G.R. No. 179597               February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner, vs.HEIRS of BERNARDINO TAEZA, Respondents.

D E C I S I O N

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision1 of the Court of Appeals (CA), promulgated on June 30, 2006, and the Resolution2 dated August 23, 2007, denying petitioner's motion for reconsideration thereof, be reversed and set aside.

The CA's narration of facts is accurate, to wit:

The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038 square meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653-C, and 3653-D.

Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold Lot 3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.

On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the defendant Bernardino Taeza, for the amount of P100,000.00, through installment, with mortgage to secure the payment of the balance. Subsequently, the defendant allegedly completed the payments.

In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed by the Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, the President and the Secretary, respectively, of the Laymen's Committee, with the then Court of First Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and the defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein lacked the personality to file the case.

After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981, Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration of nullity of the elections was filed by Rev. Ga, with the Securities and Exchange Commission (SEC).

In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by Supreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject parcels of land against Rev. Ga and the defendant Bernardino Taeza, which was docketed as Civil Case No. 3747. The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch III, which in its order dated December 10, 1987, dismissed the said case without prejudice, for the reason that the issue as to whom of the Supreme Bishops could sue for the church had not yet been resolved by the SEC.

On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadership issue of the IFI against Rev. Macario Ga.

Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently, Transfer Certificate of Title Nos. T-77995 and T-77994 were issued in his name.

The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the defendant to vacate the said land which he failed to do.

In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this time through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the Regional Trial Court of Tuguegarao City, Branch 3.

On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee.1âwphi1 It held that the deed of sale executed by and between Rev. Ga and the defendant-appellant is null and void.3

The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as follows:

WHEREFORE, judgment is hereby rendered:

1) declaring plaintiff to be entitled to the claim in the Complaint;

2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;

3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void ab initio;

4) declaring the possession of defendant on that portion of land under question and ownership thereof as unlawful;

5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in question and surrender the same to plaintiff; [and]

6) condemning defendant and his heirs pay (sic) plaintiff the amount of P100,000.00 as actual/consequential damages and P20,000.00 as lawful attorney's fees and costs of the amount (sic).4

Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decision reversing and setting aside the RTC Decision, thereby dismissing the complaint.5 The CA ruled that petitioner, being a corporation sole, validly transferred ownership over the land in question through its Supreme Bishop, who was at the time the administrator of all properties and the official representative of the church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga to enter into a contract and represent the plaintiff-appellee cannot be assailed, as there are no provisions in its constitution and canons giving the said authority to any other person or entity."6

Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the following issues are presented for resolution:

A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;

B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS UNENFORCEABLE, [and]

C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT TAEZA HEREIN AS BUYER IN BAD FAITH.7

The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized to enter into a contract of sale in behalf of petitioner.

Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had no authority to give such consent. It emphasized that Article IV (a) of their Canons provides that "All real properties of the Church located or situated in such parish can be disposed of only with the approval and conformity of the laymen's committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of all the temporalities of the Church." It is alleged that the sale of the property in question was done without the required approval and conformity of the entities mentioned in the Canons; hence, petitioner argues that the sale was null and void.

In the alternative, petitioner contends that if the contract is not declared null and void, it should nevertheless be found unenforceable, as the approval and conformity of the other entities in their church was not obtained, as required by their Canons.

Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real estate and personal property for its church, charitable, benevolent or educational purposes, and may receive bequests or gifts for such purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for that purpose from the Court of First Instance of

the province where the property is situated; x x x Provided, That in cases where the rules, regulations and discipline of the religious denomination, sect or church, religious society or order concerned represented by such corporation sole regulate the method of acquiring, holding, selling and mortgaging real estate and personal property, such rules, regulations and discipline shall control, and the intervention of the courts shall not be necessary.8

Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the Philippine Independent Church,9 that "[a]ll real properties of the Church located or situated in such parish can be disposed of only with the approval and conformity of the laymen's

committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as administrator of all the temporalities of the Church."

Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not specify in what form the conformity of the other church entities should be made known. Thus, as petitioner's witness stated, in practice, such consent or approval may be assumed as a matter of fact, unless some opposition is expressed.10

Here, the trial court found that the laymen's committee indeed made its objection to the sale known to the Supreme Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from the laymen's committee, opining that the consent of the Supreme Bishop to the sale was sufficient, especially since the parish priest and the Diocesan Bishop voiced no objection to the sale.12

The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the sale of the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof should give its approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale of petitioner's lot despite the opposition made by the laymen's committee, he acted beyond his powers.

This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

In Mercado v. Allied Banking Corporation,13 the Court explained that:

x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or

they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity. x x x.14

Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial partition in behalf of co-heirs without the latter's authority;15 where a mother as judicial guardian of her minor children, executes a deed of extrajudicial partition wherein she favors one child by giving him more than his share of the estate to the prejudice of her other children;16 and where a person, holding a special power of attorney, sells a property of his principal that is not included in said special power of attorney.17

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already obtained a transfer certificate of title in his name over the property in question. Since the person supposedly transferring ownership was not authorized to do so, the property had evidently been acquired by mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which states that "[i]f property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes." Thus, in Aznar Brothers Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court clarified the concept of trust involved in said provision, to wit:

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.

The concept of constructive trusts was further elucidated in the same case, as follows:

. . . implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows:

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust

enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. (Italics supplied)

A constructive trust having been constituted by law between respondents as trustees and petitioner as beneficiary of the subject property, may respondents acquire ownership over the said property? The Court held in the same case of Aznar,21 that unlike in express trusts and resulting implied trusts where a trustee cannot acquire by prescription any property entrusted to him unless he repudiates the trust, in constructive implied trusts, the trustee may acquire the property through prescription even if he does not repudiate the relationship. It is then incumbent upon the beneficiary to bring an action for reconveyance before prescription bars the same.

In Aznar,22 the Court explained the basis for the prescriptive period, to wit:

x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title thereto in favor of the true owner. In this context, and vis-á-vis prescription, Article 1144 of the Civil Code is applicable.

Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

x x x           x x x          x x x

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property.

It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property, x x x.23

Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over the subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on February 7, 1990.25

Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and it is only just that the subject property be returned to its rightful owner.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006, and its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby entered:

(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots covered by Transfer Certificates of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises and surrender the same to petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.

G.R. No. 197760               January 13, 2014

TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO CORPORATION), Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks to reverse and set aside the May 2, 20111 and the July 15, 20112 Resolutions of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 706. The assailed resolutions affirmed the November 26, 2010 Amended Decision3 of the CTA Special First Division in CTA Case No. 7617, which dismissed petitioner's claim for tax refund or issuance of a tax_ credit certificate for failure to comply with the 120-day period provided under Section 112 (C) of the National Internal Revenue Code (NIRC).

The facts, as found by the CTA follow:

Petitioner is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) scheme. As such, it is registered with the BIR as a VAT taxpayer in accordance with Section 107 of the National Internal Revenue Code (NIRC) of 1977 (now Section 236 of the NIRC of 1997), with Tax Identification No. 001-726-870-000, as shown on its BIR Certificate of Registration No. OCN8RC0000017854.

On December 17, 2004, petitioner filed with the BIR Audit Information, Tax Exemption and Incentives Division an Application for VAT Zero-Rate for the supply of electricity to the NPC from January 1, 2005 to December 31, 2005, which was subsequently approved.

Petitioner filed with the BIR its Quarterly VAT Returns for the first three quarters of 2005 on April 25, 2005, July 26, 2005, and October 25, 2005, respectively. Likewise, petitioner filed its Monthly VAT Declaration for the month of October 2005 on November 21, 2005, which was subsequently amended on May 24, 2006. These VAT Returns reflected, among others, the following entries:

Exhibit PeriodCovered

Zero-RatedSales/Receipts

Taxable Sales Output VAT Input VAT

"C" 1st Qtr-2005

P3,044,160,148.16 P1,397,107.80 P139,710.78 P16,803,760.82

"D" 2nd Qtr-2005

3,038,281,557.57 1,241,576.30 124,157.63 32,097,482.29

"E" 3rd Qtr-2005

3,125,371,667.08 452,411.64 45,241.16 16,937,644.73

"G"(amended)

October 2005

910,949.50 91,094.95 14,297,363.76

  Total P9,207,813,372.81 P4,002,045.24 P400,204.52 P80,136,251.60

On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of tax credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the first three quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of P80,136,251.60, citing as legal bases Section 112 (A), in relation to Section 108 (B)(3) of the NIRC of 1997, Section 4.106-2(c) of Revenue Regulations No. 7-95, Revenue Memorandum Circular No. 61-2005, and the case of Maceda v. Macaraig.

Due to respondent’s inaction on its claim, petitioner filed the instant Petition for Review before this Court on April 18, 2007.

