longer be disputed.

100 The courts may therefore order the

enforcement of this assessment.

It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that isin issue in the instant case. If the compromise agreement is valid, it would effectively bar the BIR from enforcing the assessment and collecting the assessed tax; on the other hand, if the compromise agreement is void, then the courts can order the BIR to enforcethe assessment and collect the assessed tax.

As has been previously discussed by this Court, the BIR demand letter, dated 16 January

1991, is not a new assessment against PNB. It only demanded from PNB the payment of the balance of the withholding tax assessed against it on 08 October 1986. The samedemand letter also has no substantial effect or impact on the resolution of the presentcase. It is already unnecessary and superfluous, having been issued by the BIR whenCTA Case No. 4249 was already pending before the CTA. At best, the demand letter,dated 16 January 1991, constitute a useful reference for the courts in computing thebalance of PNB's tax liability, after applying as partial payment thereon the amountpreviously received by the BIR from PNOC pursuant to the compromise agreement.

IV

Prescription

A. The defense of prescription was never raised by petitioners PNOC and PNB,

and should be considered waived.

The dissenting opinion takes the position that the right of the BIR to assess and collectincome tax on the interest earnings and/or yields from PNOC's money placements withPNB, particularly for taxable year 1985, had already prescribed, based on Section 268 of the NIRC of 1977, as amended.

Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitationfor the assessment and collection of internal revenue taxes, which begins to run after thelast day prescribed for filing of the return.

101

The dissenting opinion points out that more than four years have elapsed from 25 January1986 (the last day prescribed by law for PNB to file its withholding tax return for the fourthquarter of 1985) to 16 January 1991 (the date when the alleged final assessment of PNB'stax liability was issued).

The issue of prescription, however, was brought up only in the dissenting opinion and wasnever raised by PNOC and PNB in the proceedings before the BIR nor in any of their pleadings submitted to the CTA and the Court of Appeals.

Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses andobjections not pleaded, and reads:

SECTION 1. Defenses and objections not pleaded . – Defenses and objectionsnot pleaded either in a motion to dismiss or in the answer are deemed waived.However, when it appears from the pleadings or the evidence on record that thecourt has no jurisdiction over the subject matter, that there is another action

pending between the parties for the same cause, or that the action is barred byprior judgment or by the statute of limitations, the court shall dismiss the claim.

The general rule enunciated in the above-quoted provision governs the present case, thatis, the defense of prescription, not pleaded in a motion to dismiss or in the answer, isdeemed waived. The exception in same provision cannot be applied herein because thepleadings and the evidence on record do not sufficiently show that the action is barred byprescription.

It has been consistently held in earlier tax cases that the defense of prescription of theperiod for the assessment and collection of tax liabilities shall be deemed waived whensuch defense was not properly pleaded and the facts alleged and evidences submitted bythe parties were not sufficient to support a finding by this Court on the matter .

102 In Querol

v. Collector of Internal Revenue,103

this Court pronounced that prescription, being a matter of defense, imposes the burden on the taxpayer to prove that the full period of the

limitation has expired; and this requires him to positively establish the date when theperiod started running and when the same was fully accomplished.

In making its conclusion that the assessment and collection in this case had prescribed,the dissenting opinion took liberties to assume the following facts even in the absence of allegations and evidences to the effect that: (1) PNB filed returns for its withholding taxobligations for taxable year 1985; (2) PNB reported in the said returns the interestearnings of PNOC's money placements with the bank; and (3) that the returns were filedon or before the prescribed date, which was 25 January 1986.

It is not safe to adopt the first and second assumptions in this case considering thatSection 269 of the NIRC of 1977, as amended, provides for a different period of limitationfor assessment and collection of taxes in case of false or fraudulent return or for failure tofile a return. In such cases, the BIR is given 10 years after discovery of the falsity, fraud,

or omission within which to make an assessment.104

It is also not safe to accept the third assumption since there can be a possibility that PNBfiled the withholding tax return later than the prescribed date, in which case, following thedictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptiveperiod shall be counted from the date the return was actually filed.

105

PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would havebeen the best evidence to prove actual filing, the date of filing and the contents thereof.These facts are relevant in determining which prescriptive period should apply, and whensuch prescriptive period should begin to run and when it had lapsed. Yet, the pleadingsdid not refer to any return, and no return was made part of the records of the presentcase.

This Court could not make a proper ruling on the matter of prescription on the mere basisof assumptions; such an issue should have been properly raised, argued, and supportedby evidences submitted by the parties themselves before the BIR and the courts below.

B. Granting that this Court can take cognizance of the defense of prescription,this Court finds that the assessment of the withholding tax liability against PNOC and collection of the tax assessed were done within the prescriptive

period.

Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it finds that the assessment against PNB for its withholding tax liability for taxable year 1985 and the collection of the tax assessed therein were accomplished withinthe prescribed periods for assessment and collection under the NIRC of 1977, asamended.

If this Court adopts the assumption made by the dissenting opinion that PNB filed itswithholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR had



























until 24 January 1989 to assess PNB. The original assessment against PNB was issuedas early as 08 October 1986, well-within the three-year prescriptive period for making theassessment as prescribed by the following provisions of the NIRC of 1977, as amended:

SEC. 268. Period of limitation upon assessment and collection. – Except asprovided in the succeeding section, internal revenue taxes shall be assessedwithin three years after the last day prescribed by law for the filing of the return,and no proceeding in court without assessment for the collection of such taxesshall be begun after the expiration of such period…

SEC. 269. Exceptions as to period of limitation of assessment and collection of

taxes. –

…

(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by aproceeding in court within three years following the assessment of the tax.

Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunctionwith one another. Section 268 requires that assessment be made within three years fromthe last day prescribed by law for the filing of the return. Section 269(c), on the other hand, provides that when an assessment is issued within the prescribed period providedin Section 268, the BIR has three years, counted from the date of the assessment, tocollect the tax assessed either by distraint, levy or court action. Therefore, when an

assessment is timely issued in accordance with Section 268, the BIR is given another three-year period, under Section 269(c), within which to collect the tax assessed,reckoned from the date of the assessment.

In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986,so that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed.The filing, however, by private respondent Savellano of his Amended Petition for Reviewbefore the CTA on 02 July 1988 already constituted a judicial action for collection of thetax assessed which stops the running of the three-year prescriptive period for collectionthereof.

A judicial action for the collection of a tax may be initiated by the filing of a complaint withthe proper regular trial court; or where the assessment is appealed to the CTA, by filing ananswer to the taxpayer's petition for review wherein payment of the tax is prayed for .

106

The present case is unique, however, because the Petition for Review was filed by privaterespondent Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, thecollecting government agency; PNOC, the taxpayer; and PNB, the withholding agent,initially found themselves on the same side. The prayer in the Amended Petition for Review of private respondent Savellano reads:

WHEREFORE, in view of the foregoing, petitioner respectfully prays that thecompromise agreement of June 22, 1987 be reviewed and declared null andvoid, and that this Court directs:

a) respondent Commissioner to enforce and collect and respondentsPNB and/or PNOC to pay in a joint and several capacity, the total taxliability of P387,987,785.73, plus interests from 31 October 1986; and

b) respondent Commissioner to pay unto petitioner, as informer'sreward, 15% of the tax liability collected under clause (a) hereof.

Other equitable reliefs under the premises are likewise prayedfor .

107 (Underscoring ours.)

Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249,prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and(2) PNB and/or PNOC to pay the tax – making CTA Case No. 4249 a collection case.That the Amended Petition for Review was filed by the informer and not the taxpayer; andthat the prayer for the enforcement of the tax assessment and payment of the tax wasalso made by the informer, not the BIR, should not affect the nature of the case as a

judicial action for collection. In case the CTA grants the Petition and the prayer therein, aswhat has happened in the present case, the ultimate result would be the collection of thetax assessed. Consequently, upon the filing of the Amended Petition for Review by

private respondent Savellano, judicial action for collection of the tax had been initiated andthe running of the prescriptive period for collection of the said tax was terminated.

Supposing that CTA Case No. 4249 is not a collection case which stops the running of theprescriptive period for the collection of the tax, CTA Case No. 4249, at the very least,suspends the running of the said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shallbe suspended for the period during which the BIR Commissioner is prohibited frombeginning a distraint or levy or instituting a proceeding in court, and for 60 daysthereafter .

108 Just as in the cases of Republic v. Ker & Co., Ltd .

109 and Protector's

Services, Inc. v. Court of Appeals,110

this Court declares herein that the pendency of thepresent case before the CTA, the Court of Appeals and this Court, legally prevents theBIR Commissioner from instituting an action for collection of the same tax liabilitiesassessed against PNOC and PNB in the CTA or the regular trial courts. To rule otherwisewould be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis

pendens.

Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, theinformer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would notprevent the suspension of the running of the prescriptive period for collection of the tax.What is controlling herein is the fact that the BIR Commissioner cannot file a judicial actionin any other court for the collection of the tax because such a case would necessarilyinvolve the same parties and involve the same issues already being litigated before theCTA in CTA Case No. 4249. The three-year prescriptive period for collection of the taxshall commence to run only after the promulgation of the decision of this Court in whichthe issues of the present case are resolved with finality.

Whether the filing of the Amended Petition for Review by private respondent Savellanoentirely stops or merely suspends the running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to issue a writ of garnishmentagainst PNB on 12 August 1991 and for the Central Bank of the Philippines to debit theaccount of PNB on 02 September 1992 pursuant to the said writ, because the case wasby then, pending review by the Court of Appeals. However, since this Court already findsthat the compromise agreement is without force and effect and hereby orders theenforcement of the assessment against PNB, then, any issue or controversy arising fromthe premature garnishment of PNB's account and collection of the tax by the BIR hasbecome moot and academic at this point.

V

Additional Informer's Reward

Private respondent Savellano is entitled to additional informer's reward since the BIR had already collected the full amount of the tax assessment against PNB.























PNOC insists that private respondent Savellano is not entitled to additional informer'sreward because there was no voluntary payment of the withholding tax liability. PNOC,however, fails to state any legal basis for its argument.

Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected.

111 The provision was clear and uncomplicated – an

informer was entitled to a reward of 15% of the total amount actually recovered or collected by the BIR based on his information. The provision did not make any distinctionas to the manner the tax liability was collected – whether it was through voluntary paymentby the taxpayer or through garnishment of the taxpayer's property. Applicable herein isanother well-known maxim in statutory construction – Ubi lex non distinguit nec nos

distinguere debemos – when the law does not distinguish, we should not distinguish.112

Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debitadvice against the demand deposit account of PNB with the Central Bank for the amountof P294,958,450.73, and credited the same amount to the demand deposit account of theTreasurer of the Republic of the Philippines. The Treasurer of the Republic, in turn,already issued a journal voucher transferring P294,958,450.73 to the account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of garnishment over PNB's deposit with the Central Bank, then private respondentSavellano should be awarded 15% thereof as reward since the said collection could stillbe traced to the information he had given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No.109976 and G.R. No. 112800, respectively, are hereby DENIED. This Court AFFIRMSthe assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SPNo. 29526, which affirmed the decision of the CTA in CTA Case No. 4249, withmodifications, to wit:

(1) The compromise agreement between PNOC and the BIR, dated 22 June1987, is declared void for being contrary to law and public policy, and is withoutforce and effect;

(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

(3)The withholding tax assessment against PNB, dated 08 October 1986, hadbecome final and unappealable. The BIR Commissioner is ordered to enforce

the said assessment and collect the amount ofP294,958,450.73, the balance of tax assessed after crediting the previous payment made by PNOC pursuant tothe compromise agreement, dated 22 June 1987; and

(4) Private respondent Savellano shall be paid the remainder of his informer'sreward, equivalent to 15% of the deficiency withholding tax ordered collectedherein, or P 44,243,767.61.

SO ORDERED.

FIRST DIVISION

[G.R. No. 151908. August 12, 2003]

SMART COMMUNICATIONS, INC. (SMART) and PILIPINO TELEPHONECORPORATION (PILTEL), pet i t ioners, vs. NATIONALTELECOMMUNICATIONS COMMISSION (NTC), respondent .

