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NPC v. PROVINCE OF QUEZON & MUNICIPALITY OF PAGBILAO 611 SCRA 71 NATIONAL POWER CORPORATION, Petitioner, G.R. No.

171586 Present: CARPIO MORALES, J., Acting Chairperson, LEONARDO-DE CASTRO, BRION, ABAD, and PEREZ, JJ.

versus -

PROVINCE OF QUEZON andMUNICIPALITY OF PAGBILAO, Respondent.

Promulgated:

January 25, 2010 x ------------------------------------------------------------------------------------------x

RESOLUTION

BRION, J.:

The petitioner National Power Corporation (Napocor) filed the present motion for reconsideration[1] of the Courts Decision of July 15, 2009, in which we denied Napocors claimed real property tax exemptions. For the resolution of the motion, we deem it proper to provide first a background of the case. BACKGROUND FACTS The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real property taxes in the amount of P1.5 Billion for the machineries located in its power plant in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT) Agreement (entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax assessment. Napocor (nota bene, not Mirant) protested the assessment before the Local Board of Assessment Appeals (LBAA), claiming entitlement to the tax exemptionsprovided under Section 234 of the Local Government Code (LGC), which states:

Section 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: xxxx (c) All machineries and equipment that are actually, directly, and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; xxxx (e) Machinery and equipment used for pollution control and environmental protection. xxxx Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled to certain tax privileges, namely: a. the lower assessment level of 10% under Section 218(d) of the LGC for government-owned and controlled corporations engaged in the generation andtransmission of electric power, instead of the 80% assessment level for commercial properties imposed in the assessment letter; and b. an allowance for depreciation of the subject machineries under Section 225 of the LGC. In the Courts Decision of July 15, 2009, we ruled that Napocor is not entitled to any of these claimed tax exemptions and privileges on the basis primarily of thedefective protest filed by the Napocor. We found that Napocor did not file a valid protest against the realty tax assessment because it did not possess the requisite legal standing. When a taxpayer fails to question the assessment before the LBAA, the assessment becomes final, executory, and demandable, precluding the taxpayer from questioning the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.[2] Under Section 226 of the LGC,[3] any owner or person having legal interest in the property may appeal an assessment for real property taxes to the LBAA. Since Section 250 adopts the same language in enumerating who may pay the tax, we equated those who are liable to pay the tax to the same entities who may protest the tax assessment. A person legally burdened with the obligation to pay for the tax imposed on the property has the legal interest in the property and the personality to protest the tax assessment.

To prove that it had legal interest in the taxed machineries, Napocor relied on:. 1. the stipulation in the BOT Agreement that authorized the transfer of ownership to Napocor after 25 years; 2. its authority to control and supervise the construction and operation of the power plant; and 3. its obligation to pay for all taxes that may be incurred, as provided in the BOT Agreement. Napocor posited that these indicated that Mirant only possessed naked title to the machineries. We denied the first argument by ruling that legal interest should be one that is actual and material, direct and immediate, not simply contingent or expectant. [4] We disproved Napocors claim of control and supervision under the second argument after reading the full terms of the BOT Agreement, which, contrary to Napocors claims, granted Mirant substantial power in the control and supervision of the power plants construction and operation.[5] For the third argument, we relied on the Courts rulings in Baguio v. Busuego[6] and Lim v. Manila.[7] In these cases, the Court essentially declared that contractual assumption of tax liability alone is insufficient to make one liable for taxes. The contractual assumption of tax liability must be supplemented by an interest that the party assuming the liability had on the property; the person from whom payment is sought must have also acquired the beneficial use of the property taxed. In other words, he must have the use and possession of the property an element that was missing in Napocors case. We further stated that the tax liability must be a liability that arises from law, which the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable only between the parties to the contract. In the present case, the Province of Quezon is a third party to the BOT Agreement and could thus not exact payment from Napocor without violating the principle of relativity of contracts.[8] Corollarily, for reasons of fairness, the local government units cannot be compelled to recognize the protest of a tax assessment from Napocor, an entity against whom it cannot enforce the tax liability. At any rate, even if the Court were to brush aside the issue of legal interest to protest, Napocor could still not successfully claim exemption under Section 234 (c) of the LGC because to be entitled to the exemption under that provision, there must be actual, direct, and exclusive use of machineries. Napocor failed to satisfy these requirements. THE MOTION FOR RECONSIDERATION

Although Napocor insists that it is entitled to the tax exemptions and privileges claimed, the primary issue for the Court to resolve, however, is to determinewhether Napocor has sufficient legal interest to protest the tax assessment because without the requisite interest, the tax assessment stands, and no claim of exemption or privilege can prevail. Section 226 of the LGC, as mentioned, limits the right to appeal the local assessors action to the owner or the person having legal interest in the property. Napocor posits that it is the beneficial owner of the subject machineries, with Mirant retaining merely a naked title to secure certain obligations. Thus, it argues that the BOT Agreement is a mere financing agreement and is similar to the arrangement authorized under Article 1503 of the Civil Code, which declares: Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. xxxx Pursuant to this arrangement, Mirants ownership over the subject machineries is merely a security interest, given only for the purpose of ensuring the performance of Napocors obligations. Napocor additionally contends that its contractual assumption liability (through the BOT Agreement) for all taxes vests it with sufficient legal interest because it is actually, directly, and materially affected by the assessment. While its motion for reconsideration was pending, Napocor filed a Motion to Refer the Case to the Court En Banc considering that the issues raised have far-reaching consequences in the power industry, the countrys economy and the daily lives of the Filipino people, and since

it involves the application of real property tax provision of the LGC against Napocor, an exempt government instrumentality.[9] Also, the Philippine Independent Power Producers Association, Inc. (PIPPA) filed a Motion for Leave to Intervene and a Motion for Reconsideration-in-Intervention. PIPPA is a non-stock corporation comprising of privately-owned power generating companies which includes TeaM Energy Corporation (TeaM Energy), successor of Mirant. PIPPA is claiming interest in the case since any decision here will affect the other members of PIPPA, all of which have executed similar BOT agreements with Napocor. THE COURTS RULING At the outset, we resolve to deny the referral of the case to the Court en banc. We do not find the reasons raised by Napocor meritorious enough to warrant the attention of the members of the Court en banc, as they are merely reiterations of the arguments it raised in the petition for review on certiorari that it earlier filed with the Court.[10] Who may appeal a real property tax assessment

Legal interest is defined as interest in property or a claim cognizable at law, equivalent to that of a legal owner who has legal title to the property.[11] Given this definition, Napocor is clearly not vested with the requisite interest to protest the tax assessment, as it is not an entity having the legal title over the machineries. It has absolutely no solid claim of ownership or even of use and possession of the machineries, as our July 15, 2009 Decision explained. A BOT agreement is not a mere financing arrangement. In Napocor v. CBAA[12] a case strikingly similar to the one before us, we discussed the nature of BOT agreements in the following manner: The underlying concept behind a BOT agreement is defined and described in the BOT law as follows: Build-operate-and-transfer A contractual arrangement whereby the project proponent undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges

not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end of the fixed term which shall not exceed fifty (50) years x x x x. Under this concept, it is the project proponent who constructs the project at its own cost and subsequently operates and manages it. The proponent secures the return on its investments from those using the projects facilities through appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon, the project proponent transfers the ownership of the facility to the government agency. Thus, the government is able to put up projects and provide immediate services without the burden of the heavy expenditures that a project start up requires. A reading of the provisions of the parties BOT Agreement shows that it fully conforms to this concept. By its express terms, BPPC has complete ownership both legal and beneficial of the project, including the machineries and equipment used, subject only to the transfer of these properties without cost to NAPOCOR after the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for the construction of the power plant, including the machineries and equipment needed for power generation; thereafter, it actually operated and still operates the power plant, uses its machineries and equipment, and receives payment for these activities and the electricity generated under a defined compensation scheme. Notably, BPPC as owner-user is responsible for any defect in the machineries and equipment. xxxx That some kind of financing arrangement is contemplated in the sense that the private sector proponent shall initially shoulder the heavy cost of constructing the projects buildings and structures and of purchasing the needed machineries and equipment is undeniable. The arrangement, however, goes beyond the simple provision of funds, since the private sector proponent not only constructs and buys the necessary assets to put up the project, but operates and manages it as well during an agreed period that would allow it to recover its basic costs and earn profits. In other words, the private sector proponent goes into business for itself, assuming risks and incurring costs for its account. If it receives support from the government at all during the agreed period, these are pre-agreed items of assistance geared to ensure that the BOT agreements