In his Answer filed on May 27, 2007, respondent interposed the following Special and Affirmative Defenses:

5. He reiterates and pleads the preceding paragraphs of this answer as part of his Special and Affirmative Defenses.

6. Petitioner’s alleged claim for refund is subject to administrative investigation/examination by respondent.

7. Taxes remitted to the BIR are presumed to have been made in the regular course of business and in accordance with the provision of law.

8. To support its claim for refund, it is imperative for petitioner to prove the following, viz.:

a. The registration requirements of a value-added taxpayer in compliance with the pertinent provision of the Tax Code, of 1997, as amended, and its implementing revenue regulations;

b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT in compliance with the provisions of Sections 113 and 114 of the Tax Code of 1997, as amended;

c. Proof of compliance with the submission of complete documents in support of the administrative claim for refund pursuant to Section 112 (D) of the Tax Code of 1997, as amended, otherwise there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended;

d. That the input taxes of P80,136,261.60 allegedly representing unutilized input VAT from its domestic purchases of capital goods, domestic purchases of goods other than capital goods, domestic purchases of services, services rendered by nonresidents, importation of capital goods and importation of goods other than capital goods were:

d.i paid by petitioner;

d.ii attributable to its zero-rated sales;

d.iii used in the course of its trade or business; and

d.iv such have not been applied against any output tax;

e. That petitioner’s claim for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Section 112 (A) of the Tax Code of 1997, as amended;

f. That petitioner has complied with the governing rules and regulations with reference to recovery of tax erroneously or illegally collected as explicitly found in Sections 112 (A) and 229 of the Tax Code, as amended.

g. Petitioner failed to prove compliance with the aforementioned requirements.

9. Furthermore, in action for refund the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund/credit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from common burden cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. [P.I.] v. Llanes, 49 Phil 446, cited in Collector of Internal Revenue v. Manila Jockey Club, 98 Phil. 670); 10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation.

During trial, petitioner presented documentary and testimonial evidence. Respondent, on the other hand, waived his right to present evidence.

This case was submitted for decision on July 13, 2009, after the parties filed their respective Memorandum.4

In a Decision5 dated July 13, 2010, the CTA Special First Division partially granted petitioner’s claim for refund or issuance of tax credit certificate. It held as follows:

WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND or in the alternative, ISSUE A

TAX CREDIT CERTIFICATE in the amount of SEVENTY-NINE MILLION ONE HUNDRED EIGHTY-FIVE THOUSAND SIX HUNDRED SEVENTEEN AND 33/100 PESOS (P79,185,617.33) in favor of petitioner, representing unutilized input VAT, attributable to its effectively zero-rated sales of power generation services to NPC for the period covering January 1, 2005 to October 31, 2005. SO ORDERED.

Disgruntled, respondent filed a Motion for Reconsideration against said decision.

On November 26, 2010, the CTA Special First Division rendered an Amended Decision granting respondent’s Motion for Reconsideration. In light of this Court’s ruling in Commissioner of Internal Revenue v. Aichi Forging Company, Inc.6 (Aichi), it reversed and set aside the earlier decision of the CTA Special First Division. Thus:

In the case at bench, petitioner’s administrative claim was filed on December 20, 2006 which is well within the two-year [prescriptive] period prescribed under Section 112 (A) of the NIRC. Observing the 120-day period for the Commissioner to render a decision on the administrative claim, as required under Section 112 (D) of the NIRC, petitioner’s judicial claim should have been filed not earlier than April 19, 2007. Petitioner, however, filed its judicial claim on April 18, 2007 or only 199 days from December 20, 2006, thus, prematurely filed.

Accordingly, petitioner’s claim for refund/credit of excess input VAT, covering the period January 1 to October 31, 2005, warrants a dismissal for having been prematurely filed.

WHEREFORE, the Motion for Reconsideration (Re: Decision promulgated 13 July 2010) of the respondents is hereby GRANTED. The assailed July 13, 2010 Decision is hereby REVERSED and SET ASIDE and CTA Case No. 7617 is hereby considered DISMISSED for having been prematurely filed.

SO ORDERED.7

Petitioner then filed a Petition for Review with the CTA En Banc arguing that the requirement to exhaust the 120-day period for respondent to act on its administrative claim for input VAT refund/credit under Section 112 (C) of the NIRC is merely a species of the doctrine of exhaustion of administrative remedies and is, therefore, not jurisdictional.

In a Resolution dated May 2, 2011, the CTA En Banc denied the petition for lack of merit. Its fallo reads:

WHEREFORE, premises considered, the Petition for Review is hereby DENIED DUE COURSE for lack of merit.

Attys. Rachel P. Follosco and Froilyn P. Doyaoen-Pagayatan are hereby ADMONISHED to be more careful in the discharge of their duty to the court as a lawyer under the Code of Professional Responsibility.

SO ORDERED.8

Unfazed, petitioner filed a Motion for Reconsideration. However, the same was denied in a Resolution dated July 15, 2011.

Hence, the present petition.

Petitioner invokes the following grounds to support its petition:

I.

THE CTA ACQUIRED JURISDICTION OVER THE PETITION FOR REVIEW FILED WITH AND TRIED BY THE SPECIAL FIRST DIVISION OF THE CTA DUE TO FAILURE OF THE RESPONDENT CIR TO INVOKE THE RULE OF NON-EXHAUSTION OF ADMINISTRATIVE REMEDIES.

II.

THE CTA EN BANC’S APPLICATION OF THE RECENT JUDICIAL INTERPRETATION OF THE SUPREME COURT IN THE AICHI CASE TO THE INSTANT PETITION FOR REVIEW IS ERRONEOUS BECAUSE:

A) IT VIOLATES ESTABLISHED RULES PROHIBITING RETROACTIVE APPLICATION OF JUDICIAL DECISIONS;

B) IT WILL BE UNJUST AND INEQUITABLE TO THE PETITIONER WHO RELIED IN GOOD FAITH ON PREVAILING JURISPRUDENCE AT THE TIME OF INSTITUTING THE ADMINISTRATIVE AND JUDICIAL CLAIMS; AND,

C) IT WILL UNJUSTLY ENRICH THE GOVERNMENT AT THE EXPENSE OF THE PETITIONER.9

In essence, the issue is whether or not the CTA has jurisdiction to take cognizance of the instant case.

Prefatorily, to address the issue of lack of jurisdiction, there is a need to discuss Section 112 (A) and (C) which states:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-Rated or Effectively Zero-Rated Sales. – Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x.

x x x x

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

From the foregoing, it is clear that a VAT-registered taxpayer claiming for refund or tax credit of their excess and unutilized input VAT must file their administrative claim within two years from the close of the taxable quarter when the sales were made. After that, the taxpayer must await the decision or ruling of denial of its claim, whether full or partial, or the expiration of the 120-day period from the submission of complete documents in support of such claim. Once the taxpayer receives the decision or ruling of denial or expiration of the 120-day period, it may file its petition for review with the CTA within thirty (30) days.

In the Aichi case, this Court ruled that the 120-30-day period in Section 112 (C) of the NIRC is mandatory and its non-observance is fatal to the filing of a judicial claim with the CTA. In this case, the Court explained that if after the 120-day mandatory period, the Commissioner of Internal Revenue (CIR) fails to act on the application for tax refund or credit, the remedy of the taxpayer is to appeal the inaction of the CIR to the CTA within thirty (30) days. The judicial claim, therefore, need not be filed within the two-year prescriptive period but has to be filed within the required 30-day period after the expiration of the 120 days. Thus:

Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to [the] CTA within 30 days.

x x x x

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to

appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.10 (Emphasis supplied)

Recently, however, in the case of Commissioner of Internal Revenue v. San Roque Power Corporation11 (San Roque), the Court clarified that the mandatory and jurisdictional nature of the 120-30-day rule does not apply on claims for refund that were prematurely filed during the interim period from the issuance of Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when the Aichi doctrine was adopted. The exemption was premised on the fact that prior to the promulgation of the Aichi decision, there was an existing interpretation laid down in BIR Ruling No. DA-489-03 where the BIR expressly ruled that the taxpayer need not wait for the expiration of the 120-day period before it could seek judicial relief with the CTA. It expounded on the matter in this wise:

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code.1âwphi1 BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, that the expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.

x x x x

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous

and be reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who, in good faith, relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Section 246. Non-retroactivity of Rulings. – Any modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by the taxpayers from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only by the Commissioner because this Section expressly states, "Any revocation, modification or reversal" without specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is covered by Section 246.

x x x x

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was, in fact, asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1âwphi1 Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120-130 day periods are mandatory and jurisdictional.12

In the present case, petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 but before October 6, 2010, the date when the Aichi case was promulgated. Thus, even though petitioner s judicial claim was prematurely filed without waiting for the expiration of the 120-day mandatory period, the CT A may still take cognizance of the instant case as it was filed within the period exempted from the 120-30-day mandatory period.