[G.R. No. 152063. August 12, 2003]

GLOBE TELECOM, INC. (GLOBE) and ISLA COMMUNICATIONS CO., INC.(ISLACOM), pet i t ioners, vs. COURT OF APPEALS (The Former 6 th Division)and the NATIONAL TELECOMMUNICATIONS COMMISSION, respondents.

D E C I S I O N

YNARES-SANTIAGO, J .:

Pursuant to its rule-making and regulatory powers, the NationalTelecommunications Commission (NTC) issued on June 16, 2000 Memorandum Circular No. 13-6-2000, promulgating rules and regulations on the billing of telecommunicationsservices. Among its pertinent provisions are the following:

(1) The billing statements shall be received by the subscriber of the telephone service

not later than 30 days from the end of each billing cycle. In case the statement is receivedbeyond this period, the subscriber shall have a specified grace period within which to paythe bill and the public telecommunications entity (PTEs) shall not be allowed to disconnectthe service within the grace period.

(2) There shall be no charge for calls that are diverted to a voice mailbox, voice prompt,recorded message or similar facility excluding the customer‘s own equipment.

(3) PTEs shall verify the identification and address of each purchaser of prepaid SIMcards. Prepaid call cards and SIM cards shall be valid for at least 2 years from the date of first use. Holders of prepaid SIM cards shall be given 45 days from the date the prepaidSIM card is fully consumed but not beyond 2 years and 45 days from date of first use toreplenish the SIM card, otherwise the SIM card shall be rendered invalid. The validity of an invalid SIM card, however, shall be installed upon request of the customer at no

additional charge except the presentation of a valid prepaid call card.

(4) Subscribers shall be updated of the remaining value of their cards before the start of every call using the cards.

(5) The unit of billing for the cellular mobile telephone service whether postpaid or prepaid shall be reduced from 1 minute per pulse to 6 seconds per pulse. The authorizedrates per minute shall thus be divided by 10.

[1]

The Memorandum Circular provided that it shall take effect 15 days after itspublication in a newspaper of general circulation and three certified true copies thereof furnished the UP Law Center. It was published in the newspaper, The Philippine Star, onJune 22, 2000.

[2] Meanwhile, the provisions of the Memorandum Circular pertaining to the

sale and use of prepaid cards and the unit of billing for cellular mobile telephone service

took effect 90 days from the effectivity of the Memorandum Circular.

On August 30, 2000, the NTC issued a Memorandum to all cellular mobiletelephone service (CMTS) operators which contained measures to minimize if not totally







http://sc.judiciary.gov.ph/jurisprudence/2003/aug2003/151908.htm#_ftn1












eliminate the incidence of stealing of cellular phone units. The Memorandum directedCMTS operators to:

a. strictly comply with Section B(1) o f MC 13-6-2000 requiring thepresentation and verification of the identity and addresses of prepaid SIMcard customers;

b. require all your respective prepaid SIM cards dealers to comply withSection B(1) of MC 13-6-2000;

c. deny acceptance to your respective networks prepaid and/or postpaidcustomers using stolen cellphone units or cellphone units registered tosomebody other than the applicant when properly informed of all

information relative to the stolen cellphone units;

d. share all necessary information of stolen cellphone units to all other CMTSoperators in order to prevent the use of stolen cellphone units; and

e. require all your existing prepaid SIM card customers to register andpresent valid identification cards.

[3]

This was followed by another Memorandum dated October 6, 2000 addressed to allpublic telecommunications entities, which reads:

This is to remind you that the validity of all prepaid cards sold on 07 October 2000and beyond shall be valid for at least two (2) years from date of first use pursuantto MC 13-6-2000.

In addition, all CMTS operators are reminded that all SIM packs used bysubscribers of prepaid cards sold on 07 October 2000 and beyond shall be validfor at least two (2) years from date of first use. Also, the billing unit shall be on asix (6) seconds pulse effective 07 October 2000.

For strict compliance.[4]

On October 20, 2000, petitioners Isla Communications Co., Inc. and PilipinoTelephone Corporation filed against the National Telecommunications Commission,Commissioner Joseph A. Santiago, Deputy Commissioner Aurelio M. Umali and DeputyCommissioner Nestor C. Dacanay, an action for declaration of nullity of NTCMemorandum Circular No. 13-6-2000 (the Billing Circular) and the NTC Memorandumdated October 6, 2000, with prayer for the issuance of a writ of preliminary injunction andtemporary restraining order. The complaint was docketed as Civil Case No. Q-00-42221

at the Regional Trial Court of Quezon City, Branch 77.[5]

Petitioners Islacom and Piltel alleged, inter alia, that the NTC has no jurisdiction toregulate the sale of consumer goods such as the prepaid call cards since such jurisdictionbelongs to the Department of Trade and Industry under the Consumer Act of thePhilippines; that the Billing Circular is oppressive, confiscatory and violative of theconstitutional prohibition against deprivation of property without due process of law; thatthe Circular will result in the impairment of the viability of the prepaid cellular service byunduly prolonging the validity and expiration of the prepaid SIM and call cards; and thatthe requirements of identification of prepaid card buyers and call balance announcementare unreasonable. Hence, they prayed that the Billing Circular be declared null andvoid ab initio.

Soon thereafter, petitioners Globe Telecom, Inc and Smart Communications, Inc.filed a joint Motion for Leave to Intervene and to Admit Complaint-in-Intervention.

[6] This

was granted by the trial court.

On October 27, 2000, the trial court issued a temporary restraining order enjoiningthe NTC from implementing Memorandum Circular No. 13-6-2000 and the Memorandumdated October 6, 2000.

[7]

In the meantime, respondent NTC and its co-defendants filed a motion to dismissthe case on the ground of petitioners‘ failure to exhaust administrative remedies.

Subsequently, after hearing petitioners‘ application for preliminary injunction as wellas respondent‘s motion to dismiss, the trial court issued on November 20, 2000 an Order,the dispositive portion of which reads:

WHEREFORE, premises considered, the defendants‘ motion to dismiss is hereby denied

for lack of merit. The plaintiffs‘ application for the issuance of a writ of preliminaryinjunction is hereby granted. Accordingly, the defendants are hereby enjoined fromimplementing NTC Memorandum Circular 13-6-2000 and the NTC Memorandum, datedOctober 6, 2000, pending the issuance and finality of the decision in this case. Theplaintiffs and intervenors are, however, required to file a bond in the sum of FIVEHUNDRED THOUSAND PESOS (P500,000.00), Philippine currency.

SO ORDERED.[8]

Defendants filed a motion for reconsideration, which was denied in an Order datedFebruary 1, 2001.

[9]

Respondent NTC thus filed a special civil action for certiorari and prohibition withthe Court of Appeals, which was docketed as CA-G.R. SP. No. 64274. On October 9,2001, a decision was rendered, the decretal portion of which reads:

WHEREFORE, premises considered, the instant petition for certiorari and prohibition isGRANTED, in that, the order of the court a quo denying the petitioner‘s motion to dismissas well as the order of the court a quo granting the private respondents‘ prayer for a writ of preliminary injunction, and the writ of preliminary injunction issued thereby, are hereby

ANNULLED and SET ASIDE. The private respondents‘ complaint and complaint-in-intervention below are hereby DISMISSED, without prejudice to the referral of the privaterespondents‘ grievances and disputes on the assailed issuances of the NTC with the saidagency.

SO ORDERED.[10]

Petitioners‘ motions for reconsideration were denied in a Resolution dated January

10, 2002 for lack of merit.[11]

Hence, the instant petition for review filed by Smart and Piltel, which was docketedas G.R. No. 151908, anchored on the following grounds:

A.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDINGTHAT THE NATIONAL TELECOMMUNICATIONS COMMISSION (NTC) ANDNOT THE REGULAR COURTS HAS JURISDICTION OVER THE CASE.

B.

THE HONORABLE COURT OF APPEALS ALSO GRAVELY ERRED INHOLDING THAT THE PRIVATE RESPONDENTS FAILED TO EXHAUST AN

AVAILABLE ADMINISTRATIVE REMEDY.

C.







































THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THATTHE BILLING CIRCULAR ISSUED BY THE RESPONDENT NTC ISUNCONSTITUTIONAL AND CONTRARY TO LAW AND PUBLIC POLICY.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THEPRIVATE RESPONDENTS FAILED TO SHOW THEIR CLEAR POSITIVERIGHT TO WARRANT THE ISSUANCE OF A WRIT OF PRELIMINARYINJUNCTION.

[12]

Likewise, Globe and Islacom filed a petition for review, docketed as G.R. No.152063, assigning the following errors:

1. THE HONORABLE COURT OF APPEALS SO GRAVELY ERREDBECAUSE THE DOCTRINES OF PRIMARY JURISDICTION ANDEXHAUSTION OF ADMINISTRATIVE REMEDIES DO NOT APPLYSINCE THE INSTANT CASE IS FOR LEGAL NULLIFICATION(BECAUSE OF LEGAL INFIRMITIES AND VIOLATIONS OF LAW) OF APURELY ADMINISTRATIVE REGULATION PROMULGATED BY AN

AGENCY IN THE EXERCISE OF ITS RULE MAKING POWERS ANDINVOLVES ONLY QUESTIONS OF LAW.

2. THE HONORABLE COURT OF APPEALS SO GRAVELY ERREDBECAUSE THE DOCTRINE ON EXHAUSTION OF ADMINISTRATIVEREMEDIES DOES NOT APPLY WHEN THE QUESTIONS RAISED AREPURELY LEGAL QUESTIONS.

3. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED

BECAUSE THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVEREMEDIES DOES NOT APPLY WHERE THE ADMINISTRATIVE

ACTION IS COMPLETE AND EFFECTIVE, WHEN THERE IS NOOTHER REMEDY, AND THE PETITIONER STANDS TO SUFFERGRAVE AND IRREPARABLE INJURY.

4. THE HONORABLE COURT OF APPEALS SO GRAVELY ERREDBECAUSE PETITIONERS IN FACT EXHAUSTED ALL

ADMINISTRATIVE REMEDIES AVAILABLE TO THEM.

5. THE HONORABLE COURT OF APPEALS SO GRAVELY ERRED INISSUING ITS QUESTIONED RULINGS IN THIS CASE BECAUSEGLOBE AND ISLA HAVE A CLEAR RIGHT TO AN INJUNCTION.

[13]

The two petitions were consolidated in a Resolution dated February 17, 2003.[14]

On March 24, 2003, the petitions were given due course and the parties wererequired to submit their respective memoranda.

[15]

We find merit in the petitions.

Administrative agencies possess quasi -legislative or rule -making powers and quasi- judicial or administrative adjudicatory powers. Quasi-legislative or rule-making power isthe power to make rules and regulations which results in delegated legislation that iswithin the confines of the granting statute and the doctrine of non-delegability andseparability of powers.

[16]

The rules and regulations that administrative agencies promulgate, which are theproduct of a delegated legislative power to create new and additional legal provisions thathave the effect of law, should be within the scope of the statutory authority granted by thelegislature to the administrative agency. It is required that the regulation be germane tothe objects and purposes of the law, and be not in contradiction to, but in conformity with,

the standards prescribed by law.[17] They must conform to and be consistent with theprovisions of the enabling statute in order for such rule or regulation to bevalid. Constitutional and statutory provisions control with respect to what rules and

regulations may be promulgated by an administrative body, as well as with respect to whatfields are subject to regulation by it. It may not make rules and regulations which areinconsistent with the provisions of the Constitution or a statute, particularly the statute it isadministering or which created it, or which are in derogation of, or defeat, the purpose of astatute. In case of conflict between a statute and an administrative order, the former mustprevail.

[18]

Not to be confused with the quasi-legislative or rule-making power of anadministrative agency is its quasi-judicial or administrative adjudicatory power. This is thepower to hear and determine questions of fact to which the legislative policy is to applyand to decide in accordance with the standards laid down by the law itself in enforcing andadministering the same law. The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or

administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative dutyentrusted to it. In carrying out their quasi-judicial functions, the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings,weigh evidence, and draw conclusions from them as basis for their official action andexercise of discretion in a judicial nature.

