G.R. NO.

147039

January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, vs.

RADIO MINDANAO NETWORK, INC., Respondent.
This refers to the petition for certiorari under Rule 45 of the Rules of Court
seeking the review of the Decision1dated November 16, 2000 of the Court
of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which
reads:
Wherefore, premises considered, the appealed Decision of the Regional
Trial Court of Makati City, Branch 138 in Civil Case No. 90-602 is hereby
AFFIRMED with MODIFICATION in that the interest rate is hereby reduced
to 6% per annum. Costs against the defendants-appellants. SO ORDERED. 2

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations

(whether war be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion,
revolution, military or usurped power.3
The insurance companies maintained that the evidence showed that the
fire was caused by members of the Communist Party of the
Philippines/New Peoples Army (CPP/NPA); and consequently, denied the
claims. Hence, respondent was constrained to file Civil Case No. 90-602
against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138,
rendered a decision in favor of respondent. The dispositive portion of the
decision reads:

The assailed decision originated from Civil Case No. 90-602 filed by Radio
Mindanao Network, Inc. (respondent) against DBP Pool of Accredited
Insurance Companies (petitioner) and Provident Insurance Corporation
(Provident) for recovery of insurance benefits. Respondent owns several
broadcasting stations all over the country. Provident covered respondents
transmitter
equipment
and
generating
set
for
the
amount
ofP13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner
covered respondents transmitter, furniture, fixture and other transmitter
facilities for the amount of P5,883,650.00 under Fire Insurance Policy No.
F-66860.

IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant

Provident Insurance Corporation is directed to pay plaintiff the amount
of P450,000.00 representing the value of the destroyed property insured
under its Fire Insurance Policy plus 12% legal interest from March 2, 1990
the date of the filing of the Complaint. Defendant DBP Pool Accredited
Insurance Companies is likewise ordered to pay plaintiff the sum
of P602,600.00 representing the value of the destroyed property under its
Fire Insurance Policy plus 12% legal interest from March 2, 1990. SO
ORDERED.4

In the evening of July 27, 1988, respondents radio station located in SSS
Building, Bacolod City, was razed by fire causing damage in the amount
of P1,044,040.00. Respondent sought recovery under the two insurance
policies but the claims were denied on the ground that the cause of loss
was an excepted risk excluded under condition no. 6 (c) and (d), to wit:

Both insurance companies appealed from the trial courts decision but the
CA affirmed the decision, with the modification that the applicable interest
rate was reduced to 6% per annum. A motion for reconsideration was filed
by petitioner DBP which was denied by the CA per its Resolution dated
January 30, 2001.5

6. This insurance does not cover any loss or damage occasioned by or

through or in consequence, directly or indirectly, of any of the following
consequences, namely:

Hence, herein petition by DBP Pool of Accredited

Companies,6 with the following assignment of errors:
Assignment of Errors

Insurance

THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE

WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY
TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE FIRE AT
RESPONDENTS RMN PROPERTY AT BACOLOD CITY WERE MEMBERS OF
THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT
RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND
ATTORNEYS FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE
PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL
CODE OF THE PHILIPPINES.7
Petitioner assails the factual finding of both the trial court and the CA that
its evidence failed to support its allegation that the loss was caused by an
excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding
respondents claim for indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire
was due to the intentional act committed by the members of the New
Peoples Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas
Torres and SPO3 Leonardo Rochar who were admittedly not present when
the fire occurred. Their testimony [sic] was [sic] limited to the fact that an
investigation was conducted and in the course of the investigation they
were informed by bystanders that "heavily armed men entered the
transmitter house, poured gasoline in (sic) it and then lighted it. After that,
they went out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995).
The persons whom they investigated and actually saw the burning of the
station were not presented as witnesses. The documentary evidence
particularly Exhibits "5" and "5-C" do not satisfactorily prove that the
author of the burning were members of the NPA. Exhibit "5-B" which is a
letter released by the NPA merely mentions some dissatisfaction with the
activities of some people in the media in Bacolod. There was no mention
there of any threat on media facilities. 8
The CA went over the evidence on record and sustained the findings of the
trial court, to wit:

To recapitulate, defendants-appellants presented the following to support

its claim, to wit: police blotter of the burning of DYHB, certification of the
Negros Occidental Integrated National Police, Bacolod City regarding the
incident, letter of alleged NPA members Celso Magsilang claiming
responsibility for the burning of DYHB, fire investigation report dated July
29, 1988, and the testimonies of Lt. Col. Nicolas Torres and SFO III
Leonardo Rochas. We examined carefully the report on the police blotter
of the burning of DYHB, the certification issued by the Integrated National
Police of Bacolod City and the fire investigation report prepared by SFO III
Rochas and there We found that none of them categorically stated that
the twenty (20) armed men which burned DYHB were members of the
CPP/NPA. The said documents simply stated that the said armed men were
believed to be or suspected of being members of the said group. Even
SFO III Rochas admitted that he was not sure that the said armed men
were members of the CPP-NPA, thus:

In fact the only person who seems to be so sure that that the CPPNPA had a hand in the burning of DYHB was Lt. Col. Nicolas Torres.
However, though We found him to be persuasive in his testimony
regarding how he came to arrive at his opinion, We cannot nevertheless
admit his testimony as conclusive proof that the CPP-NPA was really
involved in the incident considering that he admitted that he did not
personally see the armed men even as he tried to pursue them. Note that
when Lt. Col. Torres was presented as witness, he was presented as an
ordinary witness only and not an expert witness. Hence, his opinion on the
identity or membership of the armed men with the CPP-NPA is not
admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member
of NPA-NIROC, being an admission of person which is not a party to the
present action, is likewise inadmissible in evidence under Section 22, Rule
130 of the Rules of Court. The reason being that an admission is
competent only when the declarant, or someone identified in legal interest
with him, is a party to the action.9
The Court will not disturb these factual findings absent compelling or
exceptional reasons. It should be stressed that a review by certiorari

under Rule 45 is a matter of discretion. Under this mode of review, the

jurisdiction of the Court is limited to reviewing only errors of law, not of
fact.10
Moreover, when supported by substantial evidence, findings of fact of the
trial court as affirmed by the CA are conclusive and binding on the
parties,11 which this Court will not review unless there are exceptional
circumstances. There are no exceptional circumstances in this case that
would have impelled the Court to depart from the factual findings of both
the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed
to prove that the loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that
the cause of the damage/loss is covered by the insurance policy, as
stipulated in the insurance policy, to wit:

Any loss or damage happening during the existence of abnormal

conditions (whether physical or otherwise) which are occasioned by or
through in consequence directly or indirectly, of any of the said
occurrences shall be deemed to be loss or damage which is not covered
by the insurance, except to the extent that the Insured shall prove that
such loss or damage happened independently of the existence of such
abnormal conditions.
In any action, suit or other proceeding where the Companies allege that
by reason of the provisions of this condition any loss or damage is not
covered by this insurance, the burden of proving that such loss or damage
is covered shall be upon the Insured.12
An insurance contract, being a contract of adhesion, should be so
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. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations. 13

The "burden of proof" contemplated by the aforesaid provision actually

refers to the "burden of evidence" (burden of going forward). 14 As applied
in this case, it refers to the duty of the insured to show that the loss or
damage is covered by the policy. The foregoing clause notwithstanding,
the burden of proof still rests upon petitioner to prove that the damage or
loss was caused by an excepted risk in order to escape any liability under
the contract.
Burden of proof is the duty of any party to present evidence to establish
his claim or defense by the amount of evidence required by law, which is
preponderance of evidence in civil cases. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden of
proof to obtain a favorable judgment. For the plaintiff, the burden of proof
never parts.15 For the defendant, an affirmative defense is one which is
not a denial of an essential ingredient in the plaintiffs cause of action, but
one which, if established, will be a good defense i.e. an "avoidance" of
the claim.16
Particularly, in insurance cases, where a risk is excepted by the terms of a
policy which insures against other perils or hazards, loss from such a risk
constitutes a defense which the insurer may urge, since it has not
assumed that risk, and from this it follows that an insurer seeking to
defeat a claim because of an exception or limitation in the policy
has the burden of proving that the loss comes within the purview
of the exception or limitation set up. If a proof is made of a loss
apparently within a contract of insurance, the burden is upon the insurer
to prove that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability. 17
Consequently, it is sufficient for private respondent to prove the fact of
damage or loss. Once respondent makes out a prima facie case in its
favor, the duty or the burden of evidence shifts to petitioner to controvert
respondents prima facie case.18 In this case, since petitioner alleged an
excepted risk, then the burden of evidence shifted to petitioner to prove
such exception. It is only when petitioner has sufficiently proven that the
damage or loss was caused by an excepted risk does the burden of
evidence shift back to respondent who is then under a duty of producing

evidence to show why such excepted risk does not release petitioner from
any liability. Unfortunately for petitioner, it failed to discharge its
primordial burden of proving that the damage or loss was caused by an
excepted risk.
Petitioner however, insists that the evidence on record established the
identity of the author of the damage. It argues that the trial court and the
CA erred in not appreciating the reports of witnesses Lt. Col Torres and
SFO II Rochar that the bystanders they interviewed claimed that the
perpetrators were members of the CPP/NPA as an exception to the
hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal
knowledge, which means those facts which are derived from his
perception.19 A witness may not testify as to what he merely learned from
others either because he was told or read or heard the same. Such
testimony is considered hearsay and may not be received as proof of the
truth of what he has learned. The hearsay rule is based upon serious
concerns about the trustworthiness and reliability of hearsay evidence
inasmuch as such evidence are not given under oath or solemn
affirmation and, more importantly, have not been subjected to crossexamination by opposing counsel to test the perception, memory, veracity
and articulateness of the out-of-court declarant or actor upon whose
reliability on which the worth of the out-of-court statement depends. 20
Res gestae, as an exception to the hearsay rule, refers to those
exclamations and statements made by either the participants, victims, or
spectators to a crime immediately before, during, or after the commission
of the crime, when the circumstances are such that the statements were
made as a spontaneous reaction or utterance inspired by the excitement
of the occasion and there was no opportunity for the declarant to
deliberate and to fabricate a false statement. The rule in res gestae
applies when the declarant himself did not testify and provided that the
testimony of the witness who heard the declarant complies with the
following requisites: (1) that the principal act, the res gestae, be a
startling occurrence; (2) the statements were made before the declarant
had the time to contrive or devise a falsehood; and (3) that the

statements must concern the occurrence in question and its immediate

attending circumstances.21
The Court is not convinced to accept the declarations as part of res
gestae. While it may concede that these statements were made by the
bystanders during a startling occurrence, it cannot be said however, that
these utterances were made spontaneously by the bystanders
and before they had the time to contrive or devise a falsehood.
Both SFO III Rochar and Lt. Col. Torres received the bystanders
statements while they were making their investigations during and after
the fire. It is reasonable to assume that when these statements were
noted down, the bystanders already had enough time and opportunity to
mill around, talk to one another and exchange information, not to mention
theories and speculations, as is the usual experience in disquieting
situations where hysteria is likely to take place. It cannot therefore be
ascertained whether these utterances were the products of truth. That the
utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these
statements were made may be considered as independently relevant
statements gathered in the course of their investigation, and are
admissible not as to the veracity thereof but to the fact that they had
been thus uttered.
Furthermore, admissibility of evidence should not be equated with its
weight and sufficiency.23 Admissibility of evidence depends on its
relevance and competence, while the weight of evidence pertains to
evidence already admitted and its tendency to convince and
persuade.24 Even assuming that the declaration of the bystanders that it
was the members of the CPP/NPA who caused the fire may be admitted as
evidence, it does not follow that such declarations are sufficient proof.
These declarations should be calibrated vis--vis the other evidence on
record. And the trial court aptly noted that there is a need for additional
convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause
of the fire was the intentional burning of the radio facilities by the rebels

or an act of insurrection, rebellion or usurped power. Evidence that

persons who burned the radio facilities shouted "Mabuhay ang NPA" does
not furnish logical conclusion that they are member [sic] of the NPA or
that their act was an act of rebellion or insurrection. Additional convincing
proof need be submitted. Defendants failed to discharge their
responsibility to present adequate proof that the loss was due to a risk
excluded.25
While the documentary evidence presented by petitioner, i.e., (1) the
police blotter; (2) the certification from the Bacolod Police Station; and (3)
the Fire Investigation Report may be considered exceptions to the hearsay
rule, being entries in official records, nevertheless, as noted by the CA,
none of these documents categorically stated that the perpetrators were
members of the CPP/NPA.26 Rather, it was stated in the police blotter that:
"a group of persons accompanied by one (1) woman all believed to be
CPP/NPA more or less 20 persons suspected to be CPP/NPA," 27 while the
certification from the Bacolod Police station stated that " some 20 or
more armed menbelieved to be members of the New Peoples Army
NPA,"28 and the fire investigation report concluded that "(I)t is
therefore believed by this Investigating Team that the cause of the fire is
intentional, and the armed mensuspected to be members of the CPP/NPA
where (sic) the ones responsible " 29 All these documents show that
indeed, the "suspected" executor of the fire were believed to be members
of the CPP/NPA. But suspicion alone is not sufficient, preponderance of
evidence being the quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision
dated November 16, 2000 and Resolution dated January 30, 2001
rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto. SO ORDERED.