WHEREFORE, the foregoing considered, the instant Petition for Review on Certiorari is hereby GRANTED. The May 2, 2011 and the July 15, 2011 Resolutions of the Court of Tax Appeals En Banc in CTA EB Case No. 706 are REVERSED and SET ASIDE. Let this case be remanded to the Court of Tax Appeals for the proper determination of the refundable amount.

SO ORDERED.

A.M. No. P-12-3044               April 8, 2013(Formerly A.M. OCA I.P.I. No. 09-3267-P)

JUDGE ANASTACIO C. RUFON, Complainant, vs.MANUELITO P. GENITA, Legal Researcher II, Regional Trial Court, Branch 52, Bacolod City, Respondent.

D E C I S I O N

PERALTA, J.:

This administrative case stemmed froin the Letters of Judge Anastacio C. Rufon1 (Judge Rufon), dated July 16, 2009, and Mr. Gary G. Garcia2 (Mr. Garcia), dated August 3, 2009, relative to respondent Manuelito P. Genita's daily time record (DTR) and application for leave for the month of June 2009, addressed to then Court Administrator Jose P. Perez, now a member of this Court. Judge Rufon was the Presiding Judge of the Regional Trial Court (RTC), Branch 52, Bacolod City; Mr. Garcia was the Officer-in-Charge (OIC); while respondent was the Legal Researcher II, same court.

In his July 16, 2009 letter, Judge Rufon forwarded respondent's DTR together with his application for leave and medical certificate attached thereto for the month of June 2009, and explained that he did not sign it because the entries in the DTR were not reflective of the true and correct entries appearing in the logbook for the said month. He claimed that while respondent presented a medical certificate showing that he consulted a doctor on the 15th of June where he was diagnosed and treated for diabetes mellitus, hypertension and hypercholesterolemia and was an out-patient, respondent failed to report for work from June 11 to 30, 2009. He, likewise, stated that his application for leave failed to disclose whether respondent was applying for vacation or sick leave.3

Mr. Garcia, on the other hand, claimed that upon verification, respondent had not been reporting for work but when confronted, he already filed an application for terminal leave. Echoing Judge Rufon, Mr. Garcia explained that while respondent presented a medical certificate to support his application for leave for June 11 to 30, there was no recommendation for an admission to a hospital or to rest for a number of days, causing the disapproval of his application for leave. He also stated that the entries in respondent’s DTR were not reflective of the correct entries as appearing in the office logbook.4

On October 16, 2009, respondent was directed to Comment on the letters within ten (10) days from receipt, but he failed to comply. A trace letter was sent to him with the same directive, but still no such comment.5

In a Resolution6 dated December 15, 2010, the Court required respondent to show cause why he should not be administratively dealt with for refusing to submit his comment despite the OCA’s directive. Respondent was also directed to submit the required Comment within a non-extendible period of five (5) days from receipt with a warning that his failure to comply would compel the

Court to decide the complaint against him on the basis of the records at hand. The Court also ordered that another notice be sent to respondent’s residence.

In compliance with the said directive, respondent submitted a letter explanation dated February 21, 2011 stating that he had already submitted his comment first to Deputy Court Administrator Reuben P. Dela Cruz, dated June 7, 2009,7 and second to then Court Administrator Jose P. Perez.8

Respondent denied that he falsified his DTR. He explained that he indeed consulted his doctor and insisted that he had a recurring sickness that needed medication, but he chose to be an out-patient to save time, money and effort. He claimed that he could not report for work because he was very sick. He admitted that there was a disparity in the entries in his DTR compared to those appearing in the office logbook, but claimed that it was understandable because of the time difference in signing them. He also contended that the case against him is moot and academic, since he already forwarded his DTR to the Court from January 2008 until December 2009 as he already filed his terminal leave; the same had been signed, authenticated and certified by the RTC of Negros Occidental. He also pointed out that he had written Mr. Randy Sanchez of the Leave Section, Office of the Administrative Services, OCA explaining the reasons why complainants did not sign his DTR. He claimed that the complaint was a mere afterthought and filed merely to harass him as he was suspected to be behind a certain Gideon Daga, who filed several administrative cases against complainants.9

In its Report, the OCA found that respondent’s DTR was spurious as he made it appear that he was present from June 1 to 10, 2009, when in fact he was absent as shown by the notation in the logbook made by Mr. Garcia that he did not report for work on those dates. Assuming that he was present, still, with respondent’s admission, there were discrepancies in the times entered in the DTR as opposed to those appearing in the logbook.10 The OCA also found that though respondent indeed applied for sick leave from June 11 to 30, 2009, the same was disapproved because such application was not supported by the medical certificate presented.11 Hence, the disapproval of his application for sick leave was justified. These acts, according to the OCA, constitute gross dishonesty or serious misconduct punishable by dismissal from the service.12 Considering, however, that this is respondent’s first offense, and considering further that he is already retired from the service and needs the necessary finances to defray his medical expenses, the OCA recommended that he be meted the penalty of fine equivalent to his three (3) month’s salary, to be deducted from his retirement benefits.13

The OCA’s findings are well taken.

At the outset, we determine the propriety of Judge Rufon’s disapproval of respondent’s application for sick leave for June 11 to 30, 2009. Although the disapproval per se does not make respondent liable for any administrative offense, the same would make his absences during the aforesaid dates unauthorized.

The rules on application for sick leave are laid down in Memorandum Circular No. 41, Series of 1998, to wit:

Section 53. Applications for sick leave. - All applications for sick leave of absence for one full day or more shall be on the prescribed form and shall be filed immediately upon the employee's return from such leave. Notice of absence, however, should be sent to the immediate supervisor and/or to the agency head. Application for sick leave in excess of five (5) successive days shall be accompanied by a proper medical certificate.

Sick leave may be applied for in advance in cases where the official or employee will undergo medical examination or operation, or be advised to rest in view of ill health duly supported by a medical certificate.

In ordinary application for sick leave already taken not exceeding five days, the head of department or agency concerned may duly determine whether or not the granting of sick leave is proper under the circumstances. In case of doubt, a medical certificate may be required.14

Well settled is the rule that approval of application for sick leave, whether with pay or without pay, is mandatory as long as proof of sickness or disability is attached to the application.15 In this case, respondent filed his application for sick leave for June 11 to 30, 2009 supported by a medical certificate dated June 24, 2009 signed by the attending physician stating that respondent consulted him on June 15, 2009 and was diagnosed and treated for diabetes mellitus and hypertension; and that on June 24, respondent again consulted him with the following diagnoses: diabetes mellitus, hypertension, and hypercholesterolemia.16 The statements made by the attending physician only indicate respondent’s consultation on June 15 and 24 and no other. Nowhere in said certificate did the attending physician recommend that respondent needed to rest for the period he claimed to be sick or that he needed to be at the hospital for treatment. Thus, the medical certificate presented by respondent is insufficient to support his application for sick leave for a period of more than two weeks. Judge Rufon is, therefore, justified in disapproving his application for sick leave making his absence during those days unauthorized.

Now on the main issue of whether respondent indeed falsified his DTR for the month of June. Attached to the complaints of Judge Rufon and Mr. Garcia are the office logbook,17 respondent’s DTR18 and application for leave,19 and medical certificate.20

Per respondent’s June 2009 DTR, he claimed that he reported for work on June 1-5 and 8-10, but was on sick leave on June 11 to 30, 2009. Mr. Garcia, who was then the OIC, however, noted in the logbook that respondent did not report for work on the days the latter claimed he was present.

We cannot rely with particularity on the office logbook as basis to determine the accuracy of respondent’s entries in his DTR, because the employees were identified therein by their signatures without their complete name. Neither did the complainants nor respondent pointed to the contested entries. The only clear entry therein was the notation of Mr. Garcia that respondent did not report for work on those dates. In making it appear that he was present from June 1 to 10 but in fact he was not, respondent clearly falsified his DTR. Assuming that he was present on those contested dates, a perusal of the entries made in the logbook and respondent’s DTR would show that the time stated in the DTR did not correspond to any of the times entered therein by any of the employees. This leads to no other conclusion than that respondent did not make truthful entries in his DTR.