[19]

In questioning the validity or constitutionality of a rule or regulation issued by anadministrative agency, a party need not exhaust administrative remedies before going tocourt. This principle applies only where the act of the administrative agency concernedwas performed pursuant to its quasi-judicial function, and not when the assailed actpertained to its rule-making or quasi-legislative power. In Association of PhilippineCoconut Dessicators v. Philippine Coconut Authority ,

[20] it was held:

The rule of requiring exhaustion of administrative remedies before a party may seek judicial review, so strenuously urged by the Solicitor General on behalf of respondent, hasobviously no application here. The resolution in question was issued by the PCA in theexercise of its rule- making or legislative power. However, only judicial review of decisionsof administrative agencies made in the exercise of their quasi-judicial function is subject tothe exhaustion doctrine.

Even assuming arguendo that the principle of exhaustion of administrative remediesapply in this case, the records reveal that petitioners sufficiently complied with thisrequirement. Even during the drafting and deliberation stages leading to the issuance of Memorandum Circular No. 13-6-2000, petitioners were able to register their protests to theproposed billing guidelines. They submitted their respective position papers setting forththeir objections and submitting proposed schemes for the billing circular .

[21] After the

same was issued, petitioners wrote successive letters dated July 3, 2000[22]

and July 5,2000,

[23] asking for the suspension and reconsideration of the so-called Billing

Circular. These letters were not acted upon until October 6, 2000, when respondent NTCissued the second assailed Memorandum implementing certain provisions of the BillingCircular. This was taken by petitioners as a clear denial of the requests contained in their previous letters, thus prompting them to seek judicial relief.

In like manner, the doctrine of primary jurisdiction applies only where theadministrative agency exercises its quasi-judicial or adjudicatory function. Thus, in casesinvolving specialized disputes, the practice has been to refer the same to anadministrative agency of special competence pursuant to the doctrine of primary

jurisdiction. The courts will not determine a controversy involving a question which iswithin the jurisdiction of the administrative tribunal prior to the resolution of that questionby the administrative tribunal, where the question demands the exercise of soundadministrative discretion requiring the special knowledge, experience and services of theadministrative tribunal to determine technical and intricate matters of fact, and a uniformityof ruling is essential to comply with the premises of the regulatory statute

administered. The objective of the doctrine of primary jurisdiction is to guide a court indetermining whether it should refrain from exercising its jurisdiction until after anadministrative agency has determined some question or some aspect of some questionarising in the proceeding before the court. It applies where the claim is originally

























http://sc.judiciary.gov.ph/jurisprudence/1998/feb1998/110526.htm































cognizable in the courts and comes into play whenever enforcement of the claim requiresthe resolution of issues which, under a regulatory scheme, has been placed within thespecial competence of an administrative body; in such case, the judicial process issuspended pending referral of such issues to the administrative body for its view.

[24]

However, where what is assailed is the validity or constitutionality of a rule or regulation issued by the administrative agency in the performance of its quasi-legislativefunction, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes thelaw or the constitution is within the jurisdiction of the regular courts. Indeed, theConstitution vests the power of judicial review or the power to declare a law, treaty,international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts.

[25] This is within the scope of

judicial power, which includes the authority of the courts to determine in an appropriateaction the validity of the acts of the political departments.

[26] Judicial power includes the

duty of the courts of justice to settle actual controversies involving rights which are legallydemandable and enforceable, and to determine whether or not there has been a graveabuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

[27]

In the case at bar, the issuance by the NTC of Memorandum Circular No. 13-6-2000and its Memorandum dated October 6, 2000 was pursuant to its quasi-legislative or rule-making power. As such, petitioners were justified in invoking the judicial power of theRegional Trial Court to assail the constitutionality and validity of the saidissuances. In Drilon v. Lim,

[28]it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionalityof Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to thefundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation,even as the accused in a criminal action has the right to question in his defense theconstitutionality of a law he is charged with violating and of the proceedings taken againsthim, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments andorders of lower courts in all cases in which the constitutionality or validity of any treaty,international or executive agreement, law, presidential decree, proclamation, order,instruction, ordinance, or regulation is in question.

[29]

In their complaint before the Regional Trial Court, petitioners averred that theCircular contravened Civil Code provisions on sales and violated the constitutionalprohibition against the deprivation of property without due process of law. These are

within the competence of the trial judge. Contrary to the finding of the Court of Appeals,the issues raised in the complaint do not entail highly technical matters. Rather, what isrequired of the judge who will resolve this issue is a basic familiarity with the workings of the cellular telephone service, including prepaid SIM and call cards – and this is judiciallyknown to be within the knowledge of a good percentage of our population – and expertisein fundamental principles of civil law and the Constitution.

Hence, the Regional Trial Court has jurisdiction to hear and decide Civil Case No.Q-00-42221. The Court of Appeals erred in setting aside the orders of the trial court andin dismissing the case.

WHEREFORE, in view of the foregoing, the consolidated petitionsare GRANTED. The decision of the Court of Appea ls in CA-G.R. SP No. 64274 datedOctober 9, 2001 and its Resolution dated January 10, 2002 are REVERSED and SET

ASIDE. The Order da ted November 20, 2000 of the Regional Trial Court of Quezon City,Branch 77, in Civil Case No. Q-00-42221 is REINSTATED. This case is REMANDED to

the court a quo for continuation of the proceedings.

SO ORDERED.


Manila

THIRD DIVISION

G.R. No. 146382 August 7, 2003

SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY, Petitioner,vs.LOCAL GOVERNMENT OF CALOOCAN CITY, MAMERTO MANAHAN, ATTY.NESTOR D. FRANCISCO, as City Assessor and City Legal Officer of Caloocan City,and ADORACION ANGELES, Presiding Judge, Regional Trial Court of CaloocanCity, Branch 121. Respondents.

D E C I S I O N

CORONA, J.:

The instant petition for certiorari assails the Resolution1 of the respondent Regional Trial

Court of Caloocan City, Branch 121, dated December 29, 1999, dismissing the petition for mandamus in Civil Case No. C-595, and the Order dated February 23, 2000 denying the

subsequent motion for reconsideration.

Petitioner Systems Plus Computer College is a non-stock and non-profit educationalinstitution organized and established in 1997 with business address at 141-143 10th

Avenue, Caloocan City. As such, it enjoys property tax exemption from the localgovernment on its buildings but not on the parcels of land which petitioner is renting for P5,000 monthly from its sister companies, Consolidated Assembly, Inc. (Consolidated

Assembly) and Pair Management and Development Corporation (Pair Management).

On January 8, 1998, petitioner requested respondent city government of Caloocan,through respondent Mamerto Manahan, City Assessor and Administrator, to extend taxexemption to the parcels of land claiming that the same were being used actually, directlyand exclusively for educational purposes pursuant to Article VI, Section 28(3) of the 1987Constitution

2 and other applicable provisions of the Local Government Code.

On February 5, 1998, respondent city government, on recommendation of respondent Atty. Nestor Francisco, City Legal Officer, denied the request on the ground that thesubject parcels of land were owned by Consolidated Assembly and Pair Managementwhich derived income therefrom in the form of rentals and other local taxes assumed bythe petitioner. Hence, f rom the land owners‘ standpoint, the same were not actually,directly and exclusively used for educational purposes.

3

On February 15, 1999, the petitioner, on the one hand, and the Consolidated Assemblyand Pair Management, on the other, entered into separate agreements

4 which in effect

novated their existing contracts of lease on the subject parcels of land and converted themto donations of the beneficial use thereof.

On February 19, 1999, the petitioner wrote respondent City Assessor informing the latter of the new agreements and seeking a reconsideration of respondent‘s earlier denial of theapplication for tax exemption.

5 In this connection, a duly notarized certification

6 jointly

issued by Consolidated Assembly and Pair Management to the effect that they no longer



















http://www.lawphil.net/judjuris/juri2003/aug2003/gr_146382_2003.html#fnt1
































received income by way of rentals from the subject properties, accompanied by thecorresponding board resolutions,

7 were submitted by the petitioner. Nevertheless, on July

21, 1999, respondent city government again denied the application for tax exemption,reasoning out as follows:

Firstly, it may be reasonably implied from the above facts that SYSTEMS COMPUTERCOLLEGE is an agency for its sister corporations, particularly, PAIR MANAGEMENT &DEVELOPMENT CORPORATION and CONSOLIDATED ASSEMBLY, INC. to evadepayment of Real Property Taxes.

It bears stress (sic) that immediately after the denial by this Office of the first request of SYSTEMS PLUS COMPUTER COLLEGE for Real Property Tax Exemption of theproperties then leased to it by its sister companies; PAIR MANAGEMENT &DEVELOPMENT CORPORATION and CONSOLIDATED ASSEMBLY, INC., the latter corporations donated the beneficial use of the subject properties to SYSTEMS PLUSCOMPUTER COLLEGE, if only to evade payment of Real Property Taxes.

The revenue officers, in proper cases, may disregard the separate corporate entity whereit serves as a shield for tax evasion. xxx.

Secondly, the grant of exemption from taxation rests upon the theory that an exemptionwill benefit the body of people, and not upon any idea of lessening the burden of individualor corporate owners.

Thirdly, while the beneficial use of the properties being sought to be exempt from Real

Property Taxes were donated to SYSTEMS PLUS COMPUTER COLLEGE, there is noshowing that the same are "actually, directly and exclusively" used either for religious,charitable, or educational purposes.

8

Twice debunked, petitioner filed a petition for mandamus with the respondent RegionalTrial Court of Caloocan City, Branch 121, which, however, dismissed it for beingpremature. Its timely motion for reconsideration having been denied, petitioner filed theinstant petition for certiorari

9 imputing grave abuse of discretion on the part of the trial

court when it ruled: (1) that mandamus does not lie against the public respondents and (2)that petitioner failed to exhaust available administrative remedies.

Mandamus is defined as a writ commanding a tribunal, corporation, board or person to dothe act required to be done when it or he unlawfully neglects the performance of an actwhich the law specifically enjoins as a duty resulting from an office, trust or station, or

unlawfully excludes another from the use and enjoyment of a right or office or which suchother is entitled, there being no other plain, speedy, and adequate remedy in the ordinarycourse of law.

10 Where administrative remedies are available, a petition for mandamus

does not lie.11

Under Section 226 of RA 7160,12

the remedy of appeal to the Local Board of Assessment Appeals is available from an adverse ruling or action of the provincial, city or municipalassessor in the assessment of property, thus:

Section 226. Local Board of Assessment Appeals. -Any owner or person having legalinterest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from thedate of receipt of the written notice of assessment, appeal to the Board of Assessment

Appeals of the province or city by filing a petition under oath in the form prescribed for the

purpose, together with copies of the tax declarations and such affidavits or documentssubmitted in support of the appeal.

However, petitioner argues that it is not contesting any assessment made by respondentCity Assessor. Petitioner‘s argument obviously proceeds from its misunderstanding of theterm "assessment." Under Section 199(f), Title II, Book II, of the Local Government Codeof 1991, "assessment" is defined as the act or process of determining the value of aproperty, or proportion thereof subject to tax, including the discovery,listing,classification and appraisal of properties. Viewed from this broader perspective, thedetermination made by the respondent City Assessor with regard to the taxability of thesubject real properties squarely falls within its power to assess properties for taxationpurposes subject to appeal before the Local Board of Assessment Appeals.

Petitioner also argues that it is seeking to enforce, through the petition for mandamus, aclear legal right under the Constitution and the pertinent provisions of the Local

Government Code granting tax exemption on properties actually, directly and exclusivelyused for educational purposes. But petitioner is taking an unwarranted shortcut. Theargument gratuitously presumes the existence of the fact which it must first prove bycompetent and sufficient evidence before the City Assessor. It must be stressed that theauthority to receive evidence, as basis for classification of properties for taxation, is legallyvested on the respondent City Assessor whose action is appealable to the Local Board of

Assessment Appeals and the Central Board of Assessment Appeals, if necessary.1âwphi1

The petitioner cannot bypass the authority of the concerned administrative agencies anddirectly seek redress from the courts even on the pretext of raising a supposedly purequestion of law without violating the doctrine of exhaustion of administrative remedies.Hence, when the law provides for remedies against the action of an administrative board,body, or officer, as in the case at bar, relief to the courts can be made only after exhausting all remedies provided therein.