G.R. No. 138941

October 8, 2001

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO

ENTERPRISES, INC., respondent.

A complaint for specific performance and damages was consequently

instituted by the respondent with the RTC, Branch 53 of Lucena City. On
October 16, 1995, after trial, the lower court rendered a Decision finding
the petitioner liable on the insurance policy thus:

Before us is a Petition for Review on Certiorari assailing the Decision of the

Court of Appeals in CA-G.R. CV No. 52221 promulgated on January 14,
1999, which affirmed in toto the Decision of the Regional Trial Court,
Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.

"WHEREFORE, judgment is rendered in favor of the plaintiff ordering

defendant to pay plaintiff:

Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling

and refining industry. It owns two oil mills. Both are located at factory
compound at Iyam, Lucena City. It appears that respondent commenced
its business operations with only one oil mill. In 1988, it started operating
its second oil mill. The latter came to be commonly referred to as the new
oil mill.
The two oil mills were separately covered by fire insurance policies issued
by petitioner American Home Assurance Co., Philippine Branch. 1 The first
oil mill was insured for three million pesos (P3,000,000.00) under Policy
No. 306-7432324-3 for the period March 1, 1991 to 1992. 2 The new oil mill
was insured for six million pesos (P6,000,000.00) under Policy No. 3067432321-9 for the same term.3 Official receipts indicating payment for the
full amount of the premium were issued by the petitioner's agent. 4
A fire that broke out in the early morning of September 30,1991 gutted
and consumed the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its appraisers who
inspected the burned premises and the properties destroyed. Thereafter,
in a letter dated October 15, 1991, petitioner rejected respondent's claim
for the insurance proceeds on the ground that no policy was issued by it
covering the burned oil mill. It stated that the description of the insured
establishment referred to another building thus: "Our policy nos. 3067432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance
coverage to your oil mill under Building No. 5, whilst the affected oil mill
was under Building No. 14. "5

(a) P4,406,536.40 representing damages for loss by fire of its

insured property with interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."6
Petitioner assailed this judgment before the Court of Appeals. The
appellate court upheld the same in a Decision promulgated on January 14,
1999, the pertinent portion of which states:
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of
merit and the trial court's Decision dated October 16, 1995 is
hereby AFFIRMED in toto.
SO ORDERED."7
Petitioner moved for reconsideration. The motion, however, was denied for
lack of merit in a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the
appellate court the following errors:

"(1) The Court of Appeals erred in its conclusion that the issue of
non-payment of the premium was beyond its jurisdiction because it
was raised for the first time on appeal." 8
"(2) The Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy." 9
"(3) With due respect, the conclusion of the Court of Appeals giving
no regard to the parole evidence rule and the principle of estoppel
is erroneous."10

return it immediately for alteration," respondent apparently did not call

petitioner's attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is "barred by the
parole evidence rule from presenting evidence (other than the policy in
question) of its self-serving intention (sic) that it intended really to insure
the burned oil mill," just as it is "barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it
retained the policy without having the same corrected before the fire by
an endorsement in accordance with its Condition No. 28."

The petition is devoid of merit.

These contentions can not pass judicial muster.

The primary reason advanced by the petitioner in resisting the claim of

the respondent is that the burned oil mill is not covered by any insurance
policy. According to it, the oil mill insured is specifically described in the
policy by its boundaries in the following manner:

In construing the words used descriptive of a building insured, the

greatest liberality is shown by the courts in giving effect to the
insurance.11 In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as to the
identity and character of the building is extremely unlikely, the courts are
inclined to consider that the policy of insurance covers any building which
the parties manifestly intended to insure, however inaccurate the
description may be.12

"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance."
However, it argues that this specific boundary description clearly pertains,
not to the burned oil mill, but to the other mill. In other words, the oil mill
gutted by fire was not the one described by the specific boundaries in the
contested policy.
What exacerbates respondent's predicament, petitioner posits, is that it
did not have the supposed wrong description or mistake corrected.
Despite the fact that the policy in question was issued way back in 1988,
or about three years before the fire, and despite the "Important Notice" in
the policy that "Please read and examine the policy and if incorrect,

Notwithstanding, therefore, the misdescription in the policy, it is beyond

dispute, to our mind, that what the parties manifestly intended to insure
was the new oil mill. This is obvious from the categorical statement
embodied in the policy, extending its protection:
"On machineries and equipment with complete accessories usual to
a coconut oil mill including stocks of copra, copra cake and copra
mills whilst contained in the new oil mill building, situate (sic) at
UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''13 (emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no
need to specify it as new.

Indeed, it would be absurd to assume that respondent would protect its

first oil mill for different amounts and leave uncovered its second one. As
mentioned earlier, the first oil mill is already covered under Policy No. 3067432324-4 issued by the petitioner. It is unthinkable for respondent to
obtain the other policy from the very same company. The latter ought to
know that a second agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mill's boundaries can
be attributed to a misunderstanding between the petitioner's general
agent, Mr. Alfredo Borja, and its policy issuing clerk, who made the error of
copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. As testified to by Mr. Borja:
"Atty. G. Camaligan:
Q:

What did you do when you received the report?

A:
I told them as will be shown by the map the intention really
of Mr. Edison Tantuco is to cover the new oil mill that is why when I
presented the existing policy of the old policy, the policy issuing
clerk just merely (sic) copied the wording from the old policy and
what she typed is that the description of the boundaries from
the old policy was copied but she inserted covering the new
oil mill and to me at that time the important thing is that it
covered the new oil mill because it is just within one
compound and there are only two oil mill[s] and so just
enough, I had the policy prepared. In fact, two policies were
prepared having the same date one for the old one and the other
for the new oil mill and exactly the same policy period,
sir."14 (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the
preparation of the written contract.
These facts lead us to hold that the present case falls within one of the
recognized exceptions to the parole evidence rule. Under the Rules of

Court, a party may present evidence to modify, explain or add to the

terms of the written agreement if he puts in issue in his pleading, among
others, its failure to express the true intent and agreement of the parties
thereto.15 Here, the contractual intention of the parties cannot be
understood from a mere reading of the instrument. Thus, while the
contract explicitly stipulated that it was for the insurance of the new oil
mill, the boundary description written on the policy concededly pertains to
the first oil mill. This irreconcilable difference can only be clarified by
admitting evidence aliunde, which will explain the imperfection and clarify
the intent of the parties.
Anent petitioner's argument that the respondent is barred by estoppel
from claiming that the description of the insured oil mill in the policy was
wrong, we find that the same proceeds from a wrong assumption.
Evidence on record reveals that respondent's operating manager, Mr.
Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom
respondent negotiated for the contract) about the inaccurate description
in the policy. However, Mr. Borja assured Mr. Tantuco that the use of the
adjective new will distinguish the insured property. The assurance
convinced respondent, despite the impreciseness in the specification of
the boundaries, the insurance will cover the new oil mill. This can be seen
from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q:
You mentioned, sir, that at least in so far as Exhibit A is
concern you have read what the policy contents. (sic)
Kindly take a look in the page of Exhibit A which was marked as
Exhibit A-2 particularly the boundaries of the property insured by
the insurance policy Exhibit A, will you tell us as the manager of the
company whether the boundaries stated in Exhibit A-2 are the
boundaries of the old (sic) mill that was burned or not.
A:
It was not, I called up Mr. Borja regarding this matter and he
told me that what is important is the word new oil mill. Mr. Borja
said, as a matter of fact, you can never insured (sic) one property

with two (2) policies, you will only do that if you will make to
increase the amount and it is by indorsement not by another policy,
sir.,16
We again stress that the object of the court in construing a contract is to
ascertain the intent of the parties to the contract and to enforce the
agreement which the parties have entered into. In determining what the
parties intended, the courts will read and construe the policy as a whole
and if possible, give effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of doubt, this doubt is to
be resolved against the insurer. In determining the intent of the parties to
the contract, the courts will consider the purpose and object of the
contract.17
In a further attempt to avoid liability, petitioner claims that respondent
forfeited the renewal policy for its failure to pay the full amount of the
premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondent's own witness, Mr. Borja,
which the petitioner cited, the former only paid it P75,147.00, leaving a
difference of P14,623.20. The deficiency, petitioner argues, suffices to
invalidate the policy, in accordance with Section 77 of the Insurance
Code.18
The Court of Appeals refused to consider this contention of the petitioner.
It held that this issue was raised for the first time on appeal, hence,
beyond its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the
Rules of Court.19
Petitioner, however, contests this finding of the appellate court. It insists
that the issue was raised in paragraph 24 of its Answer, viz.:
"24. Plaintiff has not complied with the condition of the policy and
renewal certificate that the renewal premium should be paid on or
before renewal date."

Petitioner adds that the issue was the subject of the cross-examination of
Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec.
361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner
made in paragraph 24 of its Answer ostensibly spoke of the policy's
condition for payment of the renewal premium on time and respondent's
non-compliance with it. Yet, it did not contain any specific and definite
allegation that respondent did not pay the premium, or that it did not pay
the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated
at the pre-trial proceedings, the question of the supposed inadequate
payment was never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the
premium. The thrust of the cross-examination of Mr. Borja, on the other
hand, was not for the purpose of proving this fact. Though it briefly
touched on the alleged deficiency, such was made in the course of
discussing a discount or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borja's testimony, both
during direct and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that he was called to
the stand basically to demonstrate that an existing policy issued by the
petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of
the Fire Extinguishing Appliances Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
-

PORTABLE EXTINGUISHERS

INTERNAL HYDRANTS

EXTERNAL HYDRANTS

FIRE PUMP

24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur." 20

building were: (1) numerous portable fire extinguishers, (2) an emergency

fire engine, and (3) a fire hose which has a connection to one of the
external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision,
the instant petition is hereby DISMISSED.
SO ORDERED.