objectives both for the project proponent and for the government are achieved. In this sense, a BOT arrangement is sui generis and is different from the usual financing arrangements where funds are advanced to a borrower who uses the funds to establish a project that it owns, subject only to a collateral security arrangement to guard against the nonpayment of the loan. It is different, too, from an arrangement where a government agency borrows funds to put a project from a private sector-lender who is thereafter commissioned to run the project for the government agency. In the latter case, the government agency is the owner of the project from the beginning, and the lender-operator is merely its agent in running the project. If the BOT Agreement under consideration departs at all from the concept of a BOT project as defined by law, it is only in the way BPPCs cost recovery is achieved; instead of selling to facility users or to the general public at large, the generated electricity is purchased by NAPOCOR which then resells it to power distribution companies. This deviation, however, is dictated, more than anything else, by the structure and usages of the power industry and does not change the BOT nature of the transaction between the parties. Consistent with the BOT concept and as implemented, BPPC the ownermanager-operator of the project is the actual user of its machineries and equipment. BPPCs ownership and use of the machineries and equipment are actual, direct, and immediate, while NAPOCORs is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax exemption. Thus, the CTA committed no reversible error in denying NAPOCORs claim for tax exemption. [Emphasis supplied.]

Given the special nature of a BOT agreement as discussed in the cited case, we find Article 1503 inapplicable to define the contract between Napocor and Mirant, as it refers only to ordinary contracts of sale. We thus declared in Tatad v. Garcia[13] that under BOT agreements, the private corporations/investors are the owners of the facility or machinery concerned. Apparently, even Napocor and Mirant recognize this principle; Article 2.12 of their BOT Agreement provides that until the Transfer Date, *Mirant+ shall, directly or indirectly, own the Power Station and all the fixtures, fitting, machinery and equipment on the Site x x x. [Mirant] shall operate, manage, and maintain the Power Station for the purpose of converting fuel of Napocor into electricity. Moreover, if Napocor truly believed that it was the owner of the subject machineries, it should have complied with Sections 202 and 206 of the LGC which obligates owners of real property to:

a.

file a sworn statement declaring the true value of the real property, whether taxable or exempt;[14] and

b.

file sufficient documentary evidence supporting its claim for tax exemption. [15]

While a real property owners failure to comply with Sections 202 and 206 does not necessarily negate its tax obligation nor invalidate its legitimate claim for tax exemption, Napocors omission to do so in this case can be construed as contradictory to its claim of ownership of the subject machineries. That it assumed liability for the taxes that may be imposed on the subject machineries similarly does not clothe it with legal title over the same. We do not believe that the phrase person having legal interest in the property in Section 226 of the LGC can include an entity that assumes another persons tax liability by contract. A review of the provisions of the LGC on real property taxation shows that the phrase has been repeatedly adopted and used to define an entity: a. b. c. d. e. f. g. h. i. in whose name the real property shall be listed, valued, and assessed;[16] who may be summoned by the local assessor to gather information on which to base the market value of the real property;[17] who may protest the tax assessment before the LBAA[18] and may appeal the latters decision to the CBAA;[19] who may be liable for the idle land tax,[20] as well as who may be exempt from the same;[21] who shall be notified of any proposed ordinance imposing a special levy, [22] as well as who may object the proposed ordinance;[23] who may pay the real property tax;[24] who is entitled to be notified of the warrant of levy and against whom it may be enforced;[25] who may stay the public auction upon payment of the delinquent tax, penalties and surcharge;[26] and who may redeem the property after it was sold at the public auction for delinquent taxes.[27]

For the Court to consider an entity assuming another persons tax liability by contract as a person having legal interest in the real property would extend to it the privileges and responsibilities enumerated above. The framers of the LGC certainly did not contemplate that the listing, valuation, and assessment of real property can be made in the name of such entity; nor did they intend to make the warrant of levy enforceable against it. Insofar as the provisions

of the LGC are concerned, this entity is a party foreign to the operation of real property tax laws and could not be clothed with any legal interest over the property apart from its assumed liability for tax. The rights and obligations arising from the BOT Agreement between Napocor and Mirant were of no legal interest to the tax collector the Province of Quezon which is charged with the performance of independent duties under the LGC.[28] Some authorities consider a person whose pecuniary interests is or may be adversely affected by the tax assessment as one who has legal interest in the property (hence, possessed of the requisite standing to protest it), citing Cooleys Law on Taxation. [29] The reference to this foreign material, however, is misplaced. The tax laws of the United States deem it sufficient that a persons pecuniary interests are affected by the tax assessment to consider him as a person aggrieved and who may thus avail of the judicial or administrative remedies against it. As opposed to our LGC, mere pecuniary interest is not sufficient; our law has required legal interest in the property taxed before any administrative or judicial remedy can be availed. The right to appeal a tax assessment is a purely statutory right; whether a person challenging an assessment bears such a relation to the real property being assessed as to entitle him the right to appeal is determined by the applicable statute in this case, our own LGC, not US federal or state tax laws. In light of our ruling above, PIPPAs motion to intervene and motion for reconsideration in-intervention is already mooted. PIPPA as an organization of independent power producers is not an interested party insofar as this case is concerned. Even if TeaM Energy, as Mirants successor, is included as one of its members, the motion to intervene and motion for reconsideration-in-intervention can no longer be entertained, as it amounts to a protest against the tax assessment that was filed without the complying with Section 252 of the LGC, a matter that we shall discuss below. Most importantly, our Decision has not touched or affected at all the contractual stipulations between Napocor and its BOT partners for the formers assumption of the tax liabilities of the latter. Payment under protest is required before an appeal to the LBAA can be made

Apart from Napocors failure to prove that it has sufficient legal interest, a further review of the records revealed another basis for disregarding Napocors protest against the assessment. The LBAA dismissed Napocors petition for exemption for its failure to comply with Section 252 of the LGC[30] requiring payment of the assailed tax before any protest can be

made. Although the CBAA ultimately dismissed Napocors appeal for failure to meet the requirements for tax exemption, it agreed with Napocors position that the protest contemplated in Section 252 (a) is applicable only when the taxpayer is questioning the reasonableness or excessiveness of an assessment. It presupposes that the taxpayer is subject to the tax but is disputing the correctness of the amount assessed. It does not apply where, as in this case, the legality of the assessment is put in issue on account of the taxpayers claim that it is exempt from tax. The CTA en banc agreed with the CBAAs discussion, relying mainly on the cases of Ty v. Trampe[31] and Olivarez v. Marquez.[32] We disagree. The cases of Ty and Olivarez must be placed in their proper perspective. The petitioner in Ty v. Trampe questioned before the trial court the increased real estate taxes imposed by and being collected in Pasig City effective from the year 1994, premised on the legal question of whether or not Presidential Decree No. 921 ( PD 921) was repealed by the LGC. PD 921 required that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein; while Section 212 of the LGC stated that the schedule shall be prepared by the provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the Sanggunian concerned. The private respondents assailed Tys act of filing a prohibition petition before the trial court contending that Ty should have availed first the administrative remedies provided in the LGC, particularly Sections 252 (on payment under protest before the local treasurer) and 226 (on appeals to the LBAA). The Court, through former Chief Justice Artemio Panganiban, declared that Ty correctly filed a petition for prohibition before the trial court against the assailed act of the city assessor and treasurer. The administrative protest proceedings provided in Section 252 and 226 will not apply. The protest contemplated under Section 252 is required where there is a question as to the reasonableness or correctness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. Ty however was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These were not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. Moreover, Ty was raising a legal question that is properly cognizable by the trial court; no issues of fact were involved. In enumerating the power of the LBAA, Section 229 declares that the proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts x x x. Appeals to the LBAA (under Section 226) are therefore fruitful only where questions of fact are involved.