We take judicial notice of the fact that in government offices where there are no bundy clocks, it is a matter of practice for employees of these offices that upon arrival at work and before proceeding to their respective workstations, they first sign their names at the attendance logbook and at the end of each month, the employees fill up their DTR reflecting therein the entries earlier made in the logbook.21

Falsification of time records constitutes dishonesty.22 Dishonesty has been defined as "the disposition to lie, cheat, deceive, or defraud; untrustworthiness; lack of integrity; lack of honesty, probity or integrity in principle; lack of fairness and straightforwardness; disposition to defraud, deceive or betray.23

Under the schedule of penalties adopted by the Civil Service, gross dishonesty or serious misconduct is classified as a grave offense and the penalty impossible is dismissal.24 However, such an extreme penalty cannot be inflicted on an erring employee, especially in cases25 where there exist mitigating circumstances which could alleviate his or her culpability.26 Factors such as length of service, acknowledgment of respondent’s infractions and feeling of remorse, and family circumstances, among other things, have had varying significance in the Court’s determination of the imposable penalty.27

Inasmuch as this is respondent’s first offense, it is considered a mitigating circumstance in his favor.28 Moreover, under Section 53 (a) of the Uniform Rules on Administrative Cases in the Civil Service, the physical fitness or unfitness of respondent may be considered a mitigating circumstance in the determination of the penalties to be imposed.29 Records show that respondent already availed of optional retirement and he is in need of financial assistance for his medication for his recurring illness and we deem it proper to exercise liberality in the imposition of penalty. Taking into consideration the circumstances that mitigate respondent’s liability, we adopt the OCA’s recommendation to impose the penalty of fine equivalent to his salary for three (3) months to be deducted from his retirement benefits.

One final note.

x x x We have repeatedly emphasized that the conduct of court personnel, from the presiding judge to the lowliest clerk, must always be beyond reproach and must be circumscribed with the heavy burden of responsibility as to let them be free from any suspicion that may taint the judiciary. The Court condemns and would never countenance any conduct, act or omission on the part of all those involved in the administration of justice, which would violate the norm of public accountability and diminish or even just tend to diminish the faith of the people in the Judiciary.30

WHEREFORE, premises considered, respondent MANUELITO P. GENITA is GUlLTY of DISHONESTY and is meted the penalty of FINE equivalent to his three (3) months salary to be deducted from his retirement benefits.

SO ORDERED.

G.R. No. 181021               December 10, 2012

BURGUNDY REALTY CORPORATION, Petitioner, vs.JOSEFA "JING" C. REYES and SECRETARY RAUL GONZALEZ of the DEPARTMENT OF JUSTICE, Respondents.

D E C I S I O N

PERALTA, J.:

For resolution of this Court is the Petition for Review on Certiorari, dated February 13, 2008, of petitioner Burgundy Realty Corporation, seeking to annul and set aside the Decision 1 and Resolution of the Court of Appeals (CA), dated September 14, 2007 and December 20, 2007, respectively.

The facts follow.

Private respondent Josefa "Jing" C. Reyes (Reyes), sometime in 1996, offered her services to petitioner as the latter's real estate agent in buying parcels of land in Calamba, Laguna, which are to be developed into a golf course. She informed petitioner that more or less ten (10) lot owners are her clients who were willing to sell their properties. Convinced of her representations, petitioner released the amount of P23,423,327.50 in her favor to be used in buying those parcels of land. Reyes, instead of buying those parcels of land, converted and misappropriated the money given by petitioner to her personal use and benefit. Petitioner sent a formal demand for Reyes to return the amount of P23,423,327.50, to no avail despite her receipt of the said demand. As such, petitioner filed a complaint for the crime of Estafa against Reyes before the Assistant City Prosecutor's Office of Makati City.

Reyes, while admitting that she acted as a real estate agent for petitioner, denied having converted or misappropriated the involved amount of money. She claimed that the said amount was used solely for the intended purpose and that it was petitioner who requested her services in procuring the lots. According to her, it was upon the petitioner's prodding that she was constrained to contact her friends who were also into the real estate business, including one named Mateo Elejorde. She alleged that prior to the venture, Mateo Elejorde submitted to her copies of certificates of title, vicinity plans, cadastral maps and other identifying marks covering the properties being offered for sale and that after validating and confirming the prices as well as the terms and conditions attendant to the projected sale, petitioner instructed her to proceed with the release of the funds. Thus, she paid down payments to the landowners during the months of February, March, July, August, September and October of 1996. Reyes also insisted that petitioner knew that the initial or down payment for each lot represented only 50% of the purchase price such that the remaining balance had to be paid within a period of thirty (30) days from the date of receipt of the initial payment. She added that she reminded petitioner, after several months, about the matter of unpaid balances still owing to the lot owners, but due to lack of funds and non-infusion of additional capital from other investors, petitioner failed to pay the landowners of their remaining unpaid balances. Meanwhile, Reyes received information that her

sub-broker Mateo Elejorde had been depositing the involved money entrusted to him under his personal account. On March 28, 2000, through a board resolution, petitioner allegedly authorized Reyes to institute, proceed, pursue and continue with whatever criminal or civil action against Mateo Elejorde, or such person to whom she may have delivered or entrusted the money she had received in trust from the firm, for the purpose of recovering such money. Thus, Reyes filed a complaint for the crime of estafa against Mateo Elejorde before the City Prosecutor's Office of Makati City docketed as I.S. No. 98-B-5916-22, and on March 30, 2001, Mateo Elejorde was indicted for estafa.

After a preliminary investigation was conducted against Reyes, the Assistant Prosecutor of Makati City issued a Resolution2 dated April 27, 2005, the dispositive portion of which reads:

In view thereof, it is most respectfully recommended that respondent be indicted of the crime of Estafa defined and penalized under the Revised Penal Code. It could not be said that she has violated the provision of PD 1689 for it was not shown that the money allegedly given to her were funds solicited from the public. Let the attached information be approved for filing in court. Bail recommendation at Php40,000.00.3

Thereafter, an Information for the crime of Estafa under Article 315, par. 1 (b) of the Revised Penal Code (RPC) was filed against Reyes and raffled before the RTC, Branch 149, Makati City.

Undeterred, Reyes filed a petition for review before the Department of Justice (DOJ), but it was dismissed by the Secretary of Justice through State Prosecutor Jovencito Zuño on June 1, 2006.

Aggrieved, Reyes filed a motion for reconsideration, and in a Resolution4 dated July 20, 2006, the said motion was granted. The decretal text of the resolution reads:

Finding the grounds relied upon in the motion to be meritorious and in the interest of justice, our Resolution of June 1, 2006 is hereby RECONSIDERED and SET ASIDE. Accordingly, the petition for review filed by respondent-appellant Josefa Reyes is hereby given due course and will be reviewed on the merits and the corresponding resolution will be issued in due time.

SO ORDERED.

On September 22, 2006, Secretary of Justice Raul Gonzalez issued a Resolution5 granting the petition for review of Reyes, the fallo of which reads:

WHEREFORE, the assailed resolution is hereby REVERSED and SET ASIDE. The City Prosecutor of Makati City is directed to cause the withdrawal of the information for estafa filed in court against respondent Josefa "Jing" C. Reyes and to report the action taken within five (5) days from receipt hereof.

SO ORDERED.6

Petitioner filed a motion for reconsideration, but was denied by the Secretary of Justice in a Resolution dated December 14, 2006. Eventually, petitioner filed a petition for certiorari under

Rule 65 of the Rules of Court with the CA. The latter, however, affirmed the questioned Resolutions of the Secretary of Justice. The dispositive portion of the Decision dated September 14, 2007 reads:

WHEREFORE, premises considered, the assailed Resolutions, dated 22 September 2006 and 14 December 2006[,] both rendered by public respondent Secretary of Justice, are hereby AFFIRMED in toto.

SO ORDERED.7

Its motion for reconsideration having been denied by the CA in a Resolution dated December 20, 2007, petitioner filed the present petition and the following are the assigned errors:

I

THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT THE DOJ SECRETARY, RAUL GONZALEZ, CAPRICIOUSLY, ARBITRARILY AND WHIMSICALLY DISREGARDED THE EVIDENCE ON RECORD SHOWING THE [EXISTENCE] OF PROBABLE CAUSE AGAINST PRIVATE RESPONDENT FOR ESTAFA UNDER ARTICLE 315 1(b) OF THE REVISED PENAL CODE.

II

THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT FINDING BUT INSTEAD CONCURRED IN WITH THE DOJ SECRETARY, RAUL GONZALEZ, WHO BY GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION HELD THAT NOT ALL OF THE ELEMENTS OF ESTAFA UNDER ARTICLE 315 1 (b), PARTICULARLY THE ELEMENT OF MISAPPROPRIATION, WERE NOT SUFFICIENTLY ESTABLISHED IN THIS CASE.

III

THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT THE DOJ SECRETARY, RAUL GONZALEZ, ACTED WITH GRAVE ABUSE OF DISCRETION IN ACCEPTING AS TRUTH WHAT WERE MATTERS OF DEFENSE BY PRIVATE RESPONDENT IN HER COUNTER-AFFIDAVIT WHICH SHOULD HAVE BEEN PROVEN AT THE TRIAL ON THE MERITS.8

The petition is meritorious.