Petitioner argues that the warranty clearly obligates the insured to

maintain all the appliances specified therein. The breach occurred when
the respondent failed to install internal fire hydrants inside the burned
building as warranted. This fact was admitted by the oil mill's expeller
operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate court's
conclusion that the aforementioned warranty did not require respondent
to provide for all the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the appliances are
restricted to those mentioned in the warranty. In other words, what the
warranty mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting
equipments such as, but not limited to, those identified in the list, which
will serve as the oil mill's first line of defense in case any part of it bursts
into flame.
To be sure, respondent was able to comply with the warranty. Within the
vicinity of the new oil mill can be found the following devices: numerous
portable fire extinguishers, two fire hoses,21 fire hydrant,22 and an
emergency fire engine.23 All of these equipments were in efficient working
order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed
against the insurer, but they should, likewise, by themselves be
reasonably interpreted.24 That reasonableness is to be ascertained in light
of the factual conditions prevailing in each case. Here, we find that there
is no more need for an internal hydrant considering that inside the burned

G.R. No. 125678

March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

APPEALS and JULITA TRINOS, respondents.

vs. COURT OF

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a

health care coverage with petitioner Philamcare Health Systems, Inc. In
the standard application form, he answered no to the following question:
Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer,
liver disease, asthma or peptic ulcer? (If Yes, give details). 1

The application was approved for a period of one year from March 1, 1988
to March 1, 1989. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondents husband was entitled to
avail of hospitalization benefits, whether ordinary or emergency, listed
therein. He was also entitled to avail of "out-patient benefits" such as
annual physical examinations, preventive health care and other outpatient services.

WHEREFORE, in view of the forgoing, the Court renders judgment in

favor of the plaintiff Julita Trinos, ordering:

Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.2

2. Defendants to pay the reduced amount of moral damages of

P10,000.00 to plaintiff;

During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning
March 9, 1990. While her husband was in the hospital, respondent tried to
claim the benefits under the health care agreement. However, petitioner
denied her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding Ernanis
medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a
physical therapist at home. Later, he was admitted at the Chinese General
Hospital. Due to financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990, Ernani had fever
and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No. 9053795. She asked for reimbursement of her expenses plus moral damages
and attorneys fees. After trial, the lower court ruled against
petitioners, viz:

1. Defendants to pay and reimburse the medical and hospital

coverage of the late Ernani Trinos in the amount of P76,000.00 plus
interest, until the amount is fully paid to plaintiff who paid the
same;

3. Defendants to pay the reduced amount of P10,000.00 as

exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of
suit. SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but
deleted
all
awards
for
damages
and
absolved
petitioner
4
Reverente. Petitioners motion for reconsideration was denied. 5 Hence,
petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance Code 6 does not
apply.1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may immediately
enjoy so long as he is alive upon effectivity of the agreement until its
expiration one-year thereafter. Petitioner also points out that only medical
and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is
indemnified for his loss. Moreover, since Health Care Agreements are only
for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply,
as the same requires an effectivity period of at least two years. Petitioner
further argues that it is not an insurance company, which is governed by

the Insurance Commission, but a Health Maintenance Organization under

the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk;
and
5. In consideration of the insurers promise, the insured pays a
premium.8
Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of
money, respecting property or service, of which death or illness
might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in
him depends.

In the case at bar, the insurable interest of respondents husband in

obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated contingent,
the health care provider must pay for the same to the extent agreed upon
under the contract.
Petitioner argues that respondents husband concealed a material fact in
his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this application
are full, complete and true and bind all parties in interest under the
Agreement herein applied for, that there shall be no contract of
health care coverage unless and until an Agreement is issued on
this application and the full Membership Fee according to the mode
of payment applied for is actually paid during the lifetime and good
health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application;that any physician is, by
these presents, expressly authorized to disclose or give testimony

at anytime relative to any information acquired by him in his

professional capacity upon any question affecting the eligibility for
health care coverage of the Proposed Members and that the
acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as
stated in the space for Home Office Endorsement. 11 (Underscoring
ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that has any
record or knowledge of my health and/or that of __________ to give
to the PhilamCare Health Systems, Inc. any and all information
relative to any hospitalization, consultation, treatment or any other
medical advice or examination. This authorization is in connection
with the application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material information
by the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall
be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation
would have resulted in the declination of the applicant by
Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for. 13
The answer assailed by petitioner was in response to the question relating
to the medical history of the applicant. This largely depends on opinion
rather than fact, especially coming from respondents husband who was

not a medical doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a
policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy if
there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule
although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer
is not justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between such a
case and one in which the insured is fraudulently and intentionally
states to be true, as a matter of expectation or belief, that which he
then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the
intent to deceive the insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract. 16 Concealment as a defense
for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with
or without the authority to investigate, petitioner is liable for claims made
under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the
end, the liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on the
contract.17 In this case, no rescission was made. Besides, the cancellation
of health care agreements as in insurance policies require the concurrence
of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from noncompliance with his obligation.19 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. 20 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.21 This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the one
at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction
conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondents husband, we
quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership
of the patient if he had previous ailment of asthma, and six months
from the issuance of the agreement if the patient was sick of

diabetes or hypertension. The periods having expired, the defense

of concealment or misrepresentation no longer lie. 23
Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still alive.
The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the expenses.
It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the deceaseds
hospitalization, medication and the professional fees of the attending
physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED. SO ORDERED.
G.R. No. L-9186

April 29, 1957

COLLECTOR OF INTERNAL REVENUE, petitioner, vs. JUAN ISASI, M.

SALUSTIANA ALDECOA, CLAUDIO ZULOAGA, MIREN ZULOAGA,
HUGO
P.
RODRIGUEZ,
and
THE
COURT
OF
TAX
APPEALS, respondents. Office of the Solicitor General Ambrosio Padilla,
Solicitor Jose Alejandro, Solicitor Conrado T. Limcaoco, Pedro P. Magaliman
and Zoilo R. Sandoval for petitioner. Emilio Abello and Hugo P. Rodriguez
for respondents.
Juan Isasi, M. Salustiana Aldecoa assisted by her husband Jesus Isasi,
Claudio Zuloaga, Jr., Miren Zuloaga and Hugo P. Rodriguez in his capacity
as Liquidator of the Partnership Aldecoa, Zuloaga and Isasi, instituted
originally this case against the Collector of Internal Revenue of the
Republic of the Philippines in the Court of First Instance of Negros
Occidental (Civil Case No. 2028), but by virtue of the enactment of
Republic Act No. 1125, creating the Court of Tax Appeals, same was
remanded to the latter Court in accordance with section 22 of said Act.

From the agreed stipulation of facts and other pleadings filed by the
parties, it appears that plaintiffs Juan Isasi, M. Salustiana Aldecoa, Claudio
Zuloaga, Jr., and Miren Zuloaga formed a partnership known as "Aldecoa,
Zuloaga e Isasi" organized principally for the exploitation, development
and utilization of Haciendas Manucao and Conchita, located in the
municipalities of Binalbagan and Hinigaran, Negros, Occidental. The
partnership agreement "Escritura de Constitucion de la Sociedad Agricola
Aldecoa, Zuloaga e Isasi" was duly registered on October 27, 1947.
The records show that for the tax years 1948 and 1949, the firm Aldecoa,
Zuloaga e Isasi filed its income tax returns and the Collector of Internal
Revenue assessed the sum of P26,873.66 against said partnership which
the latter paid and that the members of the partnership filed their
individual income tax returns for the years 1948, 1949, 1950 and 1951, in
which returns they indicated the shares of the profit or dividends that they
allege to have received from the partnership. On June 30, 1951, the
partners agreed to dissolve the partnership and the agreement of
dissolution was duly recorded in the Securities and Exchange Commission
on October 25, 1951, wherein plaintiff Hugo P. Rodriguez was appointed as
liquidator.

income tax. The Fiscal further set up the affirmative defense that it being
a civil partnership, whether registered or not, Aldecoa, Zuloaga e Isasi
could be taxed as a corporation under Section 24 of the National Internal
Revenue Code. He therefore prayed that the complaint be dismissed with
costs against plaintiffs.
After the parties had filed their respective memoranda, the of Tax Appeals
which took the case rendered a decision ordering defendant to refund the
sum of P26,873.66, without costs, and making the following
pronouncements:
In view of the foregoing, we are, therefore, of the opinion and so
hold that the partnership "Aldecoa, Zuloaga e Isasi" was a duly
registered general co-partnership (compania colectiva) with the
meaning and contemplation of sections 24 and 26 of the National
Internal Revenue Code and as such it is not liable for income tax as
a juridical person although the partners composing it are liable in
their individual capacity. Since it is admitted that during the
calendar years 1948, 1949, 1950 and 1951, the plaintiff partners
Juan Isasi, M. Salustiana Aldecoa, Claudio Zuloaga and Zuloaga of
the said partnership had filed their respective individual income tax
returns, and in these returns, the said plaintiff partners indicated
the amounts they had received as income from the partnership and
paid the income tax assessed against them by the defendant
Collector of Internal Revenue on account thereof, the total amount
of P26,873.66 paid by the partnership "Aldecoa, Zuloaga e Isasi" as
income tax for the fiscal years from July 1, 1948, to June 30, 1950,
is therefore refundable.

Believing that the partnership "Aldecoa, Zuloaga e Isasi" was a duly

registered general co-partnership (sociedad colectiva) and therefore not
subject to income tax under Section 24 of the National Internal Revenue
Code, plaintiffs filed with defendant on July 16, 1951, a claim for the
refund of P26,873.66 which the partnership had paid as income tax. The
claim for refund not having been acted upon by defendant, a complaint
was filed with the Court of First Instance of Negros Occidental on August 4,
1951, praying the defendant be ordered to return to plaintiffs the
aforementioned sum with costs, and for such other remedies as may be
just and equitable in the premises.

From this decision, defendant filed with this Court a petition to review the
said decision making the following assignment of errors:

On September 14, 1951, the Provincial Fiscal of Negros Occidental

answered the complaint admitting some of the averments thereof and at
the same time denying plaintiff's allegations that Aldecoa, Zuloaga e Isasi
is a general or regular collective partnership, the truth being said
partnership was a limited partnership and as such cannot be exempt from

1. That the respondent Court of Tax Appeals erred in holding that

the term "duly registered general co-partnership (sociedad
colectiva)" found in sections 24 and 26 of the National Internal
Revenue Code includes civil partnerships which have adopted the
form of compaias colectivas and (were) duly registered;

2. That the respondent Court of Tax Appeals erred in finding that

the partnership "Aldecoa, Zuloaga e Isasi" has adopted the form of
general partnership (sociedad colectiva) under the Code of
Commerce; and
3. That the respondent Court of Tax Appeals Erred in holding that
the partnership "Aldecoa, Zuloaga e Isasi" was a duly registered
general co-partnership (sociedad colectiva) within the meaning and
contemplation of the aforesaid sections of the Tax Code and was
not therefore liable to pay income tax.
The dispute arose from a divergence of opinion as to the proper
interpretation and application of sections 24 and 26 of the National
Revenue Code, which reads as follows:
SEC. 24. RATE OF TAX ON CORPORATIONS. There shall be levied,
assessed, collective and paid annually upon the total net income
received in the proceeding taxable year from all sources by every
corporation organized in, or existing under the laws of the
Philippines no matter how created or organizedbut not including
duly registered general co-partnership (compaias colectivas), a tax
upon such income equal to the sum of the following: . . .
Sec. 26. TAX LIABILITY OF MEMBERS OF DULY REGISTERED
GENERAL CO.-PARTNERSHIPS. Persons carrying on business in
general co-partnership (compaia colectiva) duly registered in the
mercantile registry shall be liable for income tax only in their
individual capacity, and the share of the profits of the registered
general co-partnership (compaia colectiva) to which any taxable
partner would be entitled, whether divided or otherwise, shall be
returned for taxation and the tax paid in accordance with the
provisions of this Title.
It shall be noted in the case at bar that the cause of action accrued before
the effectivity of the new Civil Code and, therefore, it is to be governed by
the pertinent provisions of the old Civil Code (Art. 2253, new Civil Code)
and the Code of Commerce, although the provisions of the latter Code on