13 Otherwise stated, before seeking the

intervention of the courts, it is a precondition that petitioner should first avail of all themeans afforded by the administrative processes.

14

Besides, mandamus does not lie against the respondent City Assessor in the exercise of his function of assessing properties for taxation purposes. While its duty to conductassessments is a ministerial function, the actual exercise thereof is necessarilydiscretionary. Well-settled is the rule that mandamus may not be availed of to direct theexercise of judgment or discretion in a particular way, or to retract or reverse an actionalready taken in the exercise of either .

15

WHEREFORE, the instant petition for certiorari is hereby DISMISSED.

SO ORDERED.


Manila

FIRST DIVISION

G.R. No. 75501 September 15, 1987

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.Hon. FULGENCIO S. FACTORAN, JR., in his capacity as Deputy ExecutiveSecretary, and ASTERIO BUQUERON, respondents.







































PARAS, J:

This is a petition for review on certiorari, seeking to set aside the decision rendered bypublic respondent Deputy Executive Secretary Fulgencio S. Factoran, Jr., by authority of the President, reinstating and confirming the decision dated April 17, 1978 of the Director of Mines and Geo Sciences, and setting aside the decision of the Minister of NaturalResources.

The undisputed facts of this case are as follows:

On February 9, 1972, Atlas Consolidated Mining and Development Corporation registered

the location of its "Master VII Fr." mining cla im with the Mining Recorder of Toledo City.On September 10, 1973, private respondent Asterio Buqueron registered the declarationsof location of his "St. Mary Fr." and "St. Joseph Fr." mining claims with the same MiningRecorder. On October 15, 1973, Atlas registered the declarations of location of its"Carmen I Fr." to "Carmen V. Fr. " with the same Mining Recorder.

Buqueron's "St. Mary Fr." and "St. Joseph Fr." were surveyed and the survey plansthereof were duly approved by the Director of Mines and Geo Sciences. Notice of Buqueron's lease application was published in the February 22 and 28, 1977 issues of theEvening Post.

During the said period of publication, petitioner filed an adverse claim against privaterespondent's mining claims on the ground that they allegedly overlapped its own miningclaims.

After hearing, the Director of Mines rendered a decision, dated April 17, 1978, thedispositive portion of which reads:

VIEWED IN THE LIGHT OF THE FOREGOING, respondent(Buqueron) is hereby given the preferential right to possess, lease,explore, exploit and operate the areas covered by his "St. Mary Fr."and "St. Joseph Fr." mining claims, except the area covered therebywhich is in conflict with adverse claimant's (Atlas) "Master VII Fr."

Adverse claimant (Atlas) on the other hand, is given the preferentialright to possess, lease, explore, exploit and operate the area coveredby its "Master VII Fr." case.

Atlas appealed to the Minister of Natural Resources who rendered a decision datedNovember 10, 1978, the dispositive portion of which reads as follows:

PREMISES CONSIDERED, the derision of the Director of Minesdated April 17, 1978, should be, as hereby it is, set aside. In lieuthereof, it is hereby decision that the "St. Mary Fr." and "St. JosephFr." mining claims of Asterio Buqueron are null and void, that the"Carmen I Fr. " to "Carmen V. Fr. " mining claims of AtlasConsolidated Mining and Development Corporation are valid, and thatit be given the preferential right to possesses, explore, exploit, leaseand operate the areas covered thereby. (Decision, Office of thePresident; Rollo, pp. 52-57; Decision of the Minister of NaturalResources, Rollo, pp. 47-51; Comment of Public Respondent, Rollo,pp. 88-90; Decision, Director of Mines, Rollo, pp. 157-160).

As aforestated, on further appeal, the Deputy Executive Secretary, Office of the President,reversed the decision of the Minister of Natural Resources and reinstated the decision of the Director of Mines and Geo Sciences.

Hence, this petition.

Briefly stated, petitioner's assignment of errors may be combined into the following issues:

(1) Whether or not private respondent's appeal to the Office of thePresident was time-barred;

(2) Whether or not there was a valid location and discovery of thedisputed mining claims.

The Second Division of this Court without giving due course to the petition, requiredrespondents to comment in the resolution of October 6, 1986 (Rollo, p. 76). Both privaterespondent and public respondent filed their respective comments on November 17, 1986(Rollo, pp. 81-86; pp. 88-95).

On December 8, 1986 (Rollo, p. 104) this Court required the respondents to file arejoinder to the consolidated reply filed by counsel for petitioner dated November 4, 1986(Rollo, pp. 97-102). Said rejoinder was filed on February 6, 1987 (Rollo, pp. 108-111), bythe Solicitor General for public respondent, after which petitioner filed a sur-rejoinder thereto on March 13, 1987 (Rollo, pp. 113-116). Thereafter the Court in the resolution of March 30, 1987 gave due course to the petition and required both parties to file their respective memoranda.

Counsel for public respondent filed a Manifestation/Motion praying to be allowed to adoptits comment dated November 2, 1986 and Rejoinder dated February 4, 1987 as thememorandum for public respondent. Petitioner filed its memorandum on May 25,1987(Rollo, p. 136).

The petition is devoid of merit.

I.

It is not disputed that private respondent received a copy of the decision of the Minister of Natural Resources dated November 10, 1978 on November 27, 1978 and that under Section 50 of Presidential Decree No. 463, the decision of the Minister is appealable tothe Office of the President within five (5) days from receipt thereof. In the case at bar, the5-day period expired on December 2, 1978, a Saturday, private respondent filed hisappeal on December 4, 1978, a Monday.

Petitioner contends that the appeal was filed out of time and therefore, the Office of thePresident did not acquire jurisdiction over the case and should have dismissed the sameoutright (Rollo, pp. 20-21).

This contention is untenable.

Petitioner and private respondent are in accord on the fact that at the time of the filing of the questioned appeal, Saturday was observed as a legal holiday in the Office of thePresident pursuant to Section 29 of the Revised Administrative Code as amended.

The same law provides:

Section 31. Pretermission of holiday . — Where the day, or the lastday, for doing any act required or permitted by law falls on a holiday,the act may be done on the next succeeding business day.



Apart from the fact that the law is clear and needs no interpretation, this Court inaccordance therewith has invariably held that in case the last day for doing an act is alegal holiday, it does not have the effect of making the preceding day, the last day for doing the same; the act may be done on the next succeeding business day (Gonzaga vs.Ce David, 110 Phil. 463-464 [1960]; Calano vs. Cruz, 91 Phil. 247 [1952]; Austria, et al.vs. The Solicitor General, et al., 71 Phil. 288 [1941]).

Coming back to the case at bar, as the next working day after December 2,1978 wasDecember 4, 1978 — a Monday, it is evident that private respondent's appeal was filed ontime.

II.

It is apparent that the second issue as to whether or not there was a valid location anddiscovery of the disputed mining claims is a question of fact best left to the determinationof the administrative bodies charged with the implementation of the law they are entrustedto enforce. As uniformly held by the Court, it is sufficient that administrative findings of factare supported by evidence, or negatively stated, it is sufficient that findings of fact are notshown to be unsupported by evidence. Substantial evidence is all that is needed tosupport an administrative finding of fact, and substantial evidence is "such relevantevidence as a reasonable mind might accept as adequate to support a conclusion." (AngTibay vs. Court of Industrial Relations, 69 Phil. 635, 642; Police Commission vs. Lood,127 SCRA 762 [1984]).

In the case at bar, the record amply shows that the Director of Mines' decision wassupported by substantial evidence.

Petitioner claimed that it is a registered surface land owner and locator of six (6) lodeclaims duly registered with the Office of the Mining Recorder as above stated and that inderogation of its permission, caused the "table" location and survey and applied for thelease of his alleged mining claims known as "St. Mary Fr." and "St. Joseph Fr. " lodeclaims.

In his answer, private respondent denied the material allegations of the adverse claim andby way of affirmative defense alleged that all of petitioner's claims including a portion of Master VII Fr. are null and void for having been located in areas which were closed tomining location in open and gross violation of paragraph 1 (d) of Section 28 and of Section60 of the Mining Act as amended.

The main thrust of petitioner's claim is that all of the mining claims of both petitioner andprivate respondent are located inside the premises or properties of the former, so that it ishardly possible for private respondent to have conducted the requisite location and surveywithout having been seen or noticed by petitioner and its personnel.

The Director of Mines established that there is in fact an overlapping of mining claims of petitioner and private respondent and that as a matter of record petitioner's mining claimswere registered subsequent to those of private respondent with the exception of Master VII Fr. which was registered on February 9, 1972 or prior to the registration of the miningclaims of private respondent.

In ruling as to who, between the parties shall be given preferential right to lease the areain question, the Director of Mines' findings are as follows:

Adverse claimant in its attempt to impugn the validity of the miningclaims of respondent alleged that said mining claims were the result

of table locations and survey and in support thereof submitted thesworn statements of its Chief Geologist and Chief Security.

On the other hand, respondent asserted that he, through hisauthorized representative actually and validly performed all the acts of discovery and location required by law and the field survey of hismining claims was actually conducted by Geodetic Engineer Salvador

Aligaen from December 16 to 18, 1974. In support of this assertion,respondent submitted in evidence affidavit of the authorized agent(Annex "D" of the answer) and another affidavit of Geodetic Engineer Salvador Aligaen (Annex "F" of the answer). Respondent alsosubmitted in evidence Bureau of Forestry map and Bureau of Coast

and Geodetic Survey map of the total area (Exhs. "9" to "10") whichembraces the area in question. These maps tend to prove that the

Atlas main gate is not the only point of ingress and egress such thatone can enter the area in question for the purpose of mining locationand survey without being noticed by any of the personnel of Atlas.

After a careful appraisal of the evidence submitted, and cognizanceas we are of the provisions of Presidential Decree No. 99-A, we are of the view that adverse claimant failed to adduce sufficient evidence tonullify the prior claims of respondent. Stated differently, the evidencesubmitted are not sufficient to destroy the prima facie character of thesworn declarations of location of respondent's mining claims whichwere duly registered on the date herein before stated. Thus "Alocation notice certificate or statement when re-examine accordedis prima facie evidence of all the facts the statute requires it to containand which were sufficiently set forth" (40 C.J. pp. 811-812) andconstitute notice to all persons and to the whole world of the contentsof the same (Sec. 56 of the Mining Act, as amended).

It is, therefore, pertinent to quote hereunder Sections 28(d) and 60 of the Mining Act, as amended, as well as Section 1 of PresidentialDecree No. 99-A:

SEC. 28 — No Prospectingshall be allowed:

(d)-In lands which have beenlocated for mining leases by

other prospectors under theprovisions of this Act.

SEC. 60. — No valid miningclaim or any part thereof,may be located by othersuntil the original locator or his successors in interestabandons the claim or forfeits his rights on thesame under the provisions of this Act.

SEC. 1 — Whenever there is

any conflict between claimowners over any miningclaims whether mineral or non-mineral, the locator of



the claim who first registeredhis claim with the proper mining registrar,notwithstanding any defect inform or technicality, shallhave the exclusive right topossess, exploit, explore,develop and operate suchmining claims. ...

In the light of the aforequoted provisions of lawapplicable on the matter, and in view of our

findings, earlier discussed, the subsequentmining claims of adverse claimant insofar as theyconflict the prior claims of respondent are herebydeclared nun and void.

On the other hand, it is also our view thatrespondent failed to adduce sufficient evidence toprove that the prior claim of adverse claimant(Master VII Fr.) is null and void. Considering thatthis mining claim is prior in point of location andregistration, it follows that this claim will have toprevail over that of respondent. For the samereason, therefore, that the subsequent claims of adverse claimant were declared null and voidinsofar as they conflict with the prior claims of respondent, the mining claims of respondentinsofar as they conflict with "Master VII Fr." claimof adverse claimant are likewise declared nulland void. (Decision, Director of Mines; rollo pp.157-160).