It is not disputed that decisions or resolutions of prosecutors are subject to appeal to the Secretary of Justice who, under the Revised Administrative Code,9 exercises the power of direct control and supervision over said prosecutors; and who may thus affirm, nullify, reverse or modify their rulings. Review as an act of supervision and control by the justice secretary over the fiscals and prosecutors finds basis in the doctrine of exhaustion of administrative remedies which

holds that mistakes, abuses or negligence committed in the initial steps of an administrative activity or by an administrative agency should be corrected by higher administrative authorities, and not directly by courts.10

In the present case, after review and reconsideration, the Secretary of Justice reversed the investigating prosecutor's finding of probable cause that all the elements of the crime of estafa are present. Estafa, under Article 315 (1) (b) of the Revised Penal Code, is committed by –

ART. 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned hereinbelow:

x x x x

1. With unfaithfulness or abuse of confidence, namely:

(a) x x x

(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property; x x x

The elements are:

1) that money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same;

2) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt;

3) that such misappropriation or conversion or denial is to the prejudice of another; and

4) that there is demand made by the offended party on the offender.11

The essence of estafa under Article 315, par. 1 (b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words "convert" and "misappropriate" connote an act of using or disposing of another's property as if it were one's own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one's own use includes not only conversion to one's personal advantage, but also every attempt to dispose of the property of another without right.12

In reversing the finding of probable cause that the crime of estafa has been committed, the Secretary of Justice reasoned out that, [the] theory of conversion or misappropriation is difficult to sustain and that under the crime of estafa with grave abuse of confidence, the presumption is

that the thing has been devoted to a purpose or is different from that for which it was intended but did not take place in this case.1âwphi1 The CA, in sustaining the questioned resolutions of the Secretary of Justice, ruled that the element of misappropriation or conversion is wanting. It further ratiocinated that the demand for the return of the thing delivered in trust and the failure of the accused to account for it, are circumstantial evidence of misappropriation, however, the said presumption is rebuttable and if the accused is able to satisfactorily explain his failure to produce the thing delivered in trust, he may not be held liable for estafa.1âwphi1

It must be remembered that the finding of probable cause was made after conducting a preliminary investigation. A preliminary investigation constitutes a realistic judicial appraisal of the merits of a case.13 Its purpose is to determine whether (a) a crime has been committed; and (b) whether there is a probable cause to believe that the accused is guilty thereof.14

This Court need not overemphasize that in a preliminary investigation, the public prosecutor merely determines whether there is probable cause or sufficient ground to engender a well-founded belief that a crime has been committed, and that the respondent is probably guilty thereof and should be held for trial. It does not call for the application of rules and standards of proof that a judgment of conviction requires after trial on the merits.15 The complainant need not present at this stage proof beyond reasonable doubt.16 A preliminary investigation does not require a full and exhaustive presentation of the parties' evidence.17 Precisely, there is a trial to allow the reception of evidence for both parties to substantiate their respective claims.18

A review of the records would show that the investigating prosecutor was correct in finding the existence of all the elements of the crime of estafa. Reyes did not dispute that she received in trust the amount of P23,423,327.50 from petitioner as proven by the checks and vouchers to be used in purchasing the parcels of land. Petitioner wrote a demand letter for Reyes to return the same amount but was not heeded. Hence, the failure of Reyes to deliver the titles or to return the entrusted money, despite demand and the duty to do so, constituted prima facie evidence of misappropriation. The words convert and misappropriate connote the act of using or disposing of another's property as if it were one's own, or of devoting it to a purpose or use different from that agreed upon.19 To misappropriate for one's own use includes not only conversion to one's personal advantage, but also every attempt to dispose of the property of another without right.20 In proving the element of conversion or misappropriation, a legal presumption of misappropriation arises when the accused fails to deliver the proceeds of the sale or to return the items to be sold and fails to give an account of their whereabouts.21 Thus, the mere presumption of misappropriation or conversion is enough to conclude that a probable cause exists for the indictment of Reyes for Estafa. As to whether the presumption can be rebutted by Reyes is already a matter of defense that can be best presented or offered during a full-blown trial.

To reiterate, probable cause has been defined as the existence of such facts and circumstances as would excite the belief in a reasonable mind, acting on the facts within the knowledge of the prosecutor, that the person charged was guilty of the crime for which he was prosecuted.22 Probable cause is a reasonable ground of presumption that a matter is, or may be, well founded on such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe, or entertain an honest or strong suspicion, that a thing is so.23 The term does not mean "actual or positive cause" nor does it import absolute certainty.24 It is

merely based on opinion and reasonable belief.25 Thus, a finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction.26 It is enough that it is believed that the act or omission complained of constitutes the offense charged.27

WHEREFORE, premises considered, the present Petition is hereby GRANTED and, accordingly, the Decision and Resolution of the Court of Appeals, dated September 14, 2007 and December 20, 2007, respectively, are hereby REVERSED and SET ASIDE. Consequently, the Regional Trial Court, Branch 149, Makati City, where the Information was filed against private respondent Josefa "Jing" C. Reyes, is hereby DIRECTED to proceed with her arraignment.

SO ORDERED.

G.R. No. 180784               February 15, 2012

INSURANCE COMPANY OF NORTH AMERICA, Petitioner, vs.ASIAN TERMINALs, INC., Respondent.

D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari1 of the Decision of the Regional Trial Court (RTC) of Makati City, Branch 138 (trial court) in Civil Case No. 05-809 and its Order dated December 4, 2007 on the ground that the trial court committed reversible error of law.

The trial court dismissed petitioner’s complaint for actual damages on the ground of prescription under the Carriage of Goods by Sea Act (COGSA).

The facts are as follows:

On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, through M/V "DIMI P" vessel, one hundred eighty-five (185) packages (231,000 sheets) of electrolytic tin free steel, complete and in good order condition and covered by Bill of Lading No. POBUPOHMAN20638.2 The shipment had a declared value of US$169,850.353 and was insured with petitioner Insurance Company of North America against all risks under Marine Policy No. MOPA-06310.4

The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment was discharged therefrom, it was noted that seven (7) packages thereof were damaged and in bad order.5 The shipment was then turned over to the custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for storage and safekeeping pending its withdrawal by the consignee's authorized customs broker, R.V. Marzan Brokerage Corp. (Marzan).

On November 22, 23 and 29, 2002, the subject shipment was withdrawn by Marzan from the custody of respondent. On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was conducted per the Request for Bad Order Survey6 dated November 29, 2002, and the examination report, which was written on the same request, showed that an additional five (5) packages were found to be damaged and in bad order.

On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims7 against respondent and petitioner for the damage to 11,200 sheets of electrolytic tin free steel.

Petitioner engaged the services of an independent adjuster/surveyor, BA McLarens Phils., Inc., to conduct an investigation and evaluation on the claim and to prepare the necessary report.8 BA McLarens Phils., Inc. submitted to petitioner an Survey Report9 dated January 22, 2003 and another report10 dated May 5, 2003 regarding the damaged shipment. It noted that out of the reported twelve (12) damaged skids, nine (9) of them were rejected and three (3) skids were

accepted by the consignee’s representative as good order. BA McLarens Phils., Inc. evaluated the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic tin free steel) to be P431,592.14.

The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for the damage caused to the shipment, as evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally demanded reparation against respondent. As respondent failed to satisfy its demand, petitioner filed an action for damages with the RTC of Makati City.

The trial court found, thus:

The Court finds that the subject shipment indeed suffered additional damages. The Request for Bad Order Survey No. 56422 shows that prior to the turn over of the shipment from the custody of ATI to the consignee, aside from the seven (7) packages which were already damaged upon arrival at the port of Manila, five (5) more packages were found with "dent, cut and crumple" while in the custody of ATI. This document was issued by ATI and was jointly executed by the representatives of ATI, consignee and customs, and the Shed Supervisor. Thus, ATI is now estopped from claiming that there was no additional damage suffered by the shipment. It is, therefore, only logical to conclude that the damage was caused solely by the negligence of defendant ATI. This evidence of the plaintiff was refuted by the defendant by merely alleging that "the damage to the 5 Tin Plates is only in its external packaging." However, the fact remains that the consignee has rejected the same as total loss for not being suitable for their intended purpose. In addition, the photographs presented by the plaintiff show that the shipment also suffered severe dents and some packages were even critically crumpled.11

As to the extent of liability, ATI invoked the Contract for Cargo Handling Services executed between the Philippine Ports Authority and Marina Ports Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability for damage to cargoes in its custody is limited to P5,000.00 for each package, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing, together with the declared Bill of Lading value and supported by a certified packing list to the contractor by the interested party or parties before the discharge or lading unto vessel of the goods.