partnership have been repealed by Article 2270, No. 2, of the new Civil
Code.
Under the old codes, there was a distinction between civil and commercial
partnership and since sections 24 and 26 of the Tax Code, under which
respondent partners claim their right to be refunded, expressly exempts
from corporation tax "duly registered general co-partnerships"
(sociedades colectivas), respondent partners maintain that their defunct
partnership (which by its purposes and scope seemed to partake of the
nature of a civil partnership), was dully registered and had the form and
style of a general co-partnership and is, therefore, entitled to the
exemption. They also advanced the theory that a partnership, whether
civil or commercial, would be entitled to the exemption as long as it is a
general partnership, because the Tax Code makes qualification to this
effect.
The issues left for Us to determine in this appeal are: whether the term
duly registered general co-partnership (sociedades colectivas) used in
sections 24 and 26 of the Tax Code includes both the commercial civil
ones, and whether the partnership Aldecoa, Zuloaga e Isasi falls within
said classification and hence entitled to the benefit granted therein.
There is no dispute that the partnership agreement entered into by the
respondent partners was styled "Escritura de Constitucion de la Sociedad
Agricola Limitada Aldecoa, Zuloaga e Isasi", thereby giving said
partnership is a limited one. On the other hand, said agreement specifies
that the primary purpose for which the partnership was organized was the
exploitation of the two haciendas "Manucao" and "Conchita", as stated in
paragraph 3 thereof which declares that:
3.o Que el objeto de la sociedad es la rehabilitation de las
haciendas citadas y de sus pertenencias, y la explotacion agricola
de las mismas, en la forma que crea oportuno el gerente de la
misma, y para llevar a cabo dicho objeto y los fines generales de la
sociedad, la misma podra:

and petitioner contends, that this clause clearly indicates that

respondents' partnership was a civil partnership which justifies petitioner's
stand in collecting the taxes in question. In passing upon this point, We
must take into consideration the provision of the old Civil Code which
states that:
Art. 1670. Partnerships which on account of the purpose to which
they devoted are civil may adopt any of the forms recognized by
the Code of Commerce. In such cases its provisions shall be
applicable to them in so far they do no conflict with those of this
Code,
and Chief Justice Arellano saw fit to apply this particular provision in his
concurring opinion in the case ofCompaia Agricola de Ultramar vs. Reyes,
4 Phil., 2, by enunciating that:
The civil partnership without ceasing to be, civil by reason of its
object maybe created in all forms recognized in the code of
Commerce. It may be a collective or general partnership, a
partnership oncomandita or an anonymous partnership. In this case
if it will adopt the form of a general partnership then the provisions
of Article 125 to 144 inclusive would be applicable to it. If it would
adopt the form a partnership on comandita then Articles 145 to 150
would be applicable and if the form is that of an anonymous
partnership then the provisions of Articles 157 to 174 of the Code of
Commerce would be applicable in so far as they are in no conflict
with the articles of the present code.
From the above-quoted opinion, a civil partnership adopting a form
recognized by the Code of Commerce (sociedad colectiva) does not
necessarily cease to be a civil partnership. Members of a partnership
organized for civil purposes may form themselves into a general or
collective partnership (sociedad colectiva) which is sanctioned by Sections
125 to 144 of the Code of Commerce and register as such in the registry
in which case their obligations and liabilities will be governed by the
provisions of said Code as long as they are not in conflict with the Civil
Code. This organization in mercantile form does not transform the civil

partnership into a commercial one, but just the same it is a sociedad

colectiva, and since Sections 24 and 26 of the Tax Code duly registered
general co-partnership (Compaia colectiva)", there is no reason why a
civil organized in accordance with the provisions of the Code of Commerce
and duly registered as such should not fall within the exemption provided
for in said Sections of the Tax Code.
IN VIEW OF THIS CONCLUSION, we now have to
partnership Aldecoa, Zuloaga e Isasi has adopted
partnership
(compaia
colectiva)
or
Agricola Limitada Aldecoa, Zuloaga e Isasi", as
named their own association.

find out whether the

the form of a general
of
a
"Sociedad
the partners thereof

Article 122 of the Code of Commerce prescribes the following:

ART. 122. As a general rule commercial associations shall be
established by the adoption of any of the following forms:
1. The regular general co-partnership in which all the partners,
under a collective commercial name, bind themselves participate,
in the proportion they establish in the same rights and obligations.
2. The limited co-partnership to which one or more persons
contribute a specific amount of capital to a common fund, to
become liable for the business transactions of the firm executed
exclusively by others under a collective name.
3. (The provisions of this paragraph have been repealed by the
Corporation Law).
Even a casual scrutiny of the partnership agreement executed by the
respondent partners would reveal that they followed the pattern set for
the pattern set for the regular co-partnership (Arts. 122, No. 2, 125, 126,
131, 133 and 136 of the Code of Commerce). They have a firm name
Aldecoa, Zuloaga e Isasi; that firm name was composed of all the
surnames of the partners to which the words "and company" (to
indicate the limited partnership Art. 146 of the Code of Commerce) is

not added; the management of the firm was entrusted to a partner, Don
Juan Isasi; the contribution of all the partners was expressly provided
therein there being no person Contributing a specific amount of capital
to a common fund to become liable for the business transactions of the
firm executedexclusively by others under a collective name, as is the case
in limited partnerships (Art. 122, No. 2, Code of Commerce); the duration
of the partnership was made to last until June 30, 1952; and it allowed its
manager, Don Juan Isasi to engage in the same kind of undertaking. It is
unmistakable, notwithstanding the title of the partnership agreement
(Escritura de Constitucion de la Sociedad Agricola Limitada Aldecoa,
Zuloaga e Isasi), that the partners intended to organize a general
partnership under the Code of Commerce. For this reason, We agree with
the Court of Tax Appeals when it states:
To establish a limited partnership there must be at least one
general partner and the name of at least one of the general
partners must appear in the firm name. (Articles 122(2), 146, 148,
Code of Commerce). If these requisites are not complied with, the
partnership, notwithstanding the fact that the articles of association
are entitled "limited partnership" (Jo Chung Cang vs. Pacific
Commercial Co., 45 Phil. 142). An examination of the firm name of
the partnership "Aldecoa, Zuloaga e Isasi" will readily show that
neither of this requirements have been fulfilled; instead it operated
under the name of all its members of some of them, or of only one
(without necessarily adding to the name of names stated in last two
cases, the words "and company" (par. 1, Art. 126, Code of
Commerce). A limited partnership that has not complied with the
law of its creation is not considered a limited partnership at all, but
a general partnership in which all the members are liable (Hechen,
Elements of Partnership, p. 412; Gilmore, Partnership, p. 499; 20
R.C.L. 1064). Moreover, a limited partnership cannot perform any
act in the management of the partner interests and cannot even
examine the condition and state of partnership administration
except at stated times. (Articles 122 (2), 148 and 150, Code of
Commerce), unlike the partnership Aldecoa, Zuloaga e Isasi,

wherein all the partners exercised powers of management and

administration.
We, therefore, declare that the Partnership "Aldecoa, Zuloaga e Isasi" was
a duly registered general co-partnership (sociedad colectiva) within the
meaning and contemplation of sections 24 and 26 of the National Internal
Revenue Code. Wherefore, the decision appealed from is hereby affirmed,
without pronouncement as to costs. It is so ordered.
G.R. No. L-25007

March 2, 1926

PACIFIC COMMERCIAL COMPANY, plaintiff-appellee, vs. ABOITIZ &

MARTINEZ, ET AL., defendants. JOSE MARTINEZ, defendant-appellant.
Espina
&
Espina
for
appellant.
Block, Johnston & Greenbaum for appellee.
In April, 1919 Arnaldo F. de Silva, Guillermo Aboitiz, Vidal Aboitiz and Jose
Martinez formed a "regular, collective, merchantile partnership" with a
capital of P40,000 of which each of the partners Aboitiz and De Silva
furnished one-third. The partner Jose Martinez was an industrial partner
and furnished no capital; it was provided in the partnership article that he
was to receive 30 per cent of the profits and that his responsibility for
losses should not exceed the amount of the profits received by him.
On April 27, 1922, the partnership, through its duly authorized
representative, Guillermo Aboitiz, executed a promissory note in favor of
the plaintiff the Pacific Commercial Company for the sum of P23,168.71,
with interest at 12 per cent per annum until fully paid as additional sum of
10 per cent as attorney's fees and costs of collection in the event it
became necessary to resort to judicial proceedings. As security for the
payment of the note, the partnership executed a chattel mortgage in favor
of the plaintiff on certain personal property therein described.
For failure of the partnership to pay the debt the chattel mortgage was
foreclosed the mortgages property sold and the proceeds of the sale,
P2,000 was paid over to the plaintiff on December 28, 1923. No further
payment on the note appears to have been made and January 4, 1924,

the present action was brought for the recovery of the unpaid balance
with interest. Upon trial the court below rendered judgment in favor of the
plaintiff and against the partnership for the sum of P27,951.68 and for the
payment of interest on the capital of P21,168.71 at the rate of 10 per cent
per annum from the 31st October, 1924, until paid, together with 10 per
cent on the amount due for fees for collection in accordance with the
terms of the aforesaid note. The judgment further provided that execution
should first issue against the property of the partnership should first issue
against the insolvency of the partnership, it might issue against the
property of the partners De Silva and Aboitiz and in the event of their
insolvency, then against the property of the industrial partner Jose
Martinez. From this judgment Martinez appealed to this court and here
maintains that under article 141 of the Code of Commerce he, as a mere
industrial partner, cannot be held responsible for the partnership's debt.
The case is practically identical with that of the Compania Maritima vs.
Munoz (9 Phil., 326), in which this court held the industrial partners
secondarily liable for the debts of the partnership but on the strength of
the vigorous dissenting opinion of Chief Justice Arellano in that case, that
appellant argues that the decision therein was erroneous and should now
be overruled. With all due respect for the legal acumen of the first Chief
Justice of this Court, we are still of the opinion that the case was correctly
decided. Article 127 of the Code of Commerce reads as follows:
All the members of the general copartnership, be they or be they
not managing partners of the same are liable personally and in
solidum with all their property for the results of the transaction
made in the name and for the account of the partnership, under the
signature of the later, and by a person authorized to make use
thereof.
The language of this article is clear and specific that all the members of a
general copartnership are liable with all their property for the results of
the duly authorized transactions made in the name and for the account of
the partnership. On the other hand, article 141, upon which the appellants
relies and which provides that "losses shall be computed in the same
proportion among the capitalist partners without including the industrial

partners, unless by special agreement the latter have been constituted as

participants therein," is susceptible of two different interpretations of
which that given it in the Compania Maritima case, supra, i. e., that it
relates merely to the distribution of losses among the partners themselves
in the settlement of the partnership affairs and has no reference to
partnership obligations to third parties, appears to us to be the more
logical.
There is a marked distinction between a liability and a loss and the
inability of a partnership to pay a debt to a third party at a particular time
does not necessarily mean that the partnership business as a whole, has
been operated at a loss. The partnership may have outstanding credits
which for the moment may have be unavailable for the payment of debts,
but which eventually may be realized upon and yield profits more than
sufficient to cover all losses. Bearing this in mind it will be found that
there in reality is no conflict between the two articles quoted; one speaks
of liabilities, the other of losses.
The judgment appealed from is affirmed with the costs against the
appellant. So ordered.

G.R. No. 186557

August 25, 2010

NEGROS
METAL
CORPORATION, Petitioner,
LAMAYO, Respondent.

vs.

ARMELO

J.