Olivarez v. Marquez, on the other hand, involved a petition for certiorari, mandamus, and prohibition questioning the assessment and levy made by the City ofParaaque. Olivarez was seeking the annulment of his realty tax delinquency assessment. Marquez assailed Olivarez failure to first exhaust administrative remedies, particularly the requirement of payment under protest. Olivarez replied that his petition was filed to question the assessors authority to assess and collect realty taxes and therefore, as held in Ty v. Trampe, the exhaustion of administrative remedies was not required. The Court however did not agree with Olivarezs argument. It found that there was nothing in his petition that supported his claim regarding the assessors alleged lack of authority. What Olivarez raised were the following grounds: (1) some of the taxes being collected have already prescribed and may no longer be collected as provided in Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3) some properties being taxed are no longer existent; (4) some properties are exempt from taxation as they are being used exclusively for educational purposes; and (5) some errors are made in the assessment and collection of taxes due on petitioners properties, and that respondents committed grave abuse of discretion in making the improper, excessive and unlawful the collection of taxes against the petitioner. The Olivarez petition filed before the trial court primarily involved the correctness of the assessments, which is a question of fact that is not allowed in a petition for certiorari, prohibition, and mandamus. Hence, we declared that the petition should have been brought, at the very first instance, to the LBAA, not the trial court. Like Olivarez, Napocor, by claiming exemption from realty taxation, is simply raising a question of the correctness of the assessment. A claim for tax exemption, whether full or partial, does not question the authority of local assessor to assess real property tax. This may be inferred from Section 206 which states that: SEC. 206. Proof of Exemption of Real Property from Taxation. - Every person by or for whom real property is declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents. If the required evidence is not submitted within the period herein prescribed, the property shall be listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. [Emphasis provided]

By providing that real property not declared and proved as tax-exempt shall be included in the assessment roll, the above-quoted provision implies that the local assessor has the authority to assess the property for realty taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof has been adduced supporting the claim. Since Napocor was simply questioning the correctness of the assessment, it should have first complied with Section 252, particularly the requirement of payment under protest. Napocors failure to prove that this requirement has been complied with thus renders its administrative protest under Section 226 of the LGC without any effect. No protest shall be entertained unless the taxpayer first pays the tax. It was an ill-advised move for Napocor to directly file an appeal with the LBAA under Section 226 without first paying the tax as required under Section 252. Sections 252 and 226 provide successive administrative remedies to a taxpayer who questions the correctness of an assessment. Section 226, in declaring that any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city, or municipal assessor in the assessment of his propertymay x x x appeal to the Board of Assessment Appeals x x x, should be read in conjunction with Section 252 (d), which states that in the event that the protest is denied x x x, the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to Assessment Appeals, which includes Sections 226 to 231]. The action referred to in Section 226 (in relation to a protest of real property tax assessment) thus refers to the local assessors act of denying the protest filed pursuant to Section 252. Without the action of the local assessor, the appellate authority of the LBAA cannot be invoked. Napocors action before the LBAA was thus prematurely filed. For the foregoing reasons, we DENY the petitioners motion for reconsideration. SO ORDERED. NATIONAL POWER CORPORATION VS. PROVINCE OF QUEZON - REAL PROPERTY TAX FACTS: NPC is a GOCC that entered into an EnergyConversion Agreement (ECA) under a build-operatetransfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement, Mirant will build and finance a thermal power plant in Quezon, and operate and maintain the same for 25 years, after which, Mirant will transfer the power plant to the Respondent without compensation. NPC also undertook to pay all taxes that the government may impose on Mirant. Quezon then assessed Mirant real property taxes on the power plant and its machineries.

ISSUES: (1) Can Petitioner file the protest against the realproperty tax assessment? (2) Can Petitioner claim exemption from the RPT given the BOT arrangement with Mirant? (3) Is payment under protest required before an appeal to the LBAA is made? HELD: (1) NO. The two entities vested with personality to contest an assessment are (a) the owner or (b) the person with legal interest in the property. NPC is neither the owner nor the possessor/user of the subject machineries even if it will acquireownership of the plant at the end of 25 years. TheCourt said that legal interest should be an interest that is actual and material, direct and immediate, not simply contingent or expectant. While the Petitioner does indeed assume responsibility for the taxes due on the power plant and its machineries, the tax liability referred to is the liability arising from law that the local government unit can rightfully and successfully enforce, not the contractual liability that is enforceable between the parties to a contract. The local government units can neither be compelled to recognize the protest of a tax assessment from the Petitioner, an entity against whom it cannot enforce the tax liability. (2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the claimant must prove two elements: a) the machineries and equipmentare actually, directly, and exclusively used by local water districts and government-owned or controlled corporations; and b) the local water districts and government-owned and controlled corporations claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Since neither the Petitioner nor Mirant satisfies both requirements, the claim for exemption must fall.

(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first pay the tax" under protest. The case of Ty does not apply as it involved a situation where the taxpayer was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. A claim for tax exemption, whether full or partial, does not question the authority of local assessors to assess real property tax.

LEONIS NAVIGATION CO., INC. and WORLD G.R. No. 179169 MARINE PANAMA, S.A., Petitioners, Present: CORONA, J., - versus Chairperson, VELASCO, JR., NACHURA, PERALTA, and CATALINO U. VILLAMATER and/or The Heirs of the MENDOZA, JJ. Late Catalino U. Villamater, represented herein by Sonia Mayuyu Villamater; and NATIONAL LABOR RELATIONS COMMISSION, Promulgated: Respondents. March 3, 2010 x------------------------------------------------------------------------------------x

DECISION NACHURA, J.:

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, seeking to annul and set aside the Decision[2] dated May 3, 2007 and the Resolution[3] dated July 23, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 85594, entitled Leonis Navigation Co., Inc., et al. v. Catalino U. Villamater, et al.

The antecedents of this case are as follows: Private respondent Catalino U. Villamater (Villamater) was hired as Chief Engineer for the ship MV Nord Monaco, owned by petitioner World Marine Panama,S.A., through the services of petitioner Leonis Navigation Co., Inc. (Leonis), as the latters local manning agent. Consequent to this employment, Villamater, on June 4, 2002, executed an employment contract,[4] incorporating the Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean-Going Vessels as prescribed by the Philippine Overseas Employment Administration (POEA). Prior to his deployment, Villamater underwent the required Pre-Employment Medical Examination (PEME). He passed the PEME and was declared Fit to Work.[5] Thereafter, Villamater was deployed on June 26, 2002. Sometime in October 2002, around four (4) months after his deployment, Villamater suffered intestinal bleeding and was given a blood transfusion. Thereafter, he again felt weak, lost considerable weight, and suffered intermittent intestinal pain. He consulted a physician in Hamburg, Germany, who advised hospital confinement. Villamater was diagnosed with Obstructive Adenocarcinoma of the Sigmoid, with multiple liver metastases, possibly local peritoneal carcinosis and infiltration of the bladder, possibly lung metastasis, and anemia; Candida Esophagitis; and Chronic Gastritis. He was advised to undergo chemotherapy and continuous supportive treatment, such as pain-killers and blood transfusion.[6] Villamater was later repatriated, under medical escort, as soon as he was deemed fit to travel. As soon as he arrived in the Philippines, Villamater was referred to company-designated physicians. The diagnosis and the recommended treatment abroad were confirmed. He was advised to undergo six (6) cycles of chemotherapy. However, Dr. Kelly Siy Salvador, one of the company-designated physicians, opined that Villamaters condition appears to be not work related, but suggested a disability grading of 1.[7] In the course of his chemotherapy, when no noticeable improvement occurred, Villamater filed a complaint[8] before the Arbitration Branch of the National Labor Relations Commission (NLRC) for payment of permanent and total disability benefits in the amount of US$80,000.00, reimbursement of medical and hospitalization expenses in the amount of P11,393.65, moral damages in the sum of P1,000,000.00, exemplary damages in the amount of P1,000,000.00, as well asattorneys fees.