The trial court found that there was compliance by the shipper and consignee with the above requirement. The Bill of Lading, together with the corresponding invoice and packing list, was shown to ATI prior to the discharge of the goods from the vessel. Since the shipment was released from the custody of ATI, the trial court found that the same was declared for tax purposes as well as for the assessment of arrastre charges and other fees. For the purpose, the presentation of the invoice, packing list and other shipping documents to ATI for the proper assessment of the arrastre charges and other fees satisfied the condition of declaration of the actual invoices of the value of the goods to overcome the limitation of liability of the arrastre operator.12

Further, the trial court found that there was a valid subrogation between the petitioner and the assured/consignee San Miguel Corporation. The respondent admitted the existence of Global Marine Policy No. MOPA-06310 with San Miguel Corporation and Marine Risk Note No.

3445,13 which showed that the cargo was indeed insured with petitioner. The trial court held that petitioner’s claim is compensable because the Subrogation Receipt,16 which was admitted as to its existence by respondent, was sufficient to establish not only the relationship of the insurer and the assured, but also the amount paid to settle the insurance claim.14

However, the trial court dismissed the complaint on the ground that the petitioner’s claim was already barred by the statute of limitations. It held that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since the goods were shipped from a foreign port to the Philippines. The trial court stated that under the said law, particularly paragraph 4, Section 3 (6)15

thereof, the shipper has the right to bring a suit within one year after the delivery of the goods or the date when the goods should have been delivered, in respect of loss or damage thereto.

The trial court held:

In the case at bar, the records show that the shipment was delivered to the consignee on 22, 23 and 29 of November 2002. The plaintiff took almost a year to approve and pay the claim of its assured, San Miguel, despite the fact that it had initially received the latter's claim as well as the inspection report and survey report of McLarens as early as January 2003. The assured/consignee had only until November of 2003 within which to file a suit against the defendant. However, the instant case was filed only on September 7, 2005 or almost three (3) years from the date the subject shipment was delivered to the consignee. The plaintiff, as insurer of the shipment which has paid the claim of the insured, is subrogated to all the rights of the said insured in relation to the reimbursement of such claim. As such, the plaintiff cannot acquire better rights than that of the insured. Thus, the plaintiff has no one but itself to blame for having acted lackadaisically on San Miguel's claim.

WHEREFORE, the complaint and counterclaim are hereby DISMISSED.16

Petitioner’s motion for reconsideration was denied by the trial court in the Order17 dated December 4, 2007.

Petitioner filed this petition under Rule 45 of the Rules of Court directly before this Court, alleging that it is raising a pure question of law:

THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA) TO AN ARRASTRE OPERATOR.18

Petitioner states that while it is in full accord with the trial court in finding respondent liable for the damaged shipment, it submits that the trial court’s dismissal of the complaint on the ground of prescription under the COGSA is legally erroneous. It contends that the one-year limitation period for bringing a suit in court under the COGSA is not applicable to this case, because the prescriptive period applies only to the carrier and the ship. It argues that respondent, which is engaged in warehousing, arrastre and stevedoring business, is not a carrier as defined by the COGSA, because it is not engaged in the business of transportation of goods by sea in international trade as a common carrier. Petitioner asserts that since the complaint was filed

against respondent arrastre operator only, without impleading the carrier, the prescriptive period under the COGSA is not applicable to this case.

Moreover, petitioner contends that the term "carriage of goods" in the COGSA covers the period from the time the goods are loaded to the vessel to the time they are discharged therefrom. It points out that it sued respondent only for the additional five (5) packages of the subject shipment that were found damaged while in respondent’s custody, long after the shipment was discharged from the vessel. The said damage was confirmed by the trial court and proved by the Request for Bad Order Survey No. 56422.19

Petitioner prays that the decision of the trial court be reversed and set aside and a new judgment be promulgated granting its prayer for actual damages.

The main issues are: (1) whether or not the one-year prescriptive period for filing a suit under the COGSA applies to this action for damages against respondent arrastre operator; and (2) whether or not petitioner is entitled to recover actual damages in the amount of P431,592.14 from respondent.

To reiterate, petitioner came straight to this Court to appeal from the decision of the trial court under Rule 45 of the Rules of Court on the ground that it is raising only a question of law.

Microsoft Corporation v. Maxicorp, Inc.20 explains the difference between questions of law and questions of fact, thus:

The distinction between questions of law and questions of fact is settled. A question of law exists when the doubt or difference centers on what the law is on a certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged facts. Though this delineation seems simple, determining the true nature and extent of the distinction is sometimes problematic. For example, it is incorrect to presume that all cases where the facts are not in dispute automatically involve purely questions of law.

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to each other, the issue in that query is factual. x x x21

In this case, although petitioner alleged that it is merely raising a question of law, that is, whether or not the prescriptive period under the COGSA applies to an action for damages against respondent arrastre operator, yet petitioner prays for the reversal of the decision of the trial court and that it be granted the relief sought, which is the award of actual damages in the amount of P431,592.14. For a question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of them.22 However, to resolve the issue of whether or not petitioner is entitled to recover actual damages from respondent requires the Court to evaluate the evidence on record; hence, petitioner is also raising a question of fact.

Under Section 1, Rule 45, providing for appeals by certiorari before the Supreme Court, it is clearly enunciated that only questions of law may be set forth.23 The Court may resolve questions of fact only when the case falls under the following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.24

In this case, the fourth exception cited above applies, as the trial court rendered judgment based on a misapprehension of facts.

We first resolve the issue on whether or not the one-year prescriptive period for filing a suit under the COGSA applies to respondent arrastre operator.

The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74th US Congress, was accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by virtue of CA No. 65.

Section 1 of CA No. 65 states:

Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application.

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus:

Section 1. When used in this Act -

(a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper.

(b) The term "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or

similar document of title regulates the relations between a carrier and a holder of the same.

(c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.

(d) The term "ship" means any vessel used for the carriage of goods by sea.

(e) The term "carriage of goods" covers the period from the time when the goods are loaded to the time when they are discharged from the ship.25

It is noted that the term "carriage of goods" covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.

The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph (6), Section 3, thus:

6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.

Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered.26

From the provision above, the carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered. It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period.27 However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.

Respondent arrastre operator’s responsibility and liability for losses and damages are set forth in Section 7.01 of the Contract for Cargo Handling Services executed between the Philippine Ports Authority and Marina Ports Services, Inc. (now Asian Terminals, Inc.), thus:

Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions - The CONTRACTOR shall, at its own expense, handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods. This amount of Five Thousand Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time. The CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the weight nor for any loss, injury or damage to the said cargo before or while the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or other causes beyond the CONTRACTOR's control or capacity to prevent or remedy; PROVIDED, that a formal claim together with the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of non-delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly authorized representative or any interested party, said certification shall be deemed to have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED, finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to the consignee.28

Based on the Contract above, the consignee has a period of thirty (30) days from the date of delivery of the package to the consignee within which to request a certificate of loss from the arrastre operator. From the date of the request for a certificate of loss, the arrastre operator has a period of fifteen (15) days within which to issue a certificate of non-delivery/loss either actually or constructively. Moreover, from the date of issuance of a certificate of non-delivery/loss, the consignee has fifteen (15) days within which to file a formal claim covering the loss, injury, damage or non-delivery of such goods with all accompanying documentation against the arrastre operator.

Petitioner clarified that it sued respondent only for the additional five (5) packages of the subject shipment that were found damaged while in respondent’s custody, which fact of damage was sustained by the trial court and proved by the Request for Bad Order Survey No. 56422.29

Petitioner pointed out the importance of the Request for Bad Order Survey by citing New Zealand Insurance Company Limited v. Navarro.30 In the said case, the Court ruled that the

request for, and the result of, the bad order examination, which were filed and done within fifteen days from the haulage of the goods from the vessel, served the purpose of a claim, which is to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available. Hence, even if the consignee therein filed a formal claim beyond the stipulated period of 15 days, the arrastre operator was not relieved of liability as the purpose of a formal claim had already been satisfied by the consignee’s timely request for the bad order examination of the goods shipped and the result of the said bad order examination.

To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:

We took special note of the above pronouncement six (6) years later in Fireman’s Fund Insurance Co. v. Manila Port Service Co., et al. There, fifteen (15) cases of nylon merchandise had been discharged from the carrying vessel and received by defendant Manila Port Service Co., the arrastre operator, on 7 July 1961. Out of those fifteen (15) cases, however, only twelve (12) had been delivered to the consignee in good condition. Consequently, on 20 July 1961, the consignee's broker requested a bad order examination of the shipment, which was later certified by defendant's own inspector to be short of three (3) cases. On 15 August 1961, a formal claim for indemnity was then filed by the consignee, who was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the insurer of the goods. Defendant, however, refused to honor the claim, arguing that the same had not been filed within fifteen (15) days from the date of discharge of the shipment from the carrying vessel, as required under the arrastre Management Contract then in force between itself and the Bureau of Customs. The trial court upheld this argument and hence dismissed the complaint. On appeal by the consignee, this Court, speaking through Mr. Justice J.B.L. Reyes, reversed the trial court and found the defendant arrastre operator liable for the value of the lost cargo, explaining as follows:

"However, the trial court has overlooked the significance of the request for, and the result of, the bad order examination, which were filed and done within fifteen days from the haulage of the goods from the vessel. Said request and result, in effect, served the purpose of a claim, which is –

‘to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and documents are still available.’ (Consunji vs. Manila Port Service, L-15551, 29 November 1960)

Indeed, the examination undertaken by the defendant's own inspector not only gave the defendant an opportunity to check the goods but is itself a verification of its own liability x x x.