Armelo J. Lamayo (respondent) began working for Negros Metal

Corporation (petitioner or the company) in September 1999 as a
machinist.
Sometime in May 2002, while respondent was at the companys foundry
grinding some tools he was using, William Uy, Sr. (Uy), company manager,
called his attention why he was using the grinder there to which he replied
that since the machine there was bigger, he would finish his work faster.
Respondents explanation was found unsatisfactory, hence, he was, via
memorandum, charged of loitering and warned. 1 Taking the warning as a
three-day suspension as penalized under company rules, respondent
reported for work after three days, only to be meted with another 10-day
suspension2 from May 30 to June 10, 2002, for allegedly failing to sign
the memorandum suspending him earlier.
After serving the second suspension, respondent reported for work on June
11, 2002 but was informed by Uy that his services had been terminated
and that he should draft his resignation letter, drawing respondent to file
on June 17, 2002 a complaint3 for illegal dismissal.
In
lieu
of
a
position
paper,
petitioner
submitted
a
Manifestation4 contending that the complaint should be dismissed
because the Labor Arbiter had no jurisdiction over it since, under their
Collective Bargaining Agreement5 (CBA), such matters must first be
brought before the companys grievance machinery.
By Decision6 of December 29, 2004, the Labor Arbiter, brushing aside
petitioners position, held that respondent was illegally dismissed. The
dispositive portion of the said Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. DECLARING
respondents;

that

complainant

was

illegally

dismissed

by

2. ORDERING respondent to pay complainant the total amount

of P178,978.48 representing payment for separation pay, back
wages and 13th month pay, plus 10% thereof as attorneys fees in
the amount ofP17,897.85, or in the total amount of
ONE HUNDRED NINETY SIX THOUSAND EIGHTH HUNDRED SEVENTY SIX
PESOS & 33/100 (P196,876.33) the same to be deposited with the Cashier
of this Office, within ten (10) calendar days from receipt of this Decision.
On petitioners appeal, the National Labor Relations Commission (NLRC),
by Resolution7 of March 30, 2006, set aside the ruling of, and remanded
the case to, the Labor Arbiter for disposition based on the companys
grievance procedure. It held that based on a letter of the company union
president Arturo Ronquillo (Ronquillo), respondent invoked the CBA
provision
on
grievance
procedure.
Respondents
Motion
for
8
Reconsideration was denied by the NLRC by Resolution of June 27, 2006.
He thereupon appealed to the Court of Appeals.
By Decision9 of March 25, 2008, the appellate court set aside the NLRC
Resolutions and reinstated the Labor Arbiters Decision. It held that the
Labor Arbiter had jurisdiction to hear the complaint; that as respondents
dismissal did not proceed from the parties interpretation of or
implementation of the CBA, it is not covered by the grievance machinery
procedure; that the laws and rules governing illegal dismissal are not to be
found in the parties CBA but in the labor statutes, hence, the Labor
Arbiter had jurisdiction; and that although the option to go through the
grievance machinery was stated in Ronquillos letter 10 to petitioner,
respondent denied having made that option as he had ceased to be a
member of the union, as evidenced by a March 20, 2001 Certification 11 of
the unions past president Alex Sanio that he had resigned effective March
18, 2001. The appellate court went on to hold that, at that point, it was
too late to direct the parties to go through the grievance machinery.
In holding that respondent was illegally dismissed, the appellate court
noted that he was not allowed to go back to work after serving two
suspensions, without affording him the requisite notice and hearing; and
that respondents failure to seek reinstatement did not negate his claim

for illegal dismissal, there being nothing wrong in opting for separation
pay in lieu of reinstatement.
Petitioners motion for reconsideration having been denied by
Resolution12 of January 21, 2009, it interposed the present petition for
review on certiorari, maintaining that the grievance machinery procedure
should have been followed first before respondents complaint for illegal
dismissal could be given due course.
The petition fails.
Articles 217, 261, and 262 of the Labor Code outline the jurisdiction of
labor arbiters and voluntary arbitrators as follows:
Art. 217. Jurisdiction of the Labor Arbiters and the Commission. - (a)
Except as otherwise provided under this Code, the Labor Arbiters shall
have original and exclusive jurisdiction to hear and decide, within thirty
(30) calendar days after the submission of the case by the parties for
decision without extension, even in the absence of stenographic notes,
the following cases involving all workers, whether agricultural or nonagricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wages, rates of pay, hours of
work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code,
including questions involving the legality of strikes and
lockouts; and

6. Except claims for Employees Compensation, Social

Security, Medicare and maternity benefits, all other claims
arising from employer-employee relations, including those of
persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over
all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of
collective bargaining agreements and those arising from the
interpretation or enforcement of company personnel policies shall
be disposed of by the Labor Arbiter by referring the same to the
grievance machinery and voluntary arbitration as may be provided
in said agreements. (emphasis and underscoring supplied)
xxxx
Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary
Arbitrators. - The Voluntary Arbitrator or panel of Voluntary
Arbitrators shall have original and exclusive jurisdiction to hear
and
decide
allunresolved
grievances
arising
from
the
interpretation or implementation of the Collective Bargaining
Agreement and those arising from the interpretation or
enforcement of company personnel policiesreferred to in the
immediately preceding article. Accordingly, violations of a Collective
Bargaining Agreement, except those which are gross in character, shall no
longer be treated as unfair labor practice and shall be resolved as
grievances under the Collective Bargaining Agreement. For purposes of
this article, gross violations of Collective Bargaining Agreement shall mean
flagrant and/or malicious refusal to comply with the economic provisions
of such agreement.
The Commission, its Regional Offices and the Regional Directors of the
Department of Labor and Employment shall not entertain disputes,

grievances or matters under the exclusive and original jurisdiction of the

Voluntary Arbitrator or panel of Voluntary Arbitrators and shall
immediately dispose and refer the same to the Grievance Machinery or
Voluntary Arbitration provided in the Collective Bargaining Agreement.
(emphasis and underscoring supplied)
ART. 262. Jurisdiction over other labor disputes. - The Voluntary
Arbitrator or panel of Voluntary Arbitrators,upon agreement of
the parties, shall also hear and decide all other labor
disputes including unfair labor practices and bargaining deadlocks.
(emphasis and underscoring supplied)
Under
Art.
217,
it
is
clear
that
a labor
arbiter has original and exclusive jurisdiction over termination disputes.
On
the
other
hand,
under
Article
261,
a voluntary
arbitrator has original and exclusive jurisdiction over grievances arising
from the interpretation or enforcement of company policies.
As a general rule then, termination disputes should be brought before a
labor arbiter, except when the parties, under Art. 262, unmistakably
express that they agree to submit the same to voluntary arbitration. 13
In the present case, the CBA provision on grievance machinery being
invoked by petitioner does not expressly state that termination disputes
are included in the ambit of what may be brought before the companys
grievance machinery. Thus, the pertinent provision in the parties CBA
reads:
Article IV
GRIEVANCE MACHINERY
Section 1. The parties hereto agree on principle that all disputes between
labor and management may be settled through friendly negotiations that
the parties have the same interest in the continuity of work until all points
in dispute shall have been discussed and settled. x x x For this purpose,
a grievance is defined as anydisagreement between the UNION

and the EMPLOYER or between a worker or group of workers on

one hand and the EMPLOYER on the one hand as to the
application and interpretation of any of the provisions of this
contract. Other matters subject of collective bargaining or regulated by
existing labor laws shall not be considered as grievances. (emphasis and
underscoring supplied)
Even assuming, however, that the suspension of an employee may be
considered as a "disagreement" which bears on the "application and
interpretation of any of the provisions" of the CBA, respondent could not
have bound himself to bring the matter of his suspension to grievance
procedure or voluntary arbitration in light of the documented fact that he
had resigned from the union more than a year before his suspension, not
to mention the fact that he denied having a hand in the preparation of the
union
president
Ronquillos
letter
invoking
the
grievance
procedure.1avvphi1 In fine, the labor tribunal had original and exclusive
jurisdiction over respondents complaint for illegal dismissal.
On the merits, as did the appellate court, the Court sustains the Labor
Arbiters ruling that respondent was illegally dismissed absent a showing
that he was accorded due process when he was summarily terminated.
The Court is not a trier of facts. It is not tasked to review the evidence on
record, documentary and testimonial, and reassess the probative weight
thereof, especially in view of the well-entrenched rule that findings of fact
of administrative officials, such as labor arbiters, who have acquired
expertise on account of their specialized jurisdiction are accorded by the
courts not only respect but, most often, with finality, particularly when
affirmed on appeal.
WHEREFORE, the petition is DENIED.
SO ORDERED.

G.R. No. 101875 July 14, 1995

CASIANO A. NAVARRO III, petitioner, vs. HON. ISRAEL D. DAMASCO,
in his capacity as VOLUNTARY ARBITRATOR, and BUSCO SUGAR
MILLING CO., INC., respondents.

This is a petition for certiorari to reverse the Decision dated August 16,
1991 of the Voluntary Arbitrator, respondent Israel D. Damasco, declaring
as valid the separation from employment of petitioner. We dismiss the
petition.
I
Petitioner was employed as typist of private respondent at its plant in
Quezon, Bukidnon.
At about 5:00 P.M. of November 27, 1990, petitioner went to visit Mercy
Baylas, a co-employee, at the ladies' dormitory inside the compound of
private respondent. Upon seeing petitioner, Baylas hid behind the divider
at the reception room. Rosemarie Basa and Isabel Beleno, co-boarders of
Baylas, told petitioner that Baylas was not at the dormitory and advised
him to stop courting her because she had no feelings towards him.
Afterwards, the two left leaving petitioner alone in the room. When he
peeped behind the divider, he saw Baylas, who stood up without
answering his greetings and ran towards her room. He followed, and after
taking hold of her left hand, pulled her towards him. The force caused her
to fall on the floor. He then placed himself on top of her. She resisted and
futilely struggled to free herself from his grasp. Sonia Armada, the
dormitory housekeeper, responded to Baylas' shouts for help. Armada saw
petitioner embracing and kissing Baylas. She tried to separate petitioner
from Baylas but to no avail. So she went outside and asked Basa and
Beleno to help Baylas. She also asked the help of Edmundo Subong.

Basa and Beleno tried to pull petitioner away from Baylas, but it was
Subong who was able to free Baylas from petitioner.

At the initial conference on March 27, 1991, petitioner, represented by his

counsel, agreed to limit the issues to be submitted to the Voluntary
Arbitrator to the following:

According to the medical report issued by Dr. Letecia P. Maraat, Baylas

complained of pains on her shoulder and left foot.

1. Whether or not the grievance procedure in the CBA for

bringing a case before the Voluntary Arbitrator had been
followed;

On December 5, 1990, petitioner was informed of the complaint against

him and was placed under preventive suspension. Nolito S. Densing, Jr.
was instructed to investigate the incident. In his report dated December
26, 1990, Densing recommended that the maximum penalty be meted out
against petitioner. On January 5, 1991, petitioner was dismissed from the
service for having violated paragraph 3.B (Conduct and Behavior) of the
Code of Employee Discipline, which provides:
1. Inflicting or attempting to inflict bodily injury, in any form,
on fellow employee, with a penalty of dismissal.
2. Immoral conduct within company premises, regardless of
whether or not committed during working time, punishable
by reprimand to dismissal, depending on the prejudice
caused by such act to the company.

2. Whether petitioner's dismissal was legal; and

3. Who was the complainant insofar as the grievance
procedure under the CBA was concerned (Rollo, p. 147).
The parties also agreed to submit the case for decision based on their
position papers.
On August 16, 1991, a decision was rendered by the Voluntary Arbitrator
dismissing petitioner from his employment and holding that private
respondent did not violate the provisions of the grievance procedure
under the Collective Bargaining Agreement.
Not satisfied with the decision, petitioner filed the instant petition.

3. Improper conduct and acts of gross discourtesy or

disrespect to fellow employees at any time within the
company premises punishable by reprimand to dismissal,
depending on the gravity of the offense.
4. Knowingly giving false or untruthful statements or
concealing material facts in an investigation conducted by
authorized representative of the company, punishable by
dismissal ( Rollo, pp. 47-48).
On March 18, 1991, the President of the Mindanao Sugar Workers Union,
for and in behalf of petitioner, and Jaime J. Javier, Personnel Officer of
private respondent, agreed to submit the case of petitioner to voluntary
arbitration.