After the submission of the required position papers, the Labor Arbiter rendered a decision[9] dated July 28, 2003 in favor of Villamater, holding that his illness was compensable, but denying his claim for moral and exemplary damages. The Labor Arbiter disposed as follows WHEREFORE, foregoing premises considered, judgment is hereby rendered declaring complainants illness to be compensable and ordering respondents LEONIS NAVIGATION CO., INC. and WORLD MARINE PANAMA, S.A. liable to pay, jointly and severally, complainant CATALINO U. VILLAMATER, the amount of US$60,000.00 or its Philippine Peso equivalent at the time of actual payment, representing the latters permanent total disability benefits plus ten percent (10%) thereof as Attorneys Fees.

All other claims are dismissed for lack of merit. SO ORDERED.[10]

Petitioners appealed to the NLRC. Villamater also filed his own appeal, questioning the award of the Labor Arbiter and claiming that the 100% degree of disability should be compensated in the amount of US$80,000.00, pursuant to Section 2, Article XXI of the ITFJSU/AMOSUP Collective Bargaining Agreement (CBA) between petitioners and Associated Marine Officers & Seamens Union of the Philippines, which covered the employment contract of Villamater. On February 4, 2004, the NLRC issued its resolution,[11] dismissing respective appeals of both parties and affirming in toto the decision of the Labor Arbiter. the

Petitioners filed their motion for reconsideration of the February 4, 2004 resolution, but the NLRC denied the same in its resolution dated June 15, 2004. Aggrieved, petitioners filed a petition for certiorari under Rule 65 of the Rules of Court before the CA. After the filing of the required memoranda, the CA rendered its assailed May 3, 2007 Decision, dismissing the petition. The appellate court, likewise, denied petitioners motion for reconsideration in its July 23, 2007 Resolution.

Hence, this petition based on the following grounds, to wit: First, the Court of Appeals erroneously held that *the+ Commissions Dismissal Decision does not constitute grave abuse of discretion amounting to lack or excess of jurisdiction but mere error of judgment, considering that the decision lacks evidentiary support and is contrary to both evidence on record and prevailing law and jurisprudence. Second, the Court of Appeals seriously erred in upholding the NLRCs decision to award Grade 1 Permanent and Total Disability Benefits in favor of seaman Villamater despite the lack of factual and legal basis to support such award, and more importantly, when it disregarded undisputed facts and substantial evidence presented by petitioners which show that seaman Villamaters illness was not work-related and hence, not compensable, as provided by the Standard Terms of the POEA Contract. Third, the Court of Appeals erred in holding that non-joinder of indispensable parties warrant the outright dismissal of the Petition for Review on Certiorari. Fourth, the Court of Appeals erroneously held that final and executory decisions or resolutions of the NLRC render appeals to superior courts moot and academic. Last, the Court of Appeals seriously erred in upholding the award of attorneys fees considering that the grant has neither factual nor legal basis. [12]

Before delving into the merits of this petition, we deem it fit to discuss the procedural issues raised by petitioners. First. It is worthy to note that the CA dismissed the petition, considering that (1) the June 15, 2004 Resolution of the NLRC had already become final and executory on June 26, 2004, and the same was already recorded in the NLRC Book of Entries of Judgments; and that (2) the award of the Labor Arbiter was already executed, thus, the case was closed and terminated. According to Sections 14 and 15, Rule VII of the 2005 Revised Rules of Procedure of the NLRC

Section 14. Finality of decision of the commission and entry of judgment. a) Finality of the Decisions, Resolutions or Orders of the Commission. Except as provided in Section 9 of Rule X, the decisions, resolutions or orders of the Commission shall become final and executory after ten (10) calendar days from receipt thereof by the parties. b) Entry of Judgment. Upon the expiration of the ten (10) calendar day period provided in paragraph (a) of this Section, the decision, resolution, or order shall be entered in a book of entries of judgment. The Executive Clerk or Deputy Executive Clerk shall consider the decision, resolution or order as final and executory after sixty (60) calendar days from date of mailing in the absence of return cards, certifications from the post office, or other proof of service to parties. Section 15. Motions for reconsideration. Motion for reconsideration of any decision, resolution or order of the Commission shall not be entertained except when based on palpable or patent errors; provided that the motion is under oath and filed within ten (10) calendar days from receipt of decision, resolution or order, with proof of service that a copy of the same has been furnished, within the reglementary period, the adverse party; and provided further, that only one such motion from the same party shall be entertained. Should a motion for reconsideration be entertained pursuant to this SECTION, the resolution shall be executory after ten (10) calendar days from receipt thereof.[13]

Petitioners received the June 15, 2004 resolution of the NLRC, denying their motion for reconsideration, on June 16, 2004. They filed their petition for certioraribefore the CA only on August 9, 2004,[14] or 54 calendar days from the date of notice of the June 15, 2004 resolution. Considering that the above-mentioned 10-day period had lapsed without petitioners filing the appropriate appeal, the NLRC issued an Entry of Judgment dated June 28, 2004. Moreover, by reason of the finality of the June 15, 2004 NLRC resolution, the Labor Arbiter issued on July 29, 2004 a Writ of Execution.[15] Consequently, Leonis voluntarily paid Villamaters widow, Sonia M. Villamater (Sonia), the amount of P3,649,800.00, with Rizal Commercial and Banking Corporation (RCBC) Managers Check No. 0000008550[16] dated August 12, 2004, as evidenced by the Acknowledgment Receipt[17] dated August 13, 2004, and

the Cheque Voucher[18]dated August 12, 2004. Following the complete satisfaction of the judgment award, the Labor Arbiter issued an Order[19] dated September 8, 2004 that reads There being complete satisfaction of the judgment award as shown by the record upon receipt of the complainant of the amount of P3,649,800.00, voluntarily paid by the respondent, as full and final satisfaction of the Writ of Execution dated July 29, 2004; and finding the same to be not contrary to law, morals, good custom, and public policy, and pursuant to Section 14, Rule VII of the Rules of Procedure of the National Labor Relations Commission (NLRC), this case is hereby ordered DISMISSED with prejudice, and considered CLOSED andTERMINATED. SO ORDERED.

Petitioners never moved for a reconsideration of this Order regarding the voluntariness of their payment to Sonia, as well as the dismissal with prejudice and the concomitant termination of the case. However, petitioners argued that the finality of the case did not render the petition for certiorari before the CA moot and academic. On this point, we agree with petitioners. In the landmark case of St. Martin Funeral Home v. NLRC,[20] we ruled that judicial review of decisions of the NLRC is sought via a petition for certiorariunder Rule 65 of the Rules of Court, and the petition should be filed before the CA, following the strict observance of the hierarchy of courts. Under Rule 65, Section 4,[21] petitioners are allowed sixty (60) days from notice of the assailed order or resolution within which to file the petition. Thus, although the petition was not filed within the 10-day period, petitioners reasonably filed their petition for certiorari before the CA within the 60-day reglementary period under Rule 65. Further, a petition for certiorari does not normally include an inquiry into the correctness of its evaluation of the evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not within the province of a special civil action for certiorari, which is merely confined to issues of jurisdiction or grave abuse of discretion. It is, thus, incumbent upon petitioners to satisfactorily establish that the NLRC acted capriciously and whimsically in order that the extraordinary writ ofcertiorari will lie. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was exercised arbitrarily or despotically.