As earlier stated the above findings, although reversed by the Minister of NaturalResources, were affirmed by the Office of the President.

However, petitioner would have this Court look into the said findings because of the opendivergence of views and findings by the adjudicating authorities in this mining conflictinvolving highly contentious issues which warrant appellate review (Rollo, p. 18).

This Court has repeatedly ruled that judicial review of the decision of an administrativeofficial is of course subject to certain guide posts laid down in many decided cases. Thus,for instance, findings of fact in such decision should not be disturbed if supported bysubstantial evidence, but review is justified when there has been a denial of due process,or mistake of law or fraud, collusion or arbitrary action in the administrative proceeding (L-21588-Atlas Development and Acceptance Corp. vs. Gozon, etc. et al., 64 O.G. 11511[1967]), where the procedure which led to factual findings is irregular; when palpableerrors are committed; or when a grave abuse of discretion, arbitrariness, or capriciousness is manifest (Ateneo de Manila University vs. CA, 145 SCRA 100-101[1986]; International Hardwood and Veneer Co., of the Philippines vs. Leogardo, 117SCRA 967; Baguio Country Club Corporation vs. National Labor Relations Commission,118 SCRA 557; Sichangco vs. Commissioner of Immigration, 94 SCRA 61; and Eusebiovs. Sociedad Agricola de Balarin, 16 SCRA 569).

A careful study of the records shows that none of the above circumstances is present in

the case at bar, which would justify the overturning of the findings of fact of the Director of Mines which were affirmed by the Office of the President. On the contrary, in accordancewith the prevailing principle that "in reviewing administrative decisions, the reviewing Court

cannot re-examine the sufficiency of the evidence as if originally instituted therein, andreceive additional evidence, that was not submitted to the administrative agencyconcerned," the findings of fact in this case must be respected. As ruled by the Court, theywill not be disturbed so long as they are supported by substantial evidence, even if notoverwhelming or preponderant (Police Commission vs. Lood, supra).

PREMISES CONSIDERED, this petition is hereby DENIED and the assailed decision of the Office of the President, is hereby AFFIRMED.

SO ORDERED.

SECOND DIVISION

[G.R. No. 111107. January 10, 1997]

LEONARDO A. PAAT, in his capacity as Officer-in-Charge (OIC), Regional ExecutiveDirector (RED), Region 2 and JOVITO LAYUGAN, JR., in his capacity asCommunity Environment and Natural Resources Officer (CENRO), both of

the Department of Environment and Natural Resources(DENR), pet i t ioners, vs . COURT OF APPEALS, HON. RICARDO A. BACULIin his capacity as Presiding Judge of Branch 2, Regional Trial Court atTuguegarao, Cagayan, and SPOUSES BIENVENIDO and VICTORIA DEGUZMAN, respondents .

D E C I S I O N

TORRES, JR., J .:

Without violating the principle of exhaustion of administrative remedies, may anaction for replevin prosper to recover a movable property which is the subject matter of anadministrative forfeiture proceeding in the Department of Environment and NaturalResources pursuant to Section 68-A of P. D. 705, as amended, entitled The Revised

Forestry Code of the Philippines?

Are the Secretary of DENR and his representatives empowered to confiscate andforfeit conveyances used in transporting illegal forest products in favor of the government?

These are two fundamental questions presented before us for our resolution.

The controversy on hand had its incipiency on May 19, 1989 when the truck of private respondent Victoria de Guzman while on its way to Bulacan from San Jose,Baggao, Cagayan, was seized by the Department of Environment and Natural Resources(DENR, for brevity) personnel in Aritao, Nueva Vizcaya because the driver could notproduce the required documents for the forest products found concealed in thetruck. Petitioner Jovito Layugan, the Community Environment and Natural ResourcesOfficer (CENRO) in Aritao, Cagayan, issued on May 23, 1989 an order of confiscation of the truck and gave the owner thereof fifteen (15) days within which to submit anexplanation why the truck should not be forfeited. Private respondents, however, failed to

submit the required explanation. On June 22, 1989,[1] Regional Executive Director Rogelio Baggayan of DENR sustained petitioner Layugan‘s action of confiscationand ordered the forfeiture of the truck invoking Section 68-A of Presidential Decree No.

http://sc.judiciary.gov.ph/jurisprudence/1997/jan1997/111107.htm#_edn1






705 as amended by Executive Order No. 277. Private respondents filed a letter of reconsideration dated June 28, 1989 of the June 22, 1989 order of Executive Director Baggayan, which was, however, denied in a subsequent order of July 12,1989.

[2] Subsequently, the case was brought by the petitioners to the Secretary of DENR

pursuant to private respondents‘ statement in their letter dated June 28, 1989 that in ca setheir letter for reconsideration would be denied then ―this letter should be considered as anappeal to the Secretary.‖

[3] Pending resolution however of the appeal, a suit for replevin,

docketed as Civil Case 4031, was filed by the private respondents against petitioner Layugan and Executive Director Baggayan

[4] with the Regional Trial Court, Branch 2 of

Cagayan,[5]

which issued a writ ordering the return of the truck to privaterespondents.

[6] Petitioner Layugan and Executive Director Baggayan filed a motion to

dismiss with the trial court contending, inter alia, that private respondents had no cause of action for their failure to exhaust administrative remedies. The trial court denied the motionto dismiss in an order dated December 28, 1989.[7] Their motion for reconsideration havingbeen likewise denied, a petition for certiorari was filed by the petitioners with therespondent Court of Appeals which sustained the trial court‘s order ruling that the questioninvolved is purely a legal question.

[8] Hence, this present petition,

[9] with prayer for

temporary restraining order and/or preliminary injunction, seeking to reverse the decisionof the respondent Court of Appeals was filed by the petitioners on September 9, 1993. Byvirtue of the Resolution dated September 27, 1993,

[10] the prayer for the issuance of

temporary restraining order of petitioners was granted by this Court.

Invoking the doctrine of exhaustion of administrative remedies, petitioners aver thatthe trial court could not legally entertain the suit for replevin because the truck was under administrative seizure proceedings pursuant to Section 68-A of P.D. 705, as amended byE.O. 277. Private respondents, on the other hand, would seek to avoid the operation of this principle asserting that the instant case falls within the exception of the doctrine uponthe justification that (1) due process was violated because they were not given the chance

to be heard, and (2) the seizure and forfeiture was unlawful on the grounds: (a) that theSecretary of DENR and his representatives have no authority to confiscate and forfeitconveyances utilized in transporting illegal forest products, and (b) that the truck asadmitted by petitioners was not used in the commission of the crime.

Upon a thorough and delicate scrutiny of the records and relevant jurisprudence onthe matter, we are of the opinion that the plea of petitioners for reversal is in order.

This Court in a long line of cases has consistently held that before a party is allowedto seek the intervention of the court, it is a pre-condition that he should have availed of allthe means of administrative processes afforded him. Hence, if a remedy within theadministrative machinery can still be resorted to by giving the administrative officer concerned every opportunity to decide on a matter that comes within his jurisdiction thensuch remedy should be exhausted first before court‘s judicial power can be sought. Thepremature invocation of court‘s intervention is fatal to one‘s cause of action.

[11] Accordingly, absent any finding of waiver or estoppel the case is susceptible of

dismissal for lack of cause of action.[12] This doctrine of exhaustion of administrativeremedies was not without its practical and legal reasons, for one thing, availment of administrative remedy entails lesser expenses and provides for a speedier disposition of controversies. It is no less true to state that the courts of justice for reasons of comity andconvenience will shy away from a dispute until the system of administrative redress hasbeen completed and complied with so as to give the administrative agency concernedevery opportunity to correct its error and to dispose of the case. However, we are notamiss to reiterate that the principle of exhaustion of administrative remedies as tested by abattery of cases is not an ironclad rule. This doctrine is a relative one and its flexibility iscalled upon by the peculiarity and uniqueness of the factual and circumstantial settings of a case. Hence, it is disregarded (1) when there is a violation of due process,

[13] (2) when

the issue involved is purely a legal question,[14]

(3) when the administrative action ispatently illegal amounting to lack or excess of jurisdiction ,

[15] (4) when there is estoppel on

the part of the administrative agency concerned,[16]

(5) when there is irreparableinjury,

[17] (6) when the respondent is a department secretary whose acts as analter ego of

the President bears the implied and assumed approval of the latter ,[18] (7) when to requireexhaustion of administrative remedies would be unreasonable,

[19] (8) when it would

amount to a nullification of a claim,[20]

(9) when the subject matter is a private land in land

case proceedings,[21]

(10) when the rule does not provide a plain, speedy and adequateremedy, and (11) when there are circumstances indicating the urgency of judicialintervention.

[22]

In the case at bar, there is no question that the controversy was pending before theSecretary of DENR when it was forwarded to him following the denial by the petitioners of the motion for reconsideration of private respondents through the order of July 12,1989. In their letter of reconsideration dated June 28, 1989,

[23] private respondents clearly

recognize the presence of an administrative forum to which they seek to avail, as they didavail, in the resolution of their case. The letter, reads, thus:

―xxx

If this motion for reconsideration does not merit your favorable action, then this letter should be considered as an appeal to the Secretary.‖

[24]

It was easy to perceive then that the private respondents looked up to the Secretaryfor the review and disposition of their case. By appealing to him, they acknowledged theexistence of an adequate and plain remedy still available and open to them in the ordinarycourse of the law. Thus, they cannot now, without violating the principle of exhaustion of administrative remedies, seek court‘s intervention by filing an action for replevin for thegrant of their relief during the pendency of an administrative proceedings.

Moreover, it is important to point out that the enforcement of forestry laws, rules andregulations and the protection, development and management of forest lands fall withinthe primary and special responsibilities of the Department of Environment and NaturalResources. By the very nature of its function, the DENR should be given a free handunperturbed by judicial intrusion to determine a controversy which is well within its

jurisdiction. The assumption by the trial court, therefore, of the replevin suit filed byprivate respondents constitutes an unjustified encroachment into the domain of theadministrative agency‘s prerogative. The doctrine of primary jurisdiction does not warranta court to arrogate unto itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an administrative body of special competence.

[25] In Felipe

Ismael, Jr. and Co. vs. Deputy Executive Secretary,[26]

which was reiterated in the recentcase of Concerned Officials of MWSS vs. Vasquez,

[27] this Court held:

―Thus, while the administration grapples with the complex and multifarious problemscaused by unbriddled exploitation of these resources, the judiciary will stand clear. A longline of cases establish the basic rule that the courts will not interfere in matters which areaddressed to the sound discretion of government agencies entrusted with the regulation of activities coming under the special technical knowledge and training of such agencies.‖

To sustain the claim of private respondents would in effect bring the instantcontroversy beyond the pale of the principle of exhaustion of administrative remedies andfall within the ambit of excepted cases heretofore stated. However, considering thecircumstances prevailing in this case, we can not but rule out these assertions of privaterespondents to be without merit. First, they argued that there was violation of due processbecause they did not receive the May 23, 1989 order of confiscation of petitioner Layugan.This contention has no leg to stand on. Due process does not necessarily mean or requirea hearing, but simply an opportunity or right to be heard .

[28] One may be heard , not solely

by verbal presentation but also, and perhaps many times more creditably and practicablethan oral argument, through pleadings.

[29] In administrative proceedings moreover,

technical rules of procedure and evidence are not strictly applied; administrative processcannot be fully equated with due process in its strict judicial sense .