In other words, what the Court considered as the crucial factor in declaring the defendant arrastre operator liable for the loss occasioned, in the Fireman's Fund case, was the fact that defendant, by virtue of the consignee's request for a bad order examination, had been able formally to verify the existence and extent of its liability within fifteen (15) days from the date of discharge of the shipment from the carrying vessel -- i.e., within the same period stipulated under the Management Contract for the consignee to file a formal claim. That a formal claim had been

filed by the consignee beyond the stipulated period of fifteen (15) days neither relieved defendant of liability nor excused payment thereof, the purpose of a formal claim, as contemplated in Consunji, having already been fully served and satisfied by the consignee's timely request for, and the eventual result of, the bad order examination of the nylon merchandise shipped.

Relating the doctrine of Fireman's Fund to the case at bar, the record shows that delivery to the warehouse of consignee Monterey Farms Corporation of the 5,974 bags of soybean meal, had been completed by respondent Razon (arrastre operator) on 9 July 1974. On that same day, a bad order examination of the goods delivered was requested by the consignee and was, in fact, conducted by respondent Razon's own inspector, in the presence of representatives of both the Bureau of Customs and the consignee. The ensuing bad order examination report — what the trial court considered a "certificate of loss" — confirmed that out of the 5,974 bags of soybean meal loaded on board the M/S "Zamboanga" and shipped to Manila, 173 bags had been damaged in transitu while an additional 111 bags had been damaged after the entire shipment had been discharged from the vessel and placed in the custody of respondent Razon. Hence, as early as 9 July 1974 (the date of last delivery to the consignee's warehouse), respondent Razon had been able to verify and ascertain for itself not only the existence of its liability to the consignee but, more significantly, the exact amount thereof - i.e., P5,746.61, representing the value of 111 bags of soybean meal. We note further that such verification and ascertainment of liability on the part of respondent Razon, had been accomplished "within thirty (30) days from the date of delivery of last package to the consignee, broker or importer" as well as "within fifteen (15) days from the date of issuance by the Contractor [respondent Razon] of a certificate of loss, damage or injury or certificate of non-delivery" — the periods prescribed under Article VI, Section 1 of the Management Contract here involved, within which a request for certificate of loss and a formal claim, respectively, must be filed by the consignee or his agent. Evidently, therefore, the rule laid down by the Court in Fireman's Fund finds appropriate application in the case at bar.31

In this case, the records show that the goods were deposited with the arrastre operator on November 21, 2002. The goods were withdrawn from the arrastre operator on November 22, 23 and 29, 2002. Prior to the withdrawal on November 29, 2002, the broker of the importer, Marzan, requested for a bad order survey in the presence of a Customs representative and other parties concerned. The joint inspection of cargo was conducted and it was found that an additional five (5) packages were found in bad order as evidenced by the document entitled Request for Bad Order Survey32 dated November 29, 2002, which document also contained the examination report, signed by the Custom’s representative, Supervisor/Superintendent, consignee’s representative, and the ATI Inspector.

Thus, as early as November 29, 2002, the date of the last withdrawal of the goods from the arrastre operator, respondent ATI was able to verify that five (5) packages of the shipment were in bad order while in its custody. The certificate of non-delivery referred to in the Contract is similar to or identical with the examination report on the request for bad order survey.33 Like in the case of New Zealand Insurance Company Ltd. v. Navarro, the verification and ascertainment of liability by respondent ATI had been accomplished within thirty (30) days from the date of delivery of the package to the consignee and within fifteen (15) days from the date of issuance by the Contractor (respondent ATI) of the examination report on the request for bad order

survey. Although the formal claim was filed beyond the 15-day period from the issuance of the examination report on the request for bad order survey, the purpose of the time limitations for the filing of claims had already been fully satisfied by the request of the consignee’s broker for a bad order survey and by the examination report of the arrastre operator on the result thereof, as the arrastre operator had become aware of and had verified the facts giving rise to its liability.34 Hence, the arrastre operator suffered no prejudice by the lack of strict compliance with the 15-day limitation to file the formal complaint.35

The next factual issue is whether or not petitioner is entitled to actual damages in the amount of P431,592.14. The payment of the said amount by petitioner to the assured/consignee was based on the Evaluation Report36 of BA McLarens Phils., Inc., thus:

x x x x

CIRCUMSTANCES OF LOSS

As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish arrived Manila via Ocean Vessel, M/V "DIMI P" V-075 on November 9, 2002 and subsequently docked alongside Pier No. 9, South Harbor, Manila. The cargo of Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7) skids noted in bad order condition by the vessel’[s] representative. These skids were identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784, 2HD803763, 2HD803765 and 2HD803783 and covered with Bad Order Tally Receipts No. 3709, 3707, 3703 and 3704. Thereafter, the same were stored inside the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the consignee’s warehouse.

On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier by the consignee authorized broker, R. V. Marzan Brokerage Corp. and the same was delivered to the consignee’s final warehouse located at Silangan, Canlubang, Laguna complete with twelve (12) skids in bad order condition.

VISUAL INSPECTION

We conducted an ocular inspection on the reported damaged Electrolytic Tin Free Steel, Matte Finish at the consignee’s warehouse located at Brgy. Silangan, Canlubang, Laguna and noted that out of the reported twelve (12) damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignee’s representative as complete and without exceptions.

x x x x

EVALUATION OF INDEMNITY

We evaluated the loss/damage sustained by the subject shipments and arrived as follows:

PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETSNET WT. PER

PACKING LIST

2HD803763Electrolytic Tin Free

Steel JISG33151,200 1,908

2HD803783 -do- 1,200 1,908

2HD803784 -do- 1,200 1,908

2HD804460 -do- 1,400 1,698

2HD803765 -do- 1,200 1,908

2HD804522 -do- 1,200 1,987

2HD804461 -do- 1,400 1,698

2HD804540 -do- 1,200 1,987

2HD804549 -do- 1,200 1,987

9 SKIDS TOTAL 11,200 16,989 kgs.

P9,878,547.58-------------------

231,000= 42.7643 x 11,200 P478,959.88

Less: Deductible 0.50% based on sum insured 49,392.74

Total P429,567.14

Add: Surveyor’s Fee 2,025.00

Sub-Total P431,592.14

Note: Above evaluation is Assured’s tentative liability as the salvage proceeds on the damaged stocks has yet to be determined.

RECOVERY ASPECT

Prospect of recovery would be feasible against the shipping company and the Arrastre operator considering the copies of Bad Order Tally Receipts and Bad Order Certificate issued by the subject parties.37

To clarify, based on the Evaluation Report, seven (7) skids were damaged upon arrival of the vessel per the Bad Order Cargo Receipts38 issued by the shipping company, and an additional five (5) skids were damaged in the custody of the arrastre operator per the Bad Order Certificate/Examination Report39 issued by the arrastre contractor. The Evaluation Report states that out of the reported twelve damaged skids, only nine were rejected, and three were accepted as good order by the consignee’s representative. Out of the nine skids that were rejected, five skids were damaged upon arrival of the vessel as shown by the product numbers in the Evaluation Report, which product numbers matched those in the Bad Order Cargo Receipts40 issued by the shipping company. It can then be safely inferred that the four remaining rejected

skids were damaged in the custody of the arrastre operator, as the Bad Order Certificate/Examination Report did not indicate the product numbers thereof.

Hence, it should be pointed out that the Evaluation Report shows that the claim for actual damages in the amount of P431,592.14 covers five (5)41 out of the seven (7) skids that were found to be damaged upon arrival of the vessel and covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707 and 3709,42 which claim should have been filed with the shipping company. Petitioner must have realized that the claim for the said five (5) skids was already barred under COGSA; hence, petitioner filed the claim for actual damages only against respondent arrastre operator.

As regards the four (4) skids that were damaged in the custody of the arrastre operator, petitioner is still entitled to recover from respondent.1awp++i1 The Court has ruled that the Request for Bad Order Survey and the examination report on the said request satisfied the purpose of a formal claim, as respondent was made aware of and was able to verify that five (5) skids were damaged or in bad order while in its custody before the last withdrawal of the shipment on November 29, 2002. Hence, even if the formal claim was filed beyond the 15-day period stipulated in the Contract, respondent was not prejudiced thereby, since it already knew of the number of skids damaged in its possession per the examination report on the request for bad order survey.