The CA, therefore, could grant the petition for certiorari if it finds that the NLRC, in its assailed decision or resolution, committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence that is material to or decisive of the controversy; and it cannot make this determination without looking into the evidence of the parties. Necessarily, the appellate court can only evaluate the materiality or significance of the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in relation to all other evidence on record.[22] Notably, if the CA grants the petition and nullifies the decision or resolution of the NLRC on the ground of grave abuse of discretion amounting to excess or lack of jurisdiction, the decision or resolution of the NLRC is, in contemplation of law, null and void ab initio; hence, the decision or resolution never became final and executory.[23] In the recent case Bago v. National Labor Relations Commission,[24] we had occasion to rule that although the CA may review the decisions or resolutions of the NLRC on jurisdictional and due process considerations, particularly when the decisions or resolutions have already been executed, this does not affect the statutory finality of the NLRC decisions or resolutions in view of Rule VIII, Section 6 of the 2002 New Rules of Procedure of the NLRC, viz.: RULE VIII xxxx SECTION 6. EFFECT OF FILING OF PETITION FOR CERTIORARI ON EXECUTION. A petition for certiorari with the Court of Appeals or the Supreme Court shall not stay the execution of the assailed decision unless a temporary restraining order is issued by the Court of Appeals or the Supreme Court. [25]

Simply put, the execution of the final and executory decision or resolution of the NLRC shall proceed despite the pendency of a petition for certiorari, unless it is restrained by the proper court. In the present case, petitioners already paid Villamaters widow, Sonia, the amount of P3,649,800.00, representing the total and permanent disability award plus attorneys fees, pursuant to the Writ of Execution issued by the Labor Arbiter. Thereafter, an Order was issued declaring the case as closed and terminated. However, although there was no motion for reconsideration of this last Order, Sonia was, nonetheless, estopped from claiming that the controversy had already reached its end with the issuance of the Order closing

and terminating the case. This is because the Acknowledgment Receipt she signed when she received petitioners payment was without prejudice to the final outcome of the petition for certiorari pending before the CA. Second. We also agree with petitioners in their position that the CA erred in dismissing outright their petition for certiorari on the ground of non-joinder of indispensable parties. It should be noted that petitioners impleaded only the then deceased Villamater[26] as respondent to the petition, excluding his heirs. Rule 3, Section 7 of the Rules of Court defines indispensable parties as those who are parties in interest without whom there can be no final determination of an action. [27] They are those parties who possess such an interest in the controversy that a final decree would necessarily affect their rights, so that the courts cannot proceed without their presence. [28] A party is indispensable if his interest in the subject matter of the suit and in the relief sought is inextricably intertwined with the other parties interest.[29] Unquestionably, Villamaters widow stands as an indispensable party to this case. Under Rule 3, Section 11 of the Rules of Court, neither misjoinder nor non-joinder of parties is a ground for the dismissal of an action, thus: Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately.

The proper remedy is to implead the indispensable party at any stage of the action. The court, either motu proprio or upon the motion of a party, may order the inclusion of the indispensable party or give the plaintiff an opportunity to amend his complaint in order to include indispensable parties. If the plaintiff ordered to include the indispensable party refuses to comply with the order of the court, the complaint may be dismissed upon motion of the defendant or upon the court's own motion. Only upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed.[30]

On the merits of this case, the questions to be answered are: (1) Is Villamater entitled to total and permanent disability benefits by reason of his colon cancer? (2) If yes, would he also be entitled to attorneys fees? As to Villamaters entitlement to total and permanent disability benefits, petitioners argue, in essence, that colon cancer is not among the occupational diseases listed under Section 32-A of the POEA Standard Terms and Conditions Governing the Employment of Filipino Seafarers On-Board Ocean Going Vessels (POEA Standard Contract), and that the risk of contracting the same was not increased by Villamaters working conditions during his deployment. Petitioners posit that Villamater had familial history of colon cancer; and that, although dietary considerations may be taken, his diet -- which might have been high in fat and low in fiber and could have thus increased his predisposition to develop colon cancer -- might only be attributed to him, because it was he who chose what he ate on board the vessels he was assigned to. Petitioners also cited the supposed declaration of their company-designated physicians who attended to Villamater that his disease was not work-related. We disagree. It is true that under Section 32-A of the POEA Standard Contract, only two types of cancers are listed as occupational diseases (1) Cancer of the epithelial lining of the bladder (papilloma of the bladder); and (2) cancer, epithellematous or ulceration of the skin or of the corneal surface of the eye due to tar, pitch, bitumen, mineral oil or paraffin, or compound products or residues of these substances. Section 20 of the same Contract also states that those illnesses not listed under Section 32 are disputably presumed as work-related. Section 20 should, however, be read together with Section 32-A on the conditions to be satisfied for an illness to be compensable,[31] to wit:

For an occupational disease and the resulting disability or death to be compensable, all the following conditions must be established: 1. The seafarers work must involve the risk described herein;

2.

The disease was contracted as a result of the seafarers exposure to the described risks;

3.

The disease was contracted within a period of exposure and under such other factors necessary to contract it; There was no notorious negligence on the part of the seafarer.

4.

Colon cancer, also known as colorectal cancer or large bowel cancer, includes cancerous growths in the colon, rectum and appendix. With 655,000 deaths worldwide per year, it is the fifth most common form of cancer in the United States of America and the third leading cause of cancer-related deaths in the Western World. Colorectal cancers arise from adenomatous polyps in the colon. These mushroom-shaped growths are usually benign, but some develop into cancer over time. Localized colon cancer is usually diagnosed through colonoscopy.[32] Tumors of the colon and rectum are growths arising from the inner wall of the large intestine. Benign tumors of the large intestine are called polyps. Malignant tumors of the large intestine are called cancers. Benign polyps can be easily removed during colonoscopy and are not life-threatening. If benign polyps are not removed from the large intestine, they can become malignant (cancerous) over time. Most of the cancers of the large intestine are believed to have developed as polyps. Colorectal cancer can invade and damage adjacent tissues and organs. Cancer cells can also break away and spread to other parts of the body (such as liver and lung) where new tumors form. The spread of colon cancer to distant organs is called metastasis of the colon cancer. Once metastasis has occurred in colorectal cancer, a complete cure of the cancer is unlikely.[33] Globally, colorectal cancer is the third leading cause of cancer in males and the fourth leading cause of cancer in females. The frequency of colorectal cancer varies around the world. It is common in the Western world and is rare in Asia and in Africa. In countries where the people have adopted western diets, the incidence of colorectal cancer is increasing.[34] Factors that increase a persons risk of colorectal cancer include high fat intake, a family history of colorectal cancer and polyps, the presence of polyps in the large intestine, and chronic ulcerative colitis.[35] Diets high in fat are believed to predispose humans to colorectal cancer. In countries with high colorectal cancer rates, the fat intake by the population is much higher than in countries with low cancer rates. It is believed that the breakdown products of fat metabolism