[30] Indeed, deprivation

of due process cannot be successfully invoked where a party was given the chance to beheard on his motion for reconsideration,

[31] as in the instant case, when private

respondents were undisputedly given the opportunity to present their side when they fileda letter of reconsideration dated June 28, 1989 which was, however, denied in an order of



























































































































July 12, 1989 of Executive Director Baggayan. In Navarro III vs. Damasco ,[32]

we ruled that:

―The essence of due process is simply an opportunity to be heard, or as applied toadministrative proceedings, an opportunity to explain one‘s side or an opportunity to seeka reconsideration of the action or ruling complained of. A formal or trial type hearing is notat all times and in all instances essential. The requirements are satisfied when the partiesare afforded fair and reasonable opportunity to explain their side of the controversy athand. What is frowned upon is the absolute lack of notice or hearing.‖

Second, private respondents imputed the patent illegality of seizure and forfeiture of the truck because the administrative officers of the DENR allegedly have no power toperform these acts under the law. They insisted that only the court is authorized toconfiscate and forfeit conveyances used in transporting illegal forest products as can begleaned from the second paragraph of Section 68 of P.D. 705, as amended by E.O. 277.The pertinent provision reads as follows:

―SECTION 68. xxx

xxx

The court shall further order the confiscation in favor of the government of the timber or any forest products cut, gathered, collected, removed, or possessed, as well asthe machinery, equipments, implements and tools illegaly [sic] used in the area where thetimber or forest products are found.‖ (Underline ours)

A reading, however, of the law persuades us not to go along with privaterespondents‘ thinking not only because the aforequoted provision apparently does notmention nor include ―conveyances‖ that can be the subject of confiscation by the courts,but to a large extent, due to the fact that private respondents‘ interpretation of the subjectprovision unduly restricts the clear intention of the law and inevitably reduces the other provision of Section 68-A , which is quoted herein below:

―SECTION 68-A. Administrative Authority of the Department or His Duly Authorized Representative To Order Confiscation. In all cases of violation of this Code or other forestlaws, rules and regulations, the Department Head or his duly authorized representative,may order the confiscation of any forest products illegally cut, gathered, removed, or possessed or abandoned, and all conveyances used either by land, water or air in thecommission of the offense and to dispose of the same in accordance with pertinent laws,

regulations and policies on the matter .‖ (Underline ours)

It is, thus, clear from the foregoing provision that the Secretary and his dulyauthorized representatives are given the authority to confiscate and forfeitany conveyances utilized in violating the Code or other forest laws, rules and regulations.The phrase ―to dispose of the same‖ is broad enough to cover the act of forfeiting conveyances in favor of the government. The only limitation is that it should bemade ―in accordance with pertinent laws, regulations or policies on the matter.‖ In theconstruction of statutes, it must be read in such a way as to give effect to the purposeprojected in the statute.

[33] Statutes should be construed in the light of the object to be

achieved and the evil or mischief to be suppressed, and they should be given suchconstruction as will advance the object, suppress the mischief, and secure the benefitsintended.

[34] In this wise, the observation of the Solicitor General is significant, thus:

―But precisely because of the need to make forestry laws ‗more responsive to presentsituations and realities‘ and in view of the ‗urgency to conserve the remaining resources of the country,‘ that the government opted to add Section 68-A. This amendatory provision isan administrative remedy totally separate and distinct from criminal proceedings. More

than anything else, it is intended to supplant the inadequacies that characterizeenforcement of forestry laws through criminal actions. The preamble of EO 277-the lawthat added Section 68-A to PD 705-is most revealing:

‗WHEREAS, there is an urgency to conserve the remaining forest resources of the countryfor the benefit and welfare of the present and future generations of Filipinos;

WHEREAS, our forest resources may be effectively conserved and protected through thevigilant enforcement and implementation of our forestry laws, rules and regulations;

WHEREAS, the implementation of our forestry laws suffers from technical difficulties, due

to certain inadequacies in the penal provisions of the Revised Forestry Code of thePhilippines; and

WHEREAS, to overcome this difficulties, there is a need to penalize certain acts moreresponsive to present situations and realities;‘

It is interesting to note that Section 68-A is a new provision authorizing the DENR toconfiscate, not only ‗conveyances,‘ but forest products as well. On the other hand, confiscation of forest products by the ‗court‘ in a criminal action has long beenprovided for in Section 68. If as private respondents insist, the power on confiscationcannot be exercised except only through the court under Section 68, then Section 68-Awould have no purpose at all. Simply put, Section 68-A would not have provided anysolution to the problem perceived in EO 277, supra.‖

[35]

Private respondents, likewise, contend that the seizure was illegal because thepetitioners themselves admitted in the Order dated July 12, 1989 of Executive Director Baggayan that the truck of private respondents was not used in the commission of thecrime. This order, a copy of which was given to and received by the counsel of privaterespondents, reads in part , viz. :

―xxx while it is true that the truck o f your client was not used by her in the commission of the crime, we uphold your claim that the truck owner is not liable for the crime and in nocase could a criminal case be filed against her as provided under Article 309 and 310 of the Revised Penal Code. xxx‖

[36]

We observed that private respondents misread the content of the aforestated order and obviously misinterpreted the intention of petitioners. What is contemplated by thepetitioners when they stated that the truck "was not used in the commission of the crime"

is that it was not used in the commission of the crime of theft, hence, in no case can acriminal action be filed against the owner thereof for violation of Article 309 and 310 of theRevised Penal Code. Petitioners did not eliminate the possibility that the truck was beingused in the commission of another crime, that is, the breach of Section 68 of P.D.705 asamended by E.O. 277. In the same order of July 12, 1989, petitioners pointed out:

―xxx However, under Section 68 of P.D.705 as amended and further amended byExecutive Order No.277 specifically provides for the confiscation of the conveyance usedin the transport of forest products not covered by the required legal documents. She maynot have been involved in the cutting and gathering of the product in question but the factthat she accepted the goods for a fee or fare the same is therefor liable. xxx‖

[37]

Private respondents, however, contended that there is no crime defined andpunishable under Section 68 other than qualified theft, so that, when petitioners admitted

in the July 12, 1989 order that private respondents could not be charged for theft asprovided for under Articles 309 and 310 of the Revised Penal Code, then necessarilyprivate respondents could not have committed an act constituting a crime under Section



























68. We disagree. For clarity, the provision of Section 68 of P.D. 705 before itsamendment by E.O. 277 and the provision of Section 1 of E.O. No.277 amending theaforementioned Section 68 are reproduced herein, thus:

―SECTION 68. Cutting, gathering and/or collecting timber or other products without license. - Any person who shall cut , gather , collect , or remove timber or other forestproducts from any forest land, or timber from alienable and disposable public lands, or from private lands, without any authority under a license agreement, lease, license or permit, shall be guilty of qualified theft as defined and punished under Articles 309 and310 of the Revised Penal Code xxx.‖ (Underscoring ours; Section 68, P.D.705 before itsamendment by E.O.277 )

―SECTION 1. Section 68 of Presidential Decree No.705, as amended, is hereby amendedto read as follows:

‗Section 68. Cutting, gathering and/or collecting timber or other forest products without license. - Any person who shall cut, gather, collect, remove timber or other forest productsfrom any forest land, or timber from alienable or disposable public land, or from privateland, without any authority, or possess timber or other forest products without the legaldocuments as required under existing forest laws and regulations, shall be punished withthe penalties imposed under Articles 309 and 310 of the Revised PenalCode xxx." (Underscoring ours; Section 1, E.O No. 277 amending Section 68, P.D. 705as amended)

With the introduction of Executive Order No. 277 amending Section 68 of P.D. 705,the act of cutting, gathering, collecting, removing, or possessing forest products without

authority constitutes a distinct offense independent now from the crime of theft under Articles 309 and 310 of the Revised Penal Code, but t he penalty to be imposed is thatprovided for under Article 309 and 310 of the Revised Penal Code. This is clear from thelanguage of Executive Order No. 277 when it eliminated the phrase ― shall be guilty of qualified theft as defined and punished under Articles 309 and 310 of the Revised PenalCode ‖ and inserted the words ― shall be punished with the penalties imposed under

Article 309 and 310 of the Revised Penal Code ‖. When the statute is clear and explicit,there is hardly room for any extended court ratiocination or rationalization of the law.

[38]

From the foregoing disquisition, it is clear that a suit for replevin can not besustained against the petitioners for the subject truck taken and retained by them for administrative forfeiture proceedings in pursuant to Section 68-A of the P. D. 705, asamended. Dismissal of the replevin suit for lack of cause of action in view of the privaterespondents‘ failure to exhaust administrative remedies should have been the proper course of action by the lower court instead of assuming jurisdiction over the case and

consequently issuing the writ ordering the return of the truck. Exhaustion of the remediesin the administrative forum, being a condition precedent prior to one‘s recourse to thecourts and more importantly, being an element of private respondents‘ right of action, istoo significant to be waylaid by the lower court.

It is worth stressing at this point, that a suit for replevin is founded solely on theclaim that the defendant wrongfully withholds the property sought to be recovered. It liesto recover possession of personal chattels that are unlawfully detained.

[39] ―To detain‖ is

defined as to mean ―to hold or keep in custody, ‖[40]

and it has been held that there istortuous taking whenever there is an unlawful meddling with the property, or an exerciseor claim of dominion over it, without any pretense of authority or right; this, without manualseizing of the property is sufficient.

[41] Under the Rules of Court, it is indispensable in

replevin proceedings, that the plaintiff must show by his own affidavit that he is entitled tothe possession of property, that the property is wrongfully detained by the defendant,alleging the cause of detention, that the same has not been taken for tax assessment, or

seized under execution, or attachment, or if so seized, that it is exempt from such seizure,and the actual value of the property.[42]

Private respondents miserably failed to convincethis Court that a wrongful detention of the subject truck obtains in the instant case. Itshould be noted that the truck was seized by the petitioners because it was transporting

forest products with out the required permit of the DENR in manifest contravention of Section 68 of P.D. 705 as amended by E.O 277. Section 68-A of P.D. 705, as amended,unquestionably warrants the confiscation as well as the disposition by the Secretary of DENR or his duly authorized representatives of the conveyances used in violating theprovision of forestry laws. Evidently, the continued possession or detention of the truck bythe petitioners for administrative forfeiture proceeding is legally permissible, hence , nowrongful detention exists in the case at bar.

Moreover, the suit for replevin is never intended as a procedural tool to question theorders of confiscation and forfeiture issued by the DENR in pursuance to the authoritygiven under P.D.705, as amended. Section 8 of the said law is explicit that actions takenby the Director of the Bureau of Forest Development concerning the enforcement of theprovisions of the said law are subject to review by the Secretary of DENR and that courts

may not review the decisions of the Secretary except through a special civil actionfor certiorari or prohibition. It reads :

SECTION 8 . REVIEW - All actions and decisions of the Director are subject to review,motu propio or upon appeal of any person aggrieved thereby, by the Department Headwhose decision shall be final and executory after the lapse of thirty (30) days from thereceipt of the aggrieved party of said decision, unless appealed to the President inaccordance with Executive Order No. 19, Series of 1966. The Decision of the DepartmentHead may not be reviewed by the courts except through a special civil actionfor certiorari or prohibition.

WHEREFORE, the Petition is GRANTED; the Decision of the respondent Court of Appeals dated October 16, 1991 and its Resolution dated July 14, 1992 are hereby SET ASIDE AND REVERSED; the Restraining Order promulgated on September 27, 1993 is

hereby made permanent; and the Secretary of DENR is directed to resolve thecontroversy with utmost dispatch.

SO ORDERED.


Manila

SECOND DIVISION

G.R. No. L- 24548 October 27, 1983

WENCESLAO VlNZONS TAN, THE DIRECTOR OF FORESTRY, APOLONIO THESECRETARY OF AGRICULTURE AND NATURAL RESOURCES JOSE Y.FELICIANO, respondents-appelllees,vs.THE DIRECTOR OF FORESTRY, APOLONIO RIVERA, THE SECRETARY OFAGRICULTURE AND N ATURAL RESOURCES JOSE Y. FELICIANO, respon dents-appellees,RAVAGO COMMERCIAL CO., JORGE LAO HAPPICK and ATANACIOMALLARI, intervenors,

Camito V Pelianco Jr. for petitioner-appellant.

Solicitor General for respondent Director.

Estelito P. Mendoza for respondent Ravago Comm'l Co.

Anacleto Badoy for respondent Atanacio Mallari.