II
According to petitioner's version, Baylas was his girlfriend, whom he
visited at the ladies' dormitory in the afternoon of November 27, 1990. At
the dormitory, petitioner saw Rosemarie Basa who told him that Baylas
was not around. To prove that Basa was lying, he peeped behind the
divider and saw Baylas hiding there. When Baylas ran towards her room,
petitioner followed her. While running, Baylas lost her balance and fell
down. However, petitioner got hold of her to prevent her from hitting the
floor and to help her to her feet. He denied having kissed and embraced
her. He admitted that Subong arrived and pulled him away from Baylas.
He also admitted that he voluntarily surrendered to the security guards.
III

Petitioner contends that the grievance procedure provided for in the

Collective Bargaining Agreement was not followed; hence, the Voluntary
Arbitrator exceeded his authority when he took cognizance of the labor
case.
Section 2, Article X of the Collective Bargaining Agreement specifies the
instances when the grievance machinery may be availed of, thus:
Any protest or misunderstanding concerning any ruling,
practice or working conditions in the Company, or any
dispute arising as to the meaning, application or claim of
violation of any provision of this Agreement or any complaint
that any employee may have against the COMPANY shall
constitute a grievance ( Rollo, p. 27).
The instant case is not a grievance that must be submitted to the
grievance machinery. What are subject of the grievance procedure for
adjustment and resolution are grievances arising from the interpretation
or implementation of the collective bargaining agreement (Labor Code of
the Philippines, as amended by R.A. No. 6715, Art. 260).
The acts of petitioner involved a violation of the Code of Employee
Discipline, particularly the provision penalizing the immoral conduct of
employees. Consequently, there was no justification for petitioner to
invoke the grievance machinery provisions of the Collective Bargaining
Agreement (Auxilio, Jr. v. National Labor Relations Commission, 188 SCRA
263 [1990]).
The case of petitioner was submitted to voluntary arbitration by
agreement of the president of the labor union to which petitioner belongs,
and his employer, through its personnel officer. Petitioner himself
voluntarily submitted to the jurisdiction of the Voluntary Arbitrator when
he, through his counsel, filed his position paper with the Voluntary
Arbitrator and even submitted additional documentary evidence. In
addition thereto, during the initial conference on March 27, 1991, the
parties manifested that they were not questioning the authority of the
Voluntary Arbitrator.

It is the policy of the State to promote voluntary arbitration as a mode of

settling labor disputes (Manguiat, Mechanisms of Voluntary Arbitration in
Labor Disputes 2-6 [1978]).
Petitioner claims that he was denied due process of law because no
hearing was held and he was not given an opportunity to cross-examine
the witnesses.
We held in Stayfast Philippines Corp.
Commission, 218 SCRA 596 (1993) that:

v.

National

Labor

Relation

The essence of due process is simply an opportunity to be

heard, or as applied to administrative proceedings, an
opportunity to explain one's side or an opportunity to seek a
reconsideration of the action or ruling complained of.
A formal or trial-type hearing is not at all times and in all
instances essential. The requirements are satisfied where the
parties are fair and reasonable opportunity to explain their
side of the controversy at hand. What is frowned upon is the
absolute lack of notice and hearing. . . . (at p. 601).
Concerning the allegation that petitioner was not allowed to crossexamine the witnesses, the record shows that the parties had agreed not
to cross-examine their witnesses anymore.
Petitioner alleges that the quarrel between Baylas and him was a purely
private affair. We do not agree with this contention. It will be noted that
not only did the incident happen within the company premises, i.e. the
ladies' dormitory which was located inside the plant site, but both of them
are employees of private respondent. Management would then be at the
mercy of its employees if it cannot enforce discipline within company
premises solely because the quarrel is purely personal matter. The
harassment of an employee by a co-employee within the company
premises even after office hours is a work-related matter considering that
the peace of the company is thereby affected. The Code of Employee
Discipline is very clear that immoral conduct "within the company

premises regardless of whether or not [it is] committed during working

time" is punishable.
The pretext of petitioner that he was merely helping Baylas is belied by
the eyewitnesses. Petitioner admitted that it took Subong to pull him away
from Baylas. His alleged act of chivalry is nothing more than a chance to
gratify his amorous feelings.
WHEREFORE, the Decision of the respondent Voluntary Arbitrator is
AFFIRMED. SO ORDERED.
G.R. No. 124915
February 18, 2008
RIZAL SECURITY & PROTECTIVE SERVICES INC., and/or RUFINO S.
ANTONIO, JR., petitioners, vs. HON. DIRECTOR ALEX E. MARAAN,
Regional Sheriff of DOLE, Cordillera Administrative Region, and
RICO GOMEZ, ROLANDO TUPAS, DETECIO VICENTE, EDWIN TUPAS,
ROBERTO RUIZ, RONNIE LEABRES, DENNIS LEABRES, and SANDY
FIGER, respondents.
The Petition brought before this Court is a special civil action under Rule
65 of the Revised Rules of Court, with petitioners praying for the issuance
of a writ of certiorari and a temporary restraining order (TRO) enjoining
from execution the Order1 dated 24 January 1996 issued by public
respondent Alex E. Maraan, then Department of Labor and Employment
(DOLE) Regional Director for the Cordillera Administrative Region (CAR), in
CAR00-9507-CI-25.
Petitioner Rizal Security and Protective Service, Inc. (Rizal Security) is a
corporation organized under Philippine laws and is doing business as a
security agency. Petitioner Rufino S. Antonio, Jr. (Antonio) is the president
of the aforesaid corporation. On the other hand, private respondents were
formerly employed by petitioner Rizal Security as security guards detailed
at Rainbow End Village in Baguio City.
The instant case arose on 19 May 1995, when private respondents Rico
Gomez (Gomez) and Edwin O. Tupas (Tupas), who were then still employed
as security guards of petitioner Rizal Security, filed a Complaint with the
DOLE-CAR Regional Office, docketed as CAR00-9507-CI-25, to seek
assistance regarding petitioners alleged violation of laws on labor
standards, to wit:

1. Illegal deduction of wages

2. Underpayment of night shift differential
3. Underpayment of minimum wage
4. Nonpayment of overtime pay and legal holiday pay
5. Nonpayment of 13th month pay
Pursuant to the visitorial and enforcement powers of the Secretary of
Labor and Employment or his duly authorized representative under Article
128 of the Labor Code, as amended, an inspection was conducted on
petitioner Rizal Securitys establishment by the Labor Inspector on 1 June
1995. The said inspection yielded the following violations as indicated in
the Notice of Inspection Results dated 9 October 1995:
1. Underpayment of wages
2. Underpayment of COLA
3. Nonpayment of overtime pay
4. Nonpayment of service incentive leave
5. Underpayment of Night-Shift Differential
6. Frequency of Payment
7. Nonpayment of 13th month pay
8. No emergency medicines2
Hearings were scheduled by the DOLE-CAR to give petitioners the
opportunity to present their side.
In the meantime, two significant events apparently took place.

First, private respondents signed and submitted a resignation letter

addressed to the personnel manager of petitioner Rizal Security on 10 July
1995, to be effective 1 September 1995.3
And second, a notice of Termination of Services dated 25 July 1995 was
sent by Dominador N. Valmonte, Jr., Resident Manager of Rainbow End
Village to petitioner Antonio, President of co-petitioner Rizal
Security.4Through the said Notice, Rainbow End Village informed petitioner
Rizal Security of the termination of their Security Services also effective 1
September 1995.
In a hearing conducted on 23 October 1995 before the DOLE-CAR Regional
Office, petitioner Rizal Security submitted a Manifestation and Motion
assailing the jurisdiction of the DOLE-CAR Regional Office over the case.
Petitioner Rizal Security alleged that the DOLE-CAR Regional Office had
lost its jurisdiction to try the case considering there was no longer any
employer-employee relationship between petitioner Rizal Security and
private respondents when the latter ceased to be employees of petitioner
Rizal Security due to their resignation effective 1 September 1995.
Thereafter, on 24 January 1996, the DOLE-CAR Regional Office, through
public respondent Director Maraan, issued the assailed Order denying
petitioner Rizal Securitys Manifestation and Motion. It further ordered the
payment of the deficiencies owing the private respondents amounting
to P560,989.70. The Order reads:
WHEREFORE, in the light of the foregoing, the manifestation and motion
filed by the respondent, Rizal Security & Protective Service, through Atty.
Salvador M. Solis, is hereby DENIED and is hereby ORDERED to pay the
computed deficiencies owing to the affected Security Guards in the total
amount of FIVE HUNDRED SIXTY THOUSAND, NINE HUNDRED EIGHTY-NINE
PESOS & 70/100 (P560,989.70) covering eight (8) guards which is hereto
itemized as to the following employees, to wit:

NAME

TOTAL

1. Rico E. Gomez

P 99,088.125

2. Rolando Tupas

P110,377.170

3. Detecio S. Vicente

P107,904.92

4. Edwin Tupas

P113,532.67

5. Roberto P. Ruiz

P110,604.92

6. Ronnie Llabres

P 9,608.25

7. Dennis Llabres

P 6,626.60

8. Sandy Figer

P 3,247.05

P560,989.705

This office further holds Mr. Dominador Valmonte, Resident Manager of

Rainbow End Village, to be jointly and severally liable pursuant to Articles
107 and 109 of the Labor Code of the Philippines.
In view hereof, respondents Mr. Rufino Antonio of Rizal Security and
Protective Service and Mr. Dominador Valmonte, of Rainbow End Village,
are directed to pay the above-stated amount within ten (10) calendar days
from receipt hereof. Otherwise, this Office shall be constrained to issue a
Writ of Execution resulting from non-compliance thereof. 5
Petitioners deny that a copy of such Order was ever officially sent to their
undersigned counsel. According to petitioners counsel:

Despite the fact that the records of the said case disclose that the
appearance of the undersigned as counsel for the petitioner has
been duly acknowledged and recognized, no copy of such Order
was ever sent officially to the undersigned counsel. The
undersigned counsel was able to secure a copy thereof from the
DOLE Regional Office in Baguio City only on June 18, 1996. 6

ground of lack of jurisdiction, from the DOLE-CAR Regional Office to the

National Labor Relations Commission (NLRC) and that judgment be
rendered annulling and setting aside the 24 January 1996 Order and
quashing the 12 March 1996 Writ of Execution.

On 8 May 1996, counsel for petitioners received a copy of the Writ of

Execution dated 12 March 1996 issued by public respondent DOLE-CAR
Director Maraan ordering the Regional Sheriff to enforce the Order dated
24 January 1996. Pertinent portions of the Writ of Execution are quoted
below:

I. THE HONORABLE DOLE REGIONAL DIRECTOR GRAVELY ERRED IN

ISSUING THE ORDER DATED JANUARY 24, 1996 WITHOUT OR IN
EXCESS OF HIS JURISDICTION AND IN NOT ENDORSING THE CASE
TO THE APPROPRIATE BRANCH OF THE NATIONAL LABOR
RELATIONS COMMISSION FOR HEARING.

WHEREAS, a copy of said Order was received by respondent on

February 1, 1996.

II. THE HONORABLE DOLE REGIONAL DIRECTOR GRAVELY ERRED IN

ISSUING THE WRIT OF EXECUTION AGAINST PETITIONERS
PREMATURELY AND CONTRARY TO LAW OR WITHOUT DUE PROCESS
OF LAW.