lead to the formation of cancer-causing chemicals (carcinogens). Diets high in vegetables and high-fiber foods may rid the bowel of these carcinogens and help reduce the risk of cancer. [36] A persons genetic background is an important factor in colon cancer risk. Among firstdegree relatives of colon-cancer patients, the lifetime risk of developing colon cancer is 18%. Even though family history of colon cancer is an important risk factor, majority (80%) of colon cancers occur sporadically in patients with no family history of it. Approximately 20% of cancers are associated with a family history of colon cancer. And 5% of colon cancers are due to hereditary colon cancer syndromes. Hereditary colon cancer syndromes are disorders where affected family members have inherited cancer-causing genetic defects from one or both of the parents.[37] In the case of Villamater, it is manifest that the interplay of age, hereditary, and dietary factors contributed to the development of colon cancer. By the time he signed his employment contract on June 4, 2002, he was already 58 years old, having been born on October 5, 1943,[38] an age at which the incidence of colon cancer is more likely.[39] He had a familial history of colon cancer, with a brother who succumbed to death and an uncle who underwent surgery for the same illness.[40] Both the Labor Arbiter and the NLRC found his illness to be compensable for permanent and total disability, because they found that his dietary provisions while at sea increased his risk of contracting colon cancer because he had no choice of what to eat on board except those provided on the vessels and these consisted mainly of high-fat, highcholesterol, and low-fiber foods. While findings of the Labor Arbiter, which were affirmed by the NLRC, are entitled to great weight and are binding upon the courts, nonetheless, we find it also worthy to note that even during the proceedings before the Labor Arbiter, Villamater cited that the foods provided on board the vessels were mostly meat, high in fat and high in cholesterol. On this matter, noticeably, petitioners were silent when they argued that Villamaters affliction was brought about by diet and genetics. It was only after the Labor Arbiter issued his Decision, finding colon cancer to be compensable because the risk was increased by the victuals provided on board, that petitioners started claiming that the foods available on the vessels also consisted of fresh fruits and vegetables, not to mention fish and poultry. It is also worth mentioning that while Dr. Salvador declared that Villamaters cancer appears to be not work -related, she nevertheless suggested to petitioners Disability Grade 1, which, under the POEA Standard Contract, shall be considered or shall constitute total and permanent disability. [41] During his confinement in Hamburg, Germany, Villamater was diagnosed to have colon cancer and was advised to undergo chemotherapy and medical treatment, including blood transfusions. These

findings were, in fact, confirmed by the findings of the company-designated physicians. The statement of Dr. Salvador that Villamaters colon cancer appears to be not work-related remained at that, without any medical explanation to support the same. However, this statement, not definitive as it is, was negated by the same doctors suggestion of Disability Grade 1. Under Section 20-B of the Philippine Overseas Employment Administration-Standard Employment Contract (POEA-SEC), it is the company-designated physician who must certify that the seafarer has suffered a permanent disability, whether total or partial, due to either injury or illness, during the term of his employment.[42] On these points, we sustain the Labor Arbiter and the NLRC in granting total and permanent disability benefits in favor of Villamater, as it was sufficiently shown that his having contracted colon cancer was, at the very least, aggravated by his working conditions, [43] taking into consideration his dietary provisions on board, his age, and his job as Chief Engineer, who was primarily in charge of the technical and mechanical operations of the vessels to ensure voyage safety. Jurisprudence provides that to establish compensability of a non-occupational disease, reasonable proof of work-connection and not direct causal relation is required. Probability, not the ultimate degree of certainty, is the test of proof in compensation proceedings.[44] The Labor Arbiter correctly awarded Villamater total and permanent disability benefits, computed on the basis of the schedule provided under the POEA Standard Contract, considering that the schedule of payment of benefits under the ITF-JSU/AMOSUP CBA refers only to permanent disability as a result of an accident or injury.[45] By reason of Villamaters entitlement to total and permanent disability benefits, he (or in this case his widow Sonia) is also entitled to the award of attorneys fees, not under Article 2208(2) of the Civil Code, *w+hen the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest, but under Article 2208(8) of the same Code, involving actions for indemnity under workmens compensation and employers liability laws. WHEREFORE, the petition is DENIED and the assailed May 3, 2007 Decision and the July 23, 2007 Resolution of the Court of Appeals are AFFIRMED. Costs against petitioners. SO ORDERED.

JOSE L. ATIENZA, JR., MATIAS V. DEFENSOR, JR., RODOLFO G. VALENCIA, DANILO E. SUAREZ, SOLOMON R. CHUNGALAO, SALVACION ZALDIVAR-PEREZ, HARLIN CAST-ABAYON, MELVIN G. MACUSI and ELEAZAR P. QUINTO, Petitioners,

G.R. No. 188920

Present: Puno, C.J., Carpio, Corona, Carpio Morales, Velasco, Jr., Nachura, Leonardo-De Castro, Brion, Peralta, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez, and Mendoza, JJ.

- versus -

COMMISSION ON ELECTIONS, MANUEL A. ROXAS II, FRANKLIN M. DRILON and Promulgated: J.R. NEREUS O. ACOSTA, Respondents. February 16, 2010 x ---------------------------------------------------------------------------------------- x DECISION ABAD, J.:

This petition is an offshoot of two earlier cases already resolved by the Court involving a leadership dispute within a political party. In this case, the petitioners question their expulsion from that party and assail the validity of the election of new party leaders conducted by the respondents. Statement of the Facts and the Case For a better understanding of the controversy, a brief recall of the preceding events is in order. On July 5, 2005 respondent Franklin M. Drilon (Drilon), as erstwhile president of the Liberal Party (LP), announced his partys withdrawal of support for the administration of President Gloria Macapagal-Arroyo. But petitioner Jose L. Atienza, Jr. (Atienza), LP Chairman, and a number of party members denounced Drilons move, claiming that he made the announcement without consulting his party. On March 2, 2006 petitioner Atienza hosted a party conference to supposedly discuss local autonomy and party matters but, when convened, the assembly proceeded to declare all positions in the LPs ruling body vacant and elected new officers, with Atienza as LP president. Respondent Drilon immediately filed a petition[1] with the Commission on Elections (COMELEC) to nullify the elections. He claimed that it was illegal considering that the partys electing bodies, the National Executive Council (NECO) and the National Political Council (NAPOLCO), were not properly convened. Drilon also claimed that under the amended LP Constitution,[2] party officers were elected to a fixed three-year term that was yet to end on November 30, 2007. On the other hand, petitioner Atienza claimed that the majority of the LP s NECO and NAPOLCO attended the March 2, 2006 assembly. The election of new officers on that occasion could be likened to people power, wherein the LP majority removed respondent Drilon as president by direct action. Atienza also said that the amendments[3] to the original LP Constitution, or the Salonga Constitution, giving LP officers a fixed three-year term, had not been properly ratified. Consequently, the term of Drilon and the other officers already ended on July 24, 2006. On October 13, 2006, the COMELEC issued a resolution,[4] partially granting respondent Drilons petition. It annulled the March 2, 2006 elections and ordered the holding of a new

election under COMELEC supervision. It held that the election of petitioner Atienza and the others with him was invalid since the electing assembly did not convene in accordance with the Salonga Constitution. But, since the amendments to the Salonga Constitution had not been properly ratified, Drilons term may be deemed to have ended. Thus, he held the position of LP president in a holdover capacity until new officers were elected. Both sides of the dispute came to this Court to challenge the COMELEC rulings. On April 17, 2007 a divided Court issued a resolution,[5] granting respondent Drilons petition and denying that of petitioner Atienza. The Court held, through the majority, that the COMELEC had jurisdiction over the intra-party leadershipdispute; that the Salonga Constitution had been validly amended; and that, as a consequence, respondent Drilons term as LP president was to end only on November 30, 2007. Subsequently, the LP held a NECO meeting to elect new party leaders before respondent Drilons term expired. Fifty-nine NECO members out of the 87 who were supposedly qualified to vote attended. Before the election, however, several persons associated with petitioner Atienza sought to clarify their membership status and raised issues regarding the composition of the NECO. Eventually, that meeting installed respondent Manuel A. Roxas II (Roxas) as the new LP president. On January 11, 2008 petitioners Atienza, Matias V. Defensor, Jr., Rodolfo G. Valencia, Danilo E. Suarez, Solomon R. Chungalao, Salvacion Zaldivar-Perez, Harlin Cast-Abayon, Melvin G. Macusi, and Eleazar P. Quinto, filed a petition for mandatory and prohibitory injunction[6] before the COMELEC against respondents Roxas, Drilon and J.R. Nereus O. Acosta, the party secretary general. Atienza, et al. sought to enjoin Roxas from assuming the presidency of the LP, claiming that the NECO assembly which elected him was invalidly convened. They questioned the existence of a quorum and claimed that the NECO composition ought to have been based on a list appearing in the partys 60th Anniversary Souvenir Program. Both Atienza and Drilon adopted that list as common exhibit in the earlier cases and it showed that the NECO had 103 members. Petitioners Atienza, et al. also complained that Atienza, the incumbent party chairman, was not invited to the NECO meeting and that some members, like petitioner Defensor, were given the status of guests during the meeting. Atienzas allies allegedly raised these issues but respondent Drilon arbitrarily thumbed them down and railroaded the proceedings. He