Mariano de Joya, Jr. for respondent Jorge Lao Happick, Jr.

MAKASIAR, J:

This is an appeal from the order dated January 20, 1965 of the then Court of FirstInstance of Manila, Branch VII, in Civil Case No. 56813, a petition for certiorari, prohibitionand mandamus with preliminary prohibitory injunction (p. 2. rec.), which dismissed thepetition of petitioner-appellant Wenceslao Vinzons Tan on the ground that it does not statea sufficient cause of action, and upon the respondents-appellees' (Secretary of Agriculture

and Natural resources and the Director of Forestry) motion to dismiss (p. 28, rec.).

Sometime in April 1961, the Bureau of Forestry issued Notice No. 2087, advertising for public bidding a certain tract of public forest land situated in Olongapo, Zambales,provided tenders were received on or before May 22, 1961 (p. 15, CFI rec.). This publicforest land, consisting of 6,420 hectares, is located within the former U.S. NavalReservation comprising 7,252 hectares of timberland, which was turned over by theUnited States Government to the Philippine Government (P. 99, CFI rec.).

On May 5, 1961, petitioner-appellant Wenceslao Vinzons Tan submitted his application indue form after paying the necessary fees and posting tile required bond therefor. Nineother applicants submitted their offers before the deadline (p. 29, rec.).

Thereafter, questions arose as to the wisdom of having the area declared as a forestreserve or allow the same to be awarded to the most qualified bidder. On June 7, 1961,then President Carlos P. Garcia issued a directive to the Director of the Bureau of Forestry, which read as follows:

It is desired that the area formerly covered by the Naval Reservationbe made a forest reserve for watershed purposes. Prepare andsubmit immediately a draft of a proclamation establishing the saidarea as a watershed forest reserve for Olongapo, Zambales. It is alsodesired that the bids received by the Bureau of Forestry for theissuance of the timber license in the area during the public biddingconducted last May 22, 1961 be rejected in order that the area maybe reserved as above stated. ...

(

SGD.) C

ARLOS P.

G

A

(pp. 98, CFI rec.).

On August 3, 1961, Secretary Cesar M. Fortich of Agriculture and Natural Resourcessustained the findings and re comendations of the Director of Forestry who concluded that"it would be beneficial to the public interest if the area is made available for exploitationunder certain conditions," and

We quote:

Respectfully forwarded to the honorable, the Executive SecretaryMalacanang. Manila inviting particular attention to the comment andrecommendation of the Director of Forestry in the proceeding inindorsement in which this Of fice fully concurs.

The observations of responsible forest officials are most revealing of their zeal to promote forest conservation and watershed protectionespecially in Olongapo, Zambales area. In convincing fashion, theyhave demonstrated that to declare the forest area involved as a forestreserve ratify than open it for timber exploitation under license andregulation would do more harm than of to the public interest. To

convert the area into a forest reserve without an adequate forestprotection force, would make of it a 'Free Zone and LoggingParadise,' to the ever 'Problem Loggers' of Dinalupihan, Bataan . . .an open target of timber smugglers, kaingineros and other forms of forest vandals and despoilers. On the other hand, to award the area,as planned, to a reputable and responsible licensee who shallconduct logging operations therein under the selective loggingmethod and who shall be obliged to employ a sufficient number of forest guards to patrol and protect the forest consecration andwatershed protection.

Worthy of mention is the fact that the Bureau of Forestry had alreadyconducted a public bidding to determine the most qualified bidder towhom the area advertised should be awarded. Needless to stress, thedecision of the Director of Forestry to dispose of the area thusly was

arrived at after much thought and deliberation and after having beenconvinced that to do so would not adversely affect the watershed inthat sector. The result of the bidding only have to be announced. Tobe sure, some of the participating bidders like Mr. Edgardo Pascual,went to much expense in the hope of winning a virgin forestconcession. To suddenly make a turn about of this decision withoutstrong justifiable grounds, would cause the Bureau of Forestry andthis Office no end of embarrassment.

In view of the foregoing, it is earnestly urged that the Director of Forestry be allowed to proceed with the announcement of the resultsof the bidding for the subject forest area (p. 13, CFI rec.).

The Office of the President in its 4th Indorsement dated February 2, 1962, signed by Atty.

Juan Cancio, Acting Legal Officer, "respectfully returned to the Honorable Secretary of theDepartment of Agriculture and Natural Resources for appropriate action," the papers



subject of Forestry Notice No. 2087 which was referred to the Bureau of Forestry for decision (p. 14, CFI rec.).

Finally, of the ten persons who submitted proposed the area was awarded to hereinpetitioner-appellant Wenceslao Vinzons Tan, on April 15, 1963 by the Bureau of Forestry(p. 17, CFI rec.). Against this award, bidders Ravago Commercial Company and JorgeLao Happick filed motions for reconsideration which were denied by the Director of Forestry on December 6, 1963.

On May 30, 1963, the Secretary of Agriculture and Natural Resources Benjamin M. Gozon— who succeeded Secretary Cesar M. Fortich in office — issued General MemorandumOrder No. 46, series of 1963, pertinent portions of which state:

xxx xxx xxx

SUBJECT: ... ... ...

(D)elegation of authority to the Director of Forestry to grant ordinarytimber licenses.

1. ... ... ...

2. The Director of Forestry is hereby authorized to grant (a) newordinary timber licenses where the area covered thereby is not more

than 3,000 hectares each; and (be the extension of ordinary timber licenses for areas not exceeding 5,000 hectares each;

3. This Order shall take effect immediately (p. 267, CFI rec.).

Thereafter, Jose Y. Feliciano was appointed as Acting secretary of Agriculture and NaturalResources, replacing secretary Benjamin M. Gozon. Upon assumption of office heImmediately promulgate on December 19, 19b3 General memorandum Order No. 60,revoking the authority delegated to the Director of Forestry, under General Memorandumorder No. 46, to grant ordinary timber licenses, which order took effect on the same day,December 19, 1963. Pertinent portions of the said Order read as follows:

xxx xxx xxx

SUBJECT: Revocation of General Memorandum Order No 46 datedMay 30, 1963 —

1. In order to acquaint the undersigned with the volume and Nature of the work of the Department, the authority delegated to the Director of forestry under General Memorandum Order No. 46, dated May 30,1963, to grant (a) new ordinary timber licenses where the areacovered thereby is not more than 3,000 hectares each; and (b) theextension of ordinary timber licenses for areas not exceeding 3,000hectares each is hereby revoked. Until further notice, the issuance of' new licenses , including amendments thereto, shall be signed by thesecretary of Agriculture and Natural Resources.

2. This Order shall take effect immediately and all other previousorders, directives, circulars, memoranda, rules and regulationsinconsistent with this Order are hereby revoked (p. 268, CFl rec.;Emphasis supplied).

On the same date that the above-quoted memorandum took effect, December 19, 1963,Ordinary Timber License No. 20-'64 (NEW) dated April 22, 1963, in the name of Wenceslao Vinzons Tan, was signed by then Acting Director of Forestry Estanislao R.Bernal without the approval of the Secretary of Agriculture and Natural Resources. OnJanuary 6, 1964, the license was released by the Office of the Director of Forestry (p. 30,CFI rec.; p. 77, rec.). It was not signed by the Secretary of Agriculture and NaturalResources as required by Order No. 60 aforequoted.

On February 12, 1964, Ravago Commercial Company wrote a letter to the Secretary of Agriculture and Natural Resources shall be considered by tile Natural Resources prayingthat, pending resolution of the appeal filed by Ravago Commercial Company and JorgeLao Happick from the order of the Director of Forestry denying their motion for

reconsideration, OTI No. 20-'64 in the name of Wenceslao V. Tan be cancelled or revokedon the ground that the grant thereof was irregular, anomalous and contrary to existingforestry laws, rules and regulations.

On March 9, 1964, acting on the said representation made by Ravago CommercialCompany, the Secretary of Agriculture and Natural Resources promulgated an order declaring Ordinary Timber License No. 20-'64 issued in the name of Wenceslao VinzonsTan, as having been issued by the Director of Forestry without authority, and is thereforevoid ab initio. The dispositive portion of said order reads as follows:

WHEREFORE, premises considered, this Office is of the opinion andso holds that O.T. License No. 20-'64 in the name of WenceslaoVinzons Tan should be, as hereby it is, REVOKED AND DECLAREDwithout force and effect whatsoever from the issuance thereof.

The Director of Forestry is hereby directed to stop the loggingoperations of Wenceslao Vinzons Tan, if there be any, in the area inquestion and shall see to it that the appellee shall not introduce anyfurther improvements thereon pending the disposition of the appealsfiled by Ravago Commercial Company and Jorge lao Happick in thiscase" (pp. 30-31, CFI rec.).

Petitioner-appellant moved for a reconsideration of the order, but the Secretary of Agriculture and Natural Resources denied the motion in an Order dated March 25, 1964,wherein this paragraph appears:

In this connection, it has been observed by the Acting Director of Forestry in his 2nd indorsement of February 12, 1964, that the area in

question composes of water basin overlooking Olongapo, includingthe proposed Olongapo watershed Reservation; and that the UnitedStates as well as the Bureau of Forestry has earmarked this entirewatershed for a watershed pilot forest for experiment treatmentConcerning erosion and water conservation and flood control inrelation to wise utilization of the forest, denudation, shifting cultivation,increase or decrease of crop harvest of agricultural areas influencedby the watershed, etc. .... (pp. 3839, CFI rec.; p. 78, rec.).

On April 11, 1964, the Secretary of Agriculture and Natural Resources, acting on theseparate appeals filed by Jorge Lao Happick and Ravago Commercial Company, from theorder of the Director of Forestry dated April 15, 1963, awarding to Wenceslao Vinzons Tanthe area under Notive No. 2087, and rejecting the proposals of the other applicantscovering the same area, promulgated an order commenting that in view of the

observations of the Director of Forestry just quoted, "to grant the area in question to any of the parties herein, would undoubtedly adversely affect public interest which is paramountto private interests," and concluding that, "for this reason, this Office is of the opinion andso holds, that without the necessity of discussing the appeals of the herein appellants, the



said appeals should be, as hereby they are, dismissed and this case is considered aclosed matter insofar as this Office is concerned" (p. 78, rec.).

On April 18, 1964, on the basis of the denial of his motion for reconsideration by theSecretary of Agriculture and Natural Resources, petitioner-appellant filed the instant casebefore tile court a quo (Court of First Instance, Manila), Special Civil Action No. 56813, apetition for certiorari, prohibition and mandamus with preliminary prohibitory injunction (pp.1-12, CFI rec.). Petitioner-appellant claims that the respondents-appellees "unlawfully,illegally whimsically, capriciously and arbitrarily acted without or in excess of their

jurisdiction, and/or with grave abuse of discretion by revoking a valid and existing timber license without just cause, by denying petitioner-appellant of the equal protection of thelaws, by depriving him of his constitutional right to property without due process of law,

and in effect, by impairing the obligation of contracts" (P. 6, CFI rec.). Petitioner-appellantprayed for judgment making permanent the writ of preliminary injunction against therespondents- appellees; declaring the orders of the Secretary of Agriculture and NaturalResources dated March 9, March 25, and April 11, 1964, as well as all his acts and thoseof the Director of Forestry implementing said orders, and all the proceedings in connectiontherewith, null and void, unlawful and of no force and effect; ordering the Director of Forestry to renew OTI No. 20-'64 upon expiration, and sentencing the respondents, jointlyand severally, to pay the petitioner-appellant the sum of Two Hundred Thousand Pesos(P200,000.000) by way of pecuniary damage, One Hundred Thousand Pesos(P100,000.00) by way of moral and exemplary damages, and Thirty Thousand Pesos(P30,000-00) as attorney's fees and costs. The respondents-appellees separately filedoppositions to the issuance of the writ of preliminary injunction, Ravago CommercialCompany, Jorge Lao, Happick and Atanacio Mallari, presented petitions for interventionwhich were granted, and they too opposed the writ.