Remand of the case to the trial court for the determination of the liability of respondent to petitioner is not necessary as the Court can resolve the same based on the records before it.43 The Court notes that petitioner, who filed this action for damages for the five (5) skids that were damaged while in the custody of respondent, was not forthright in its claim, as it knew that the damages it sought in the amount of P431,592.14, which was based on the Evaluation Report of its adjuster/surveyor, BA McLarens Phils., Inc., covered nine (9) skids. Based on the same Evaluation Report, only four of the nine skids were damaged in the custody of respondent. Petitioner should have been straightforward about its exact claim, which is borne out by the evidence on record, as petitioner can be granted only the amount of damages that is due to it.

Based on the Evaluation Report44 of BA McLarens Phils., Inc., dated May 5, 2003, the four (4) skids damaged while in the custody of the arrastre operator and the amount of actual damages therefore are as follows:

PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETSNET WT. PER

PACKING LIST

2HD804522Electrolytic Tin Free

Steel JISG33151,200 1,987

2HD804461 -do- 1,400 1,698

2HD804540 -do- 1,200 1,987

2HD804549 -do- 1,200 1,987

4 SKIDS TOTAL 5,000

P9,878,547.58 (Insured value)45

----------------------------------------------231,000 (Total number of sheets)

= 42.7643 x 5,000 P213,821.50

Less: Deductible 0.50% based on sum insured46 49,392.74

Total P164,428.76

In view of the foregoing, petitioner is entitled to actual damages in the amount of P164,428.76 for the four (4) skids damaged while in the custody of respondent.1âwphi1

WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of Makati City, Branch 138, dated October 17, 2006, in Civil Case No. 05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner Insurance Company of North America actual damages in the amount of One Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be imposed on the amount of actual damages from the date the award becomes final and executory until its full satisfaction.

Costs against petitioner.

SO ORDERED.

A.M. No. P-12-3080               August 29, 2012 (Formerly OCA I.P.I. No. 10-3543-P)

JUDGE ARMANDO S. ADLAWAN, Presiding Judge, 6th Municipal Circuit Trial Court, Bonifacio-Don Mariano Marcos, Misamis Occidental, Complainant, vs.ESTRELLA P. CAPILITAN, Court Stenographer, 6th Municipal Circuit Trial Court, Bonifacio-Don Mariano Marcos, Misamis Occidental, Respondent.

D E C I S I O N

PERALTA, J.:

Before this Court is a Letter-Complaint1 filed by Judge Armando S. Adlawan, Presiding Judge, 6th Municipal Circuit Trial Court (MCTC), Bonifacio-Don Mariano Marcos, Misamis Occidental against Estrella P. Capilitan, Stenographer of the same court for Violation of the Code of Conduct and Ethical Standards for Public Officials and Employees.

In his letter, Judge Adlawan stated that respondent Estrella Capilitan was appointed Court Stenographer on February 4, 2008 on account of his recommendation. Respondent was previously married to a Muslim under Muslim laws and the relationship bore two (2) children. She is now single-handedly raising her kids after being separated from her husband.

Complainant recounted that respondent was simple, innocent, soft-spoken, modest, diligent in work and was well-liked. Hence, he and the rest of his staff were surprised when respondent announced to them that she was four (4) months pregnant by a married man. As respondent narrated, in February 2010, she met her former high school classmate who represented himself as separated from his wife. She claimed to have given in to temptation. Later on, respondent alleged that the man became elusive when she told him about her pregnancy. Complainant judge noted that respondent was apologetic and acknowledged her mistake.

Complainant averred that while he understands the present condition of respondent, he, however felt duty-bound to report the matter to the court. Being pregnant outside of marriage, respondent had breached the ethical standards in the Judiciary, thus, is administratively liable.

On November 17, 2010, the Office of the Court Administrator (OCA), directed respondent to comment on the complaint against her.2

In her letter3 dated December 30, 2010, respondent opted not to further explain her predicament as she admitted that the statements of complainant-judge in his letter sprung from her own admission. She claimed that she is ready to face the consequences of her action, but prayed for compassion and that the lightest penalty be imposed on her considering that she is single-handedly supporting her children.

In a Memorandum4 dated May 24, 2011, the OCA recommended that the instant complaint against respondent Capilitan be referred to the Executive Judge for investigation, report and recommendation, to give them ample basis to resolve the complaint, considering that the charge of immorality is a serious offense.

On August 8, 2011, the Court referred this case to Executive Judge Elenita M. Arabejo, Regional Trial Court, Tangub City, for investigation, report and recommendation.

During the investigation, respondent refused to further explain and give more information regarding her circumstances. She, however, admitted and confirmed anew the truth of the statements which complainant made regarding her condition.

With respondent's admission of the fact that she was impregnated by a man married to another woman, the Investigating Judge concluded that respondent indeed engaged in extra-marital affairs and committed immoral conduct that is unbecoming of a court employee. Thus, the Investigating Judge recommended that the penalty of suspension for a period of six (6) months and one (1) day be imposed upon respondent.5

On the basis of the findings and recommendation of the Investigating Judge, the OCA, in its Memorandum dated March 29, 2012, recommended that the instant administrative complaint be re-docketed as a regular administrative matter and that respondent be meted the penalty of suspension for a period of six (6) months and one (1) day without pay for being guilty of Immorality.

We adopt the findings and recommendation of the Investigating Judge and the OCA.

Immorality has been defined to include not only sexual matters but also "conduct inconsistent with rectitude, or indicative of corruption, indecency, depravity, and dissoluteness; or is willful, flagrant or shameless conduct showing moral indifference to opinions of respectable members of the community, and an inconsiderate attitude toward good order and public welfare."6

In the instant case, respondent has been informed of the charge against her and afforded the opportunity to respond thereto.1âwphi1 In all instances, respondent admitted the allegation that she is pregnant by a man married to another woman. Indeed, while she initially claimed that the man who impregnated her represented to be separated from his wife, the fact remains that the man is still married. Thus, there is no doubt that respondent engaged in sexual relations with a married man which not only violate the moral standards expected of employees of the Judiciary but is also a desecration of the sanctity of the institution of marriage.

The Code of Judicial Ethics mandates that the conduct of court personnel must be free from any whiff of impropriety, not only with respect to his duties in the judicial branch but also to his behavior outside the court as a private individual. There is no dichotomy of morality; a court employee is also judged by his private morals. The exacting standards of morality and decency have been strictly adhered to and laid down by the Court to those in the service of the Judiciary. Respondent, as a court stenographer, did not live up to her commitment to lead a moral life.7

Time and again, we have stressed adherence to the principle that public office is a public trust. The good of the service and the degree of morality, which every official and employee in the public service must observe, if respect and confidence are to be maintained by the Government in the enforcement of the law, demand that no untoward conduct affecting morality, integrity,

and efficiency while holding office should be left without proper and commensurate sanction, all attendant circumstances taken into account.8

Under the Revised Uniform Rules on Administrative Cases in the Civil Service, disgraceful and immoral conduct is punishable by suspension of six ( 6) months and one (1) day to one ( 1) year for the first offense. Considering that this is respondent's first offense, we deem it proper to impose the penalty of suspension in its minimum period to respondent.

WHEREFORE, this Court finds respondent ESTRELLA P. CAPILIT AN GUILTY of Disgraceful and Immoral Conduct and is hereby SUSPENDED from service for a period of six (6) months and one (1) day without pay, and WARNED that repetition of the same or similar offense will warrant the imposition of a more severe penalty.

SO ORDERED.

G.R. No. 198174               September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER, vs.ARSENIA SONIA CASTOR, RESPONDENT.

D E C I S I O N

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in the total sum of P630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

x x x x

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter as follows:

To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the amount is fully settled;

To pay attorney’s fees in the sum of P65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis.3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;

(b)

by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or elevator.

x x x x

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the insured is not an exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this case. This is evident from the very provision of Section III – "Loss or Damage." The insurance company, subject to the limits of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed by the driver of the insured, there being no categorical declaration of exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions are open to two interpretations, that which is most favorable to the insured is adopted." The defendant would argue that if the person employed by the insured would commit the theft and the insurer would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured himself, the same would be an exception to the coverage since in that case there would be fraud on the part of the insured or breach of material warranty under Section 69 of the Insurance Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given their meaning as understood in common speech.9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or injury to property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his family, and any person in the insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate between the terms "loss" and "damage" by using both terms throughout the said policy. x x x

x x x x

If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it should have used the term "damage" alone in the entire policy or otherwise included a clear definition of the said term as part of the provisions of the said insurance contract. Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by using the word "damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-appellant would like this Court to believe that it really intended the word "damage" in the term "malicious damage" to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company,11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.