suspended the meeting and moved it to another room, where Roxas was elected without notice to Atienzas allies. On the other hand, respondents Roxas, et al. claimed that Roxas election as LP president faithfully complied with the provisions of the amended LP Constitution. The partys 60th Anniversary Souvenir Program could not be used for determining the NECO members because supervening events changed the bodys number and composition. Some NECO members had died, voluntarily resigned, or had gone on leave after accepting positions in the government. Others had lost their re-election bid or did not run in the May 2007 elections, making them ineligible to serve as NECO members. LP members who got elected to public office also became part of the NECO. Certain persons of national stature also became NECO members upon respondent Drilons nomination, a privilege granted the LP president under the amended LP Constitution. In other words, the NECO membership was not fixed or static; it changed due to supervening circumstances. Respondents Roxas, et al. also claimed that the party deemed petitioners Atienza, Zaldivar-Perez, and Cast-Abayon resigned for holding the illegal election of LP officers on March 2, 2006. This was pursuant to a March 14, 2006 NAPOLCO resolution that NECO subsequently ratified. Meanwhile, certain NECO members, like petitioners Defensor, Valencia, and Suarez, forfeited their party membership when they ran under other political parties during the May 2007 elections. They were dropped from the roster of LP members. On June 18, 2009 the COMELEC issued the assailed resolution denying petitioners Atienza, et al.s petition. It noted that the May 2007 elections necessarily changed the composition of the NECO since the amended LP Constitution explicitly made incumbent senators, members of the House of Representatives, governors and mayors members of that body. That some lost or won these positions in the May 2007 elections affected the NECO membership. Petitioners failed to prove that the NECO which elected Roxas as LP president was not properly convened. As for the validity of petitioners Atienza, et al.s expulsion as LP members, the COMELEC observed that this was a membership issue that related to disciplinary action within the political party. The COMELEC treated it as an internal party matter that was beyond its jurisdiction to resolve.

Without filing a motion for reconsideration of the COMELEC resolution, petitioners Atienza, et al. filed this petition for certiorari under Rule 65. The Issues Presented Respondents Roxas, et al. raise the following threshold issues: 1. party; and Whether or not the LP, which was not impleaded in the case, is an indispensable

2. Whether or not petitioners Atienza, et al., as ousted LP members, have the requisite legal standing to question Roxas election. Petitioners Atienza, et al., on the other hand, raise the following issues: 3. Whether or not the COMELEC gravely abused its discretion when it upheld the NECO membership that elected respondent Roxas as LP president; 4. Whether or not the COMELEC gravely abused its discretion when it resolved the issue concerning the validity of the NECO meeting without first resolving the issue concerning the expulsion of Atienza, et al. from the party; and 5. Whether or not respondents Roxas, et al. violated petitioners Atienza, et al.s constitutional right to due process by the latters expulsion from the party.

The Courts Ruling One. Respondents Roxas, et al. assert that the Court should dismiss the petition for failure of petitioners Atienza, et al. to implead the LP as an indispensable party. Roxas, et al. point out that, since the petition seeks the issuance of a writ of mandatory injunction against the NECO, the controversy could not be adjudicated with finality without making the LP a party to the case.[7] But petitioners Atienza, et al.s causes of action in this case consist in respondents Roxas, et al.s disenfranchisement of Atienza, et al. from the election of party leaders and in the illegal election of Roxas as party president. Atienza, et al. were supposedly excluded from the elections by a series of despotic acts of Roxas, et al., who controlled the proceedings. Among these acts are Atienza, et al.s expulsion from the party, their exclusion from the NECO, and

respondent Drilons railroading of election proceedings. Atienza, et al. attributed all these illegal and prejudicial acts to Roxas, et al. Since no wrong had been imputed to the LP nor had some affirmative relief been sought from it, the LP is not an indispensable party. Petitioners Atienza, et al.s prayer for the undoing of respondents Roxas, et al.s acts and the reconvening of the NECO are directed against Roxas, et al. Two. Respondents Roxas, et al. also claim that petitioners Atienza, et al. have no legal standing to question the election of Roxas as LP president because they are no longer LP members, having been validly expelled from the party or having joined other political parties.[8] As non-members, they have no stake in the outcome of the action. But, as the Court held in David v. Macapagal-Arroyo,[9] legal standing in suits is governed by the real parties-in-interest rule under Section 2, Rule 3 of the Rules of Court. This states that every action must be prosecuted or defended in the name of the real party -ininterest. And real party-in-interest is one who stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit. In other words, the plaintiffs standing is based on his own right to the relief sought. In raising petitioners Atienza, et al.s lack of standing as a threshold issue, respondents Roxas, et al. would have the Court hypothetically assume the truth of the allegations in the petition. Here, it is precisely petitioners Atienza, et al.s allegations that respondents Roxas, et al. deprived them of their rights as LP members by summarily excluding them from the LP roster and not allowing them to take part in the election of its officers and that not all who sat in the NECO were in the correct list of NECO members. If Atienza, et al.s allegations were correct, they would have been irregularly expelled from the party and the election of officers, void. Further, they would be entitled to recognition as members of good standing and to the holding of a new election of officers using the correct list of NECO members. To this extent, therefore, Atienza, et al. who want to take part in another election would stand to be benefited or prejudiced by the Courts decision in this case. Consequently, they have legal standing to pursue this petition. Three. In assailing respondent Roxas election as LP president, petitioners Atienza, et al. claim that the NECO members allowed to take part in that election should have been limited to those in the list of NECO members appearing in the part ys 60th Anniversary Souvenir Program.

Atienza, et al. allege that respondent Drilon, as holdover LP president, adopted that list in the earlier cases before the COMELEC and it should thus bind respondents Roxas, et al. The Courts decision in the earlier cases, said Atienza, et al., anointed that list for the next party election. Thus, Roxas, et al. in effect defied the Courts ruling when they removed Atienza as party chairman and changed the NECOs composition.[10] But the list of NECO members appearing in the partys 60 th Anniversary Souvenir Program was drawn before the May 2007 elections. After the 2007 elections, changes in the NECO membership had to be redrawn to comply with what the amended LP Constitution required. Respondent Drilon adopted the souvenir program as common exhibit in the earlier cases only to prove that the NECO, which supposedly elected Atienza as new LP president on March 2, 2006, had been improperly convened. It cannot be regarded as an immutable list, given the nature and character of the NECO membership. Nothing in the Courts resolution in the earlier cases implies that the NECO membership should be pegged to the partys 60th Anniversary Souvenir Program. There would have been no basis for such a position. The amended LP Constitution did not intend the NECO membership to be permanent. Its Section 27[11]provides that the NECO shall include all incumbent senators, members of the House of Representatives, governors, and mayors who were LP members in good standing for at least six months. It follows from this that with the national and local elections taking place in May 2007, the number and composition of the NECO would have to yield to changes brought about by the elections. Former NECO members who lost the offices that entitled them to membership had to be dropped. Newly elected ones who gained the privilege because of their offices had to come in. Furthermore, former NECO members who passed away, resigned from the party, or went on leave could not be expected to remain part of the NECO that convened and held elections on November 26, 2007. In addition, Section 27 of the amended LP Constitution expressly authorized the party president to nominate persons of national stature to the NECO. Thus, petitioners Atienza, et al. cannot validly object to the admission of 12 NECO members nominated by respondent Drilon when he was LP president. Even if this move could be regarded as respondents Roxas, et al.s way of ensuring their election as party officers, there was certainly nothing irregular about the act under the amended LP Constitution. The NECO was validly convened in accordance with the amended LP Constitution. Respondents Roxas, et al. explained in details how they arrived at the NECO