The Director of Forestry in his motion to dismiss dated April 24, 1964, alleges the followinggrounds: (1) that the court has no jurisdiction; (2) that the respondents may not be suedwithout their consent; (3) that the petitioner has not exhausted all available administrativeremedies; (4) that the petition does not state a cause of action; and (5) that purelyadministrative and discretionary functions of administrative officials may not be interferedwith by the courts. The Secretary of Agriculture and Natural Resources joined the motionto dismiss when in his answer of May 18, 1964, he avers the following special andaffirmative defenses: (1) that the court has no jurisdiction to entertain the action for certiorari, prohibition and mandamus; (2) that the petitioner has no cause of action; (3)that venue is improperly laid; (4) that the State is immune from suit without its consent; (5)that the court has no power to interfere in purely administrative functions; and (6) that thecancellation of petitioner's license was dictated by public policy (pp. 172-177, rec.).Intervenors also filed their respective answers in intervention with special and affirmativedefenses (pp. 78-79, rec.). A hearing was held on the petition for the issuance of writ of preliminary injunction, wherein evidence was submitted by all the parties including the

intervenors, and extensive discussion was held both orally and in writing.

After the said hearing, on January 20, 1965, the court a quo, from the evidence received,resolved not only the question on the issuance of a writ of preliminary injunction but alsothe motion to dismiss, declared that the petition did not state a sufficient cause of action,and dismissed the same accordingly. To justify such action, the trial court, in its order dismissing the petition, stated that "the court feels that the evidence presented and theextensive discussion on the issuance of the writ of preliminary mandatory and prohibitoryinjunction should also be taken into consideration in resolving not only this question butalso the motion to dismiss, because there is no reason to believe that the parties willchange their stand, arguments and evidence" (p. 478, CFI rec.). His motion for reconsideration having been denied (p. 488, CFI rec.), petitioner-appellant WenceslaoVinzons Tan appealed directly to this Court.

I

Petitioner-appellant now comes before this Court, claiming that the trial court erred in:

(1) holding that the petition does not state a sufficient cause of action:and

(2) dismissing the petition [p.27,rec. ].

He argues that the sole issue in the present case is, whether or not the facts in the petitionconstitute a sufficient cause of action (p. 31, rec.). Petitioner-appellant, in his brief,presented a lengthy discussion on the definition of the term cause of action wherein hecontended that the three essential elements thereon, — namely, the legal right of theplaintiff, the correlative obligation of the defendants and the act or omission of thedefendant in violation of that right — are satisfied in the averments of this petition (pp. 31-32, rec.). He invoked the rule that when the ground for dismissal is that the complaintstates no cause of action, such fact can be determined only from the facts alleged in thecomplaint and from no other, and the court cannot consider other matters aliunde Hefurther invoked the rule that in a motion to dismiss based on insufficiency of cause of action, the facts alleged in the complaint are deemed hypothetically admitted for thepurpose of the motion (pp. 32-33, rec.).

A perusal of the records of the case shows that petitioner-appellant's contentions areuntenable. As already observed, this case was presented to the trial court upon a motionto dismiss for failure of the petition to state a claim upon which relief could be granted(Rule 16 [g], Revised Rules of Court), on the ground that the timber license relied upon bythe petitioner- appellant in his petition was issued by the Director of Forestry withoutauthority and is therefore void ab initio. This motion supplanted the general demurrer in anaction at law and, as a rule admits, for the purpose of the motion, ail facts which are wellpleaded however while the court must accept as true all well pleaded facts, the motion

does not admit allegations of which the court will take judicial notice are not true, nor doesthe rule apply to legally impossible facts, nor to facts inadmissible in evidence, nor to factswhich appear by record or document included in the pleadings to be unfounded (Vol. 1,Moran's Comments on the Rules of Court, 1970 ed., p. 505, citing cases).

It must be noted that there was a hearing held in the instant case wherein answers wereinterposed and evidence introduced. In the course of the hearing, petitioner-appellant hadthe opportunity to introduce evidence in support of tile allegations iii his petition, which hereadily availed of. Consequently, he is estopped from invoking the rule that to determinethe sufficiency of a cause of action on a motion to dismiss, only the facts alleged in thecomplaint must be considered. If there were no hearing held, as in the case of Cohen vs.U.S. CCA Minn 1942,129 F. 2d 733), "where the case was presented to District Courtupon a motion to dismiss because of alleged failure of complaint to state a claim uponwhich relief could be granted, and no answer was interposed and no evidence introduced,the only facts which the court could properly consider in passing upon the motion were

those facts appearing in the complaint, supplemented be such facts as the court judiciallyknew.

In Llanto vs. Ali Dimaporo, et al . (16 SCRA 601, March 31, 1966), this Court, thru JusticeConrado V. Sanchez, held that the trial court can properly dismiss a complaint on a motionto dismiss due to lack of cause of action even without a hearing, by taking intoconsideration the discussion in said motion and the opposition thereto. Pertinent portion of said decision is hereby quoted:

Respondents moved to dismiss. Ground therefor is lack of cause of action. The Court below granted the motion, dismissed the petition.The motion to reconsider failed. Offshoot is this appeal.

1. The threshold questions are these: Was thedismissal order issued without any hearing on themotion to dismiss? Is it void?



WE go to the record. The motion to dismiss was filed on February 1,1961 and set for hearing on February 10 following. On February 8,1961 petitioner's counsel telegraphed the court, (r)equestpostponement motion dismissal till written opposition filed.' He did notappear at the scheduled hearing. But on March 4, 1961, he followedup his wire, with his written opposition to the motion to dismiss .

Adverting to the 5-page motion to dismiss and the 6-page oppositionthereto, We find that the arguments pro and con on the question of the board's power to abolish petitioner's position to discussed the

problem said profusely cited authorities. The May 15, 1961 8-pagecourt order recited at length the said arguments and concluded thatpetitioner made no case.

One good reason for the statutory requirement of hearing on a motionas to enable the suitors to adduce evidence in support of their opposing claims. But here the motion to dismiss is grounded on lackof cause of action. Existence of a cause of action or lack of it isdetermined be a reference to the facts averred in the challengedpleading. The question raised in the motion is purely one of law. Thislegal issue was fully discussed in said motion and the oppositionthereto. In this posture, oral arguments on the motion are reduced toan unnecessary ceremony and should be overlooked. And, correctlyso, because the other intendment of the law in requiring hearing on amotion, i.e., 'to avoid surprises upon the opposite party and to give tothe latter time to study and meet the arguments of the motion,' hasbeen sufficiently met. And then, courts do not exalt form over substance (Emphasis supplied).

Furthermore even if the complaint stated a valid cause of action, a motion to dismiss for-insufficiency of cause of action will be granted if documentary evidence admitted bystipulation disclosing facts sufficient to defeat the claim enabled the court to go beyonddisclosure in the complaint (LOCALS No. 1470, No. 1469, and No. 1512 of theInternational Longshoremen's Association vs. Southern Pacific Co., 6 Fed. Rules Service,p. 107; U.S. Circuit Court of Appeals, Fifth Circuit, Dec. 7, 1952; 131 F. 2d 605). Thus,although the evidence of the parties were presented on the question of granting or denying petitioner-appellant's application for a writ of preliminary injunction, the trial courtcorrectly applied said evidence in the resolution of the motion to dismiss. Moreover, inapplying said evidence in the resolution of the motion to dismiss, the trial court, in its order dismissing the petition, pointed out that, "there is no reason to believe that the parties willchange their stand, arguments and evidence" (p. 478, CFI rec.). Petitioner-appellant didnot interpose any objection thereto, nor presented new arguments in his motion for reconsideration (pp. 482-484, CFI rec.). This omission means conformity to said

observation, and a waiver of his right to object, estopping him from raising this question for the first time on appeal. " I question not raised in the trial court cannot be raised for thefirst time on appeal" (Matienzo vs. Servidad, Sept. 10, 1981, 107 SCRA 276).

Moreover, petitioner-appellant cannot invoke the rule that, when the ground for askingdismissal is that the complaint states no cause of action, its sufficiency must bedetermined only from the allegations in the complaint. "The rules of procedure are not tobe applied in a very rigid, technical sense; rules of procedure are used only to help securesubstantial justice. If a technical and rigid enforcement of the rules is made, their aimwould be defeated. Where the rules are merely secondary in importance are made tooverride the ends of justice; the technical rules had been misapplied to the prejudice of thesubstantial right of a party, said rigid application cannot be countenanced" (Vol. 1,Francisco, Civil Procedure, 2 ed., 1973, p. 157, citing cases).

What more can be of greater importance than the interest of the public at large, moreparticularly the welfare of the inhabitants of Olongapo City and Zambales province, whoselives and properties are directly and immediately imperilled by forest denudation.

The area covered by petitioner-appellant's timber license practically comprises the entireOlongapo watershed (p. 265, CFI rec.). It is of public knowledge that watersheds servesas a defense against soil erosion and guarantees the steady supply of water. As a matter of general policy, the Philippine Constitution expressly mandated the conservation andproper utilization of natural resources, which includes the country's watershed.Watersheds in the Philippines had been subjected to rampant abusive treatment due tovarious unscientific and destructive land use practices. Once lush watersheds werewantonly deforested due to uncontrolled timber cutting by licensed concessionaries andillegal loggers. This is one reason why, in paragraph 27.of the rules and regulationsincluded in the ordinary timber license it is stated:

The terms and conditions of this license are subject to change at the

discretion of the Director of Forestry, and that this license may bemade to expire at an earlier date, when public interests so require(Exh. D, p. 22, CFI rec.).

Considering the overriding public interest involved in the instant case, We therefore take judicial notice of the fact that, on April 30, 1964, the area covered by petitioner-appellan t'stimber license has been established as the Olongapo Watershed Forest Reserve by virtueof Executive Proclamation No. 238 by then President Diosdado Macapagal which in partsread as follows:

Pursuant to the provisions of Section 1824 of the Revised Administrative Code, as amended, 1, Diosdado Macapagal, Presidentof the Philippines do hereby withdraw from entry, sale, or settlementand establish as Olongapo Watershed Forest Reserve for watershed,

soil protection, and timber production purposes, subject to privaterights, if any there be, under the administration and control of theDirector of Forestry, xx the following parcels of land of the publicdomain situated in the municipality of Olongapo, province of Zambales, described in the Bureau of Forestry map No. FR-132, towit: ... ... (60 O.G. No. 23, 3198).

Petitioner-appellant relies on Ordinary Timber License No. 20-'64 (NEW) for his allegedright over the timber concession in question. He argues thus: "The facts alleged in thepetition show: (1) the legal right of the petitioner to log in the area covered by his timber license; (2) the legal or corresponding obligation on the part of the respondents to giveeffect, recognize and respect the very timber license they issued to the petitioner; and (3)the act of the respondents in arbitrarily revoking the timber license of the petitioner withoutgiving him his day in court and in preventing him from using and enjoying the timber license issued to him in the regular course of official business" (p. 32, rec.).

In the light of petitioner-appellant's arguments, it is readily seen that the whole controversyhinges on the validity or invalidity of his timber license.

WE fully concur with the findings of the trial court that petitioner- appellant's timber licensewas signed and released without authority by then Acting Director Estanislao R. Bernal of Forestry, and is therefore void ab initio. WE hereby quote such findings:

In the first place, in general memorandum order No. 46 dated May 30,1963, the Director of Forestry was authorized to grant a new ordinarytimber license only where the area covered thereby was not morethan 3,000 hectares; the tract of public forest awarded to thepetitioner contained 6,420 hectares (Exhs. 2-A and 2-B Ravago,

embodied in Annex B; Exh. B). The petitioner contends that only1,756 hectares of the said area contain commercial and operableforest; the authority given to the Director of Forestry to grant a newordinary timber license of not more than 3,000 hectares does not



state that the whole area should be commercial and operable forest. Itshould be taken into consideration that the 1,756 hectares containingcommercial and operable forest must have been distributed in thewhole area of 6,420 hectares. Besides the license states, 'Please seeattached sketch and technical description,' gives an area of 6,420hectares

Documents

admin batch 2.docx