WHEREAS, the period for appeal has already expired without

respondent having perfected an appeal from said decision.
WHEREAS, the Order has now become final and executory but
respondent has not yet effected the necessary payments of the
Monetary Awards due the employee/s concerned.
NOW THEREFORE, pursuant to the provisions of the Labor Code as
amended as well as the Rules in the disposition of Labor Standard
Cases in the Regional Office, you are hereby directed to cause
Messers. Rufino Antonio/ Dominador Valmonte and/or Rizal Security
and Protective Service with business address at 37 Rainbow End
Village, Tacay Road, Pinsao Proper, Baguio City or wherever
they/he/it may be found to pay the amount of FIVE HUNDRED SIXTY
THOUSAND NINE HUNDRED EIGHTY-NINE (P560,989.70) PESOS and
70/100 plus legal fee for execution in the amount of FIVE
THOUSAND ONE HUNDRED (P5,100.00) PESOS from the goods,
chattels or other properties of the respondent/s and to tender to the
concerned employees through the Department of Labor and
Employment their claims as aforementioned.7
Petitioners are now asking for the issuance of a writ of certiorari and a
Temporary Restraining Order to enjoin public respondents from executing
the Order of 24 January 1996 and from enforcing the Writ of Execution.
Petitioners pray that this Court order that the case be endorsed, on the

Petitioners presented the following assignment of errors:

III. GRANTING FOR THE SAKE OF ARGUMENT THAT THE ORDER

DATED JANUARY 24, 1996 IS VALID, THE HONORABLE DOLE
REGIONAL DIRECTOR GRAVELY ERRED IN DECLARING PETITIONER
RUFINO ANTONIO AS LIABLE JOINTLY AND SEVERALLY FOR THE
PAYMENT OF THE MONETARY CLAIMS OF THE PRIVATE
RESPONDENTS.
The Petition was initially dismissed by this Court on 24 July 1996 for failure
to comply strictly with the Rules of Court in not submitting a certified true
copy of the questioned Writ of Execution dated 12 March 1996. However,
upon Motion for Reconsideration and compliance with the foregoing
requirement, this Court resolved to grant the reconsideration, thus
reinstating the Petition.
The pivotal issue to be resolved in this Petition is whether public
respondent DOLE-CAR Regional Director Maraan acted without jurisdiction
in issuing the Order dated 24 January 1996.
Certiorari being a remedy narrow in its scope and inflexible in character, it
is limited to the issue of jurisdiction and grave abuse of discretion. 8 This is
the same rule followed in applying the Supreme Courts power to review
labor cases which is limited to the issue of jurisdiction and grave abuse of

discretion.9 As this Court has eloquently explained in Condo Suite Club

Travel, Inc. v. National Labor Relations Commission 10:
Resort to a special civil action for certiorari under Rule 65 of the
Rules of Court is limited to the resolution of jurisdictional issues,
that is, lack or excess of jurisdiction and grave abuse of discretion
amounting to lack of jurisdiction. The respondent acts without
jurisdiction if he does not have the legal power to
determine the case. There is excess of jurisdiction where the
respondent, being clothed with the power to determine the case,
oversteps his authority as determined by law. And there is grave
abuse of discretion where the respondent acts in a capricious,
whimsical, arbitrary or despotic manner in the exercise of his
judgment as to be said to be equivalent to lack of jurisdiction. x x x.
This Court has explained the role and function of Rule 65 as an
extraordinary remedy in numerous pronouncements, among which is the
case of Caltex Refinery Employees Association v. Brillantes 11 citing Flores
v. National Labor Relations Commission,12 to wit:
It should be noted, in the first place, that the instant petition is a
special civil action for certiorari under Rule 65 of the Revised Rules
of Court. An extraordinary remedy, its use is available only
and restrictively in truly exceptional cases -- those wherein
the action of an inferior court, board or officer performing
judicial or quasi-judicial acts is challenged for being wholly
void on grounds of jurisdiction. The sole office of the writ of
certiorari is the correction of errors of jurisdiction including the
commission of grave abuse of discretion amounting to lack or
excess of jurisdiction. It does not include correction of public
respondent NLRCs evaluation of the evidence and factual findings
based thereon, which are generally accorded not only great respect
but even finality. (Emphasis supplied.)
After a careful scrutiny of petitioners arguments, this Court sustains the
jurisdiction of public respondent DOLE-CAR Director Maraan over CAR009507-CI-25 and, thus, finds that the writ of certiorari does not lie herein.
In support of their position, petitioners call the attention of this Court to
the fact that Rule II, Section 3 of the Rules on the Disposition of Labor
Standards Cases in the Regional Offices stipulates:

Section 3. Complaints where no employer-employee relationship

actually exists. Where employer-employee relationship no longer
exists by reason of the fact that it has already been severed, claims
for payment of monetary benefits fall within the exclusive and
original jurisdiction of the labor arbiters. Accordingly, if on the face
of the complaint, it can be ascertained that employer-employee
relationship no longer exists, the case, whether or not accompanied
by an allegation of illegal dismissal, shall immediately be endorsed
by the Regional Director to the appropriate Branch of the National
Labor Relations Commission (NLRC).
It follows, petitioners contend, that where the employer-employee
relationship no longer exists by the fact of its severance, claims for
payment of monetary benefits fall within the exclusive and original
jurisdiction of the Labor Arbiters. Petitioners claim that the supervening
event of private respondents voluntarily resigning from petitioners
employ in the course of the proceedings in CAR00-9507-CI25 automatically ousted public respondent DOLE-CAR Director Maraan
of his jurisdiction to continue to hear and determine said case. Petitioners
insist that public respondent DOLE-CAR Director Maraan should have
desisted from further handling the case and should have instead indorsed
it to the appropriate regional branch of the NLRC for further hearing, since
the jurisdiction over the same belongs to the Labor Arbiter.
Petitioners reliance on Rule II, Section 3 of the Rules on the Disposition of
Labor Standards Cases in the Regional Offices is inappropriate.
While it is true that the quoted provision states that where employeeemployer relations have been severed, complaints or claims for payment
of monetary benefits fall within the exclusive and original jurisdiction of
Labor Arbiters; however, such is not the case in the present Petition. To
emphasize, at the time private respondents instituted CAR009507-CI-25 by filing a complaint with the DOLE-CAR Regional
Office, they were still employees of petitioners.
Private respondents Gomez and Tupas filed the Complaint on 19 May
1995 before the DOLE-CAR Regional Office, seeking a routine inspection
to be conducted on petitioner Rizal Security relative to underpayment in
wages and nonpayment of other benefits under the Labor Code. At the
time of filing of the Complaint on said date, the employer-employee
relationship between private respondents and petitioner Rizal Security had

not yet been severed. As alleged by petitioner Rizal Security itself,

deemed as an admission on its part, the employer-employee relations
between petitioner Rizal Security and private respondents were
terminated on 1 September 1995, or more than three months
after the institution of CAR00-9507-CI-25 before the DOLE Regional
Office.
Well-settled is the rule that the jurisdiction of a court over the subject
matter of an action is determined by the allegations of the complaint at
the time of its filing, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein. 13 Time
and again, this Court has held that the allegations in the complaint
determine the nature of the action and, consequently, the jurisdiction of
the courts.14
It is but axiomatic that the jurisdiction of a tribunal, including a quasijudicial officer or government agency, over the nature and subject matter
of a petition or complaint is determined by the material allegations
therein, the character of the relief prayed for, and the law existing at the
time of the filing of the complaint or petition.15
It has already been established in a plethora of cases that once
jurisdiction is vested, the same is retained up to the end of
litigation.16 Neither can it be ousted by subsequent events, although of a
character which would have prevented jurisdiction from attaching in the
first instance. Even subsequent legislation vesting jurisdiction over such
proceedings in another tribunal will not affect such jurisdiction. 17
Considering that it is uncontroverted that there still existed an employeremployee relationship between petitioner Rizal Security and private
respondents at the time of filing of the complaint on 19 May
1995, and that the case is one involving violations of labor standard
provisions of the Labor Code, this Court finds that DOLE-CAR Director
Maraan properly retained jurisdiction to hear and decide CAR00-9507-CI25 and issue the assailed Order dated 24 January 1996, pursuant to the
power vested in him by Article 128(b) of the Labor Code, which states:
Art. 128. Visitorial and Enforcement Power.
xxxx

(b) Notwithstanding the provisions of Articles 129 and 217 of this

Code to the contrary, and in cases where the relationship of
employer-employee still exists, the Secretary of Labor and
Employment or his duly authorized representatives shall have
the power to issue compliance orders to give effect to the labor
standards provisions of this Code and other labor legislation based
on the findings of labor employment and enforcement officers or
industrial safety engineers made in the course of inspection. The
Secretary or his duly authorized representatives shall issue writs of
execution to the appropriate authority for the enforcement of their
orders, except in cases where the employer contests the findings of
the labor employment and enforcement officer and raises issues
supported by documentary proofs which were not considered in the
course of inspection.
Secondary to the issue of jurisdiction is the issue of whether or not public
respondent DOLE-CAR Director Maraan acted without or in excess of his
jurisdiction in issuing the Writ of Execution dated 12 March 1996.
Petitioners insist that the issuance of the said Writ of Execution was
unlawful and premature, without legal basis or due process of law, and
implemented against a person not a party litigant.
Petitioners maintain that since the DOLE-CAR Regional Office never
furnished petitioners counsel a copy of the 24 January 1996 Order, then
the said Order never became final with respect to them, and cannot be
the subject of a Writ of Execution.
Rule II, Section 4 of the Rules on the Disposition of Labor Standards Cases
in the Regional Offices provides that notices and copies of orders shall be
served on the parties or their duly authorized representatives at their last
known office or home addresses or, if they are represented by counsel,
through the latter.
This procedure on service of Orders and Decisions as provided under the
Rules on the Disposition of Labor Standards Cases in the Regional Offices
is in line with the established rule that notice to counsel is notice to party
and when a party is represented by counsel, notices should be made upon
the counsel of record at his given address to which notices of all kinds
emanating from the court should be sent.

Petitioners counsel never received an official copy of the 24 January 1996

Order and was only able to personally secure a copy thereof from the
DOLE-CAR Regional Office in Baguio City on 18 June 1996. 18 The records
support this allegation. The following is a quote from an internal DOLE
correspondence attached to the records of the case:

Office shall be summary and non-litigious in nature, and that the

technicalities of law and procedure and the rules governing admissibility
and sufficiency of evidence obtaining in the courts of law do not strictly
apply thereto, subject, only to the requirements of due process. 22

In the interest of justice respondents did not receive a copy of our

Order dated 1/24/96 as it was "returned to sender" by the post
office.19

However, the foregoing is obviously not the notice contemplated under

the Labor Code. The inspection report is undeniably a distinct and
separate document from the Order dated 24 January 1996. More than
merely re-stating the findings on the inspection report, the Order of 24
January 1996 ruled on the Manifestation and Motion of the petitioners
assailing the jurisdiction of the DOLE-CAR Regional Office by refusing to
dismiss and retaining jurisdiction over CAR00-9507-CI-25.

A Notice and a copy of the Order dated 24 January 1996 was sent by the
DOLE-CAR Regional Office through registered mail to the address of
petitioners then counsel-of-record Atty. Salvador Solis (Atty. Solis) on 29
January 1996. However, the same was not received by Atty. Solis.
Indicated on the envelope containing the Notice of the Order dated 24
January 1996 were the following notations by the post office on 5 February
1996:

Procedural rules are tools designed to facilitate the adjudication of cases

and not defeat justice. 23 While the Court, in some instances, allows a
relaxation in the application of the rules, it was never intended to forge a
bastion for a violation of due process. And although it is true that litigation
is not a game of technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to insure an
orderly and speedy administration of justice.

RTS20 for better address

No #5 at Sto. Nino Street
Not at (illegible)
No such number #5 at Sto. Nino St.
2-5-96

The essence of due process is to provide an opportunity to be heard, or as

applied to administrative proceedings, an opportunity to explain ones
side or seek a reconsideration of the action or ruling complained
of.

Is it okay with you if we will schedule this for another hearing

despite the Dismissal of respondents petition for certiorari?