composition for the purpose of electing the party leaders. [12] The explanation is logical and consistent with party rules. Consequently, the COMELEC did not gravely abuse its discretion when it upheld the composition of the NECO that elected Roxas as LP president. Petitioner Atienza claims that the Courts resolution in the earlier cases recognized his right as party chairman with a term, like respondent Drilon, that would last up to November 30, 2007 and that, therefore, his ouster from that position violated the Courts resolution. But the Courts resolution in the earlier cases did not preclude the party from disciplining Atienza under Sections 29[13] and 46[14] of the amended LP Constitution. The party could very well remove him or any officer for cause as it saw fit. Four. Petitioners Atienza, et al. lament that the COMELEC selectively exercised its jurisdiction when it ruled on the composition of the NECO but refused to delve into the legality of their expulsion from the party. The two issues, they said, weigh heavily on the leadership controversy involved in the case. The previous rulings of the Court, they claim, categorically upheld the jurisdiction of the COMELEC over intra-party leadership disputes.[15] But, as respondents Roxas, et al. point out, the key issue in this case is not the validity of the expulsion of petitioners Atienza, et al. from the party, but the legitimacy of the NECO assembly that elected respondent Roxas as LP president. Given the COMELECs finding as upheld by this Court that the membership of the NECO in question complied with the LP Constitution, the resolution of the issue of whether or not the party validly expelled petitioners cannot affect the election of officers that the NECO held. While petitioners Atienza, et al. claim that the majority of LP members belong to their faction, they did not specify who these members were and how their numbers could possibly affect the composition of the NECO and the outcome of its election of party leaders. Atienza, et al. has not bothered to assail the individual qualifications of the NECO members who voted for Roxas. Nor did Atienza, et al. present proof that the NECO had no quorum when it then assembled. In other words, the claims of Atienza, et al. were totally unsupported by evidence. Consequently, petitioners Atienza, et al. cannot claim that their expulsion from the party impacts on the party leadership issue or on the election of respondent Roxas as president so that it was indispensable for the COMELEC to adjudicate such claim. Under the circumstances, the validity or invalidity of Atienza, et al.s expulsion was purely a membership

issue that had to be settled within the party. It is an internal party matter over which the COMELEC has no jurisdiction. What is more, some of petitioner Atienzas allies raised objections before the NECO assembly regarding the status of members from their faction. Still, the NECO proceeded with the election, implying that its membership, whose composition has been upheld, voted out those objections. The COMELECs jurisdiction over intra-party disputes is limited. It does not have blanket authority to resolve any and all controversies involving political parties. Political parties are generally free to conduct their activities without interference from the state. The COMELEC may intervene in disputes internal to a party only when necessary to the discharge of its constitutional functions. The COMELECs jurisdiction over intra-party leadership disputes has already been settled by the Court. The Court ruled in Kalaw v. Commission on Elections[16] that the COMELECs powers and functions under Section 2, Article IX-C of the Constitution, include the ascertainment of the identity of the political party and its legitimate officers responsible for its acts. The Court also declared in another case[17] that the COMELECs power to register political parties necessarily involved the determination of the persons who must act on its behalf. Thus, the COMELEC may resolve an intra-party leadership dispute, in a proper case brought before it, as an incident of its power to register political parties. The validity of respondent Roxas election as LP president is a leadership issue that the COMELEC had to settle. Under the amended LP Constitution, the LP president is the issuing authority for certificates of nomination of party candidates for all national elective positions. It is also the LP president who can authorize other LP officers to issue certificates of nomination for candidates to local elective posts.[18] In simple terms, it is the LP president who certifies the official standard bearer of the party. The law also grants a registered political party certain rights and privileges that will redound to the benefit of its official candidates. It imposes, too, legal obligations upon registered political parties that have to be carried out through their leaders. The resolution of the leadership issue is thus particularly significant in ensuring the peaceful and orderly conduct of the elections.[19]

Five. Petitioners Atienza, et al. argue that their expulsion from the party is not a simple issue of party membership or discipline; it involves a violation of their constitutionallyprotected right to due process of law. They claim that the NAPOLCO and the NECO should have first summoned them to a hearing before summarily expelling them from the party. According to Atienza, et al., proceedings on party discipline are the equivalent of administrative proceedings[20] and are, therefore, covered by the due process requirements laid down in Ang Tibay v. Court of Industrial Relations.[21] But the requirements of administrative due process do not apply to the internal affairs of political parties. The due process standards set in Ang Tibay cover only administrative bodies created by the state and through which certain governmental acts or functions are performed. An administrative agency or instrumentality contemplates an authority to which the state delegates governmental power for the performance of a state function. [22] The constitutional limitations that generally apply to the exercise of the states powers thus, apply too, to administrative bodies. The constitutional limitations on the exercise of the states powers are found in Article III of the Constitution or the Bill of Rights. The Bill of Rights, which guarantees against the taking of life, property, or liberty without due process under Section 1 is generally a limitation on the states powers in relation to the rights of its citizens. The right to due process is meant to protect ordinary citizens against arbitrary government action, but not from acts committed by private individuals or entities. In the latter case, the specific statutes that provide reliefs from such private acts apply. The right to due process guards against unwarranted encroachment by the state into the fundamental rights of its citizens and cannot be invoked in private controversies involving private parties.[23] Although political parties play an important role in our democratic set-up as an intermediary between the state and its citizens, it is still a private organization, not a state instrument. The discipline of members by a political party does not involve the right to life, liberty or property within the meaning of the due process clause. An individual has no vested right, as against the state, to be accepted or to prevent his removal by a political party. The only rights, if any, that party members may have, in relation to other party members, correspond to those that may have been freely agreed upon among themselves through their charter, which is a contract among the party members. Members whose rights under their charter may have

been violated have recourse to courts of law for the enforcement of those rights, but not as a due process issue against the government or any of its agencies. But even when recourse to courts of law may be made, courts will ordinarily not interfere in membership and disciplinary matters within a political party. A political party is free to conduct its internal affairs, pursuant to its constitutionally-protected right to free association. In Sinaca v. Mula,[24] the Court said that judicial restraint in internal party matters serves the public interest by allowing the political processes to operate without undue interference. It is also consistent with the state policy of allowing a free and open party system to evolve, according to the free choice of the people.[25] To conclude, the COMELEC did not gravely abuse its discretion when it upheld Roxas election as LP president but refused to rule on the validity of Atienza, et al.s expulsion from the party. While the question of party leadership has implications on the COMELECs performance of its functions under Section 2, Article IX-C of the Constitution, the same cannot be said of the issue pertaining to Atienza, et al.s expulsion from the LP. Such expulsion is for the moment an issue of party membership and discipline, in which the COMELEC cannot intervene, given the limited scope of its power over political parties. WHEREFORE, the Court DISMISSES the petition and UPHOLDS the Resolution of the Commission on Elections dated June 18, 2009 in COMELEC Case SPP 08-001. SO ORDERED.