This Court notes that prior notices of the hearings were all sent to the very
same address and were received always by petitioners counsel. It is a
source of no little wonder, therefore, why the post office reported that
there was "[n]o such number #5 at Sto. Nio St." We could only conclude,
at this time, that the notice was not received by the petitioners not
through their fault. Thus, we say that the post office failed to deliver the
Notice and copy of the 24 January 1996 Order thereto. This fact was
admitted by public respondent.21

Rule III, Section 17 of the Rules on the Disposition of Labor Standards

Cases in the Regional Offices provides that an aggrieved party may file a
motion for reconsideration of the Order of the Regional Office within seven
calendar days from receipt by him of a copy of said Order. The judgment
becomes "final and executory" when the reglementary period to appeal
lapses, and no appeal is perfected within such period. In this case,
petitioners never had the opportunity to contest the Order of 24 January
1996 considering that they never received a notice of the issuance thereof
nor were they provided with a copy of the same.

Private respondents further argue that petitioners may already be deemed

notified of the contents of the 24 January 1996 Order for it merely
reiterated the findings in the report on the inspection conducted on 1 June
1995 which was served and duly received by petitioners. This Court is
very much aware that the nature of proceedings before the DOLE Regional

Without receipt by the petitioners of the notice and copy of the Order
dated 24 January 1996, the same has not yet become final and executory
and the Writ of Execution issued pursuant thereto on 12 March 1996 was
premature and without legal basis. This renders the Writ of Execution
fatally defective and, thus, null.

Finally, the Court declines from addressing at this point the question of
petitioner Antonios solidary liability with co-petitioner Rizal Security for
the payment of the monetary awards granted to the private respondents.
Considering that the Order dated 24 January 1996 has not yet attained
finality and the Writ of Execution dated 12 March 1996 has been quashed
by reason thereof, to resolve the last issue now would be injudicious and
would pre-empt whatever action public respondent DOLE-CAR Director
Maraan may still take on CAR00-9507-CI-25. The underlying principle of
the rule on exhaustion of administrative remedies rests on the
presumption that when the administrative body, or grievance machinery,
is afforded a chance to pass upon the matter, it will decide the same
correctly. Thus, for reasons of comity and convenience, our courts of
justice will shy away from a dispute until the system of administrative
redress has been completed and complied with so as to give the
administrative agency every opportunity to correct its error and to dispose
of the case.24
WHEREFORE, premises considered, the Court PARTIALLY GRANTS the
instant Petition and ISSUES a Writ of Certiorari to quash the Writ of
Execution dated 12 March 1996 for being issued prematurely. The
Department of Labor and Employment Cordillera Administrative Region is
further DIRECTED to proceed with CAR00-9507-CI-25 with DISPATCH. No
costs.
SO ORDERED.

G.R. No. 152396

November 20, 2007
EX-BATAAN VETERANS SECURITY AGENCY, INC., petitioner, vs. THE
SECRETARY OF LABOR BIENVENIDO E. LAGUESMA, REGIONAL
DIRECTOR BRENDA A. VILLAFUERTE, ALEXANDER POCDING, FIDEL
BALANGAY, BUAGEN CLYDE, DENNIS EPI, DAVID MENDOZA, JR.,
GABRIEL TAMULONG, ANTON PEDRO, FRANCISCO PINEDA, GASTON
DUYAO, HULLARUB, NOLI DIONEDA, ATONG CENON, JR., TOMMY
BAUCAS, WILLIAM PAPSONGAY, RICKY DORIA, GEOFREY MINO,

ORLANDO RILLASE, SIMPLICIO TELLO, M. G. NOCES, R. D. ALEJO,

and P. C. DINTAN, respondents.
The Case
This is a petition for review1 with prayer for the issuance of a temporary
restraining order or writ of preliminary injunction of the 29 May 2001
Decision2 and the 26 February 2002 Resolution 3 of the Court of Appeals in
CA-G.R. SP No. 57653. The 29 May 2001 Decision of the Court of Appeals
affirmed the 4 October 1999 Order of the Secretary of Labor in OS-LS-044-097-280. The 26 February 2002 Resolution denied the motion for
reconsideration.

WHEREFORE, premises considered, respondent EX-BATAAN

VETERANS SECURITY AGENCY is herebyORDERED to pay the
computed deficiencies owing to the affected employees in the total
amount of SEVEN HUNDRED SIXTY THREE THOUSAND NINE
HUNDRED NINETY SEVEN PESOS and 85/PESOS within ten (10)
calendar days upon receipt hereof. Otherwise, a Writ of Execution
shall be issued to enforce compliance of this Order.

NAME

DEFICIENCY

The Facts

1. ALEXANDER POCDING

P 36,380.85

Ex-Bataan Veterans Security Agency, Inc. (EBVSAI) is in the business of

providing security services while private respondents are EBVSAI's
employees assigned to the National Power Corporation at Ambuklao Hydro
Electric Plant, Bokod, Benguet (Ambuklao Plant).

2. FIDEL BALANGAY

36,380.85

3. BUAGEN CLYDE

36,380.85

4. DENNIS EPI

36,380.85

5. DAVID MENDOZA, JR.

36,380.85

6. GABRIEL TAMULONG

36,380.85

7. ANTON PEDRO

36,380.85

8. FRANCISCO PINEDA

36,380.85

On 20 February 1996, private respondents led by Alexander Pocding

(Pocding) instituted a complaint 4 for underpayment of wages against
EBVSAI before the Regional Office of the Department of Labor and
Employment (DOLE).
On 7 March 1996, the Regional Office conducted a complaint inspection at
the Ambuklao Plant where the following violations were noted: (1) nonpresentation of records; (2) non-payment of holiday pay; (3) non-payment
of rest day premium; (4) underpayment of night shift differential pay; (5)
non-payment of service incentive leave; (6) underpayment of 13 th month
pay; (7) no registration; (8) no annual medical report; (9) no annual work
accidental report; (10) no safety committee; and (11) no trained first
aider.5 On the same date, the Regional Office issued a notice of
hearing6 requiring EBVSAI and private respondents to attend the hearing
on 22 March 1996. Other hearings were set for 8 May 1996, 27 May 1996
and 10 June 1996.
On 19 August 1996, the Director of the Regional Office (Regional Director)
issued an Order, the dispositive portion of which reads:

9. GASTON DUYAO

36,380.85

10. HULLARUB

36,380.85

11. NOLI D[EO]NIDA

36,380.85

12. ATONG CENON, JR.

36,380.85

13. TOMMY BAUCAS

36,380.85

14. WILIAM PAPSONGAY

36,380.85

15. RICKY DORIA

36,380.85

16. GEOFREY MINO

36,380.85

17. ORLANDO R[IL]LASE

36,380.85

18. SIMPLICO TELLO

36,380.85

EBVSAI filed a motion for reconsideration 8 and alleged that the Regional
Director does not have jurisdiction over the subject matter of the case
because the money claim of each private respondent exceeded P5,000.
EBVSAI pointed out that the Regional Director should have endorsed the
case to the Labor Arbiter.
In a supplemental motion for reconsideration, 9 EBVSAI questioned the
Regional Director's basis for the computation of the deficiencies due to
each private respondent.
In an Order10 dated 16 January 1997, the Regional Director denied
EBVSAI's motion for reconsideration and supplemental motion for
reconsideration. The Regional Director stated that, pursuant to Republic
Act No. 7730 (RA 7730),11 the limitations under Articles 129 12 and
217(6)13 of the Labor Code no longer apply to the Secretary of Labor's
visitorial and enforcement powers under Article 128(b). 14 The Secretary of
Labor or his duly authorized representatives are now empowered to hear
and decide, in a summary proceeding, any matter involving the recovery
of any amount of wages and other monetary claims arising out of
employer-employee relations at the time of the inspection.
EBVSAI appealed to the Secretary of Labor.

19. NOCES, M.G.

36,380.85

20. ALEJO, R.D.

36,380.85

21. D[I]NTAN, P.C.

36,380.85

TOTAL

P 763,997.85

xxxx
SO ORDERED.7

The Ruling of the Secretary of Labor

In an Order15 dated 4 October 1999, the Secretary of Labor affirmed with
modification the Regional Director's 19 August 1996 Order. The Secretary
of Labor ordered that the P1,000 received by private respondents Romeo
Alejo, Atong Cenon, Jr., Geofrey Mino, Dennis Epi, and Ricky Doria be
deducted from their respective claims. The Secretary of Labor ruled that,
pursuant to RA 7730, the Court's decision in the Servando16 case is no
longer controlling insofar as the restrictive effect of Article 129 on the
visitorial and enforcement power of the Secretary of Labor is concerned.
The Secretary of Labor also stated that there was no denial of due process
because EBVSAI was accorded several opportunities to present its side but
EBVSAI failed to present any evidence to controvert the findings of the
Regional Director. Moreover, the Secretary of Labor doubted the veracity
and authenticity of EBVSAI's documentary evidence. The Secretary of
Labor noted that these documents were not presented at the initial stage

of the hearing and that the payroll documents did not indicate the periods
covered by EBVSAI's alleged payments.
EVBSAI filed a motion for reconsideration which was denied by the
Secretary of Labor in his 3 January 2000 Order. 17
EBVSAI filed a petition for certiorari before the Court of Appeals.
The Ruling of the Court of Appeals
In its 29 May 2001 Decision, the Court of Appeals dismissed the petition
and affirmed the Secretary of Labor's decision. The Court of Appeals
adopted the Secretary of Labor's ruling that RA 7730 repealed the
jurisdictional limitation imposed by Article 129 on Article 128 of the Labor
Code. The Court of Appeals also agreed with the Secretary of Labor's
finding that EBVSAI was accorded due process.
The Court of Appeals also denied EBVSAI's motion for reconsideration in
its 26 February 2002 Resolution.
Hence, this petition.
The Issues
This case raises the following issues:
1. Whether the Secretary of Labor or his duly authorized
representatives acquired jurisdiction over EBVSAI; and
2. Whether the Secretary of Labor or his duly authorized
representatives have jurisdiction over the money claims of private
respondents which exceed P5,000.
The Ruling of the Court
The petition has no merit.
On the Regional Director's Jurisdiction over EBVSAI

EBVSAI claims that the Regional Director did not acquire jurisdiction over
EBVSAI because he failed to comply with Section 11, Rule 14 of the 1997
Rules of Civil Procedure. 18 EBVSAI points out that the notice of hearing was
served at the Ambuklao Plant, not at EBVSAI's main office in Makati, and
that it was addressed to Leonardo Castro, Jr., EBVSAI's Vice-President.
The Rules on the Disposition of Labor Standards Cases in the Regional
Offices19 (rules) specifically state that notices and copies of orders shall be
served on the parties or their duly authorized representatives at their last
known address or, if they are represented by counsel, through the
latter.20 The rules shall be liberally construed 21 and only in the absence of
any applicable provision will the Rules of Court apply in a suppletory
character.22
In this case, EBVSAI does not deny having received the notices of hearing.
In fact, on 29 March and 13 June 1996, Danilo Burgos and Edwina Manao,
detachment commander and bookkeeper of EBVSAI, respectively,
appeared before the Regional Director. They claimed that the 22 March
1996 notice of hearing was received late and manifested that the notices
should be sent to the Manila office. Thereafter, the notices of hearing were
sent to the Manila office. They were also informed of EBVSAI's violations
and were asked to present the employment records of the private
respondents for verification. They were, moreover, asked to submit, within
10 days, proof of compliance or their position paper. The Regional Director
validly acquired jurisdiction over EBVSAI. EBVSAI can no longer question
the jurisdiction of the Regional Director after receiving the notices of
hearing and after appearing before the Regional Director.
On the Regional Director's Jurisdiction over the Money Claims
EBVSAI maintains that under Articles 129 and 217(6) of the Labor Code,
the Labor Arbiter, not the Regional Director, has exclusive and original
jurisdiction over the case because the individual monetary claim of private
respondents exceeds P5,000. EBVSAI also argues that the case falls under
the exception clause in Article 128(b) of the Labor Code. EBVSAI asserts
that the Regional Director should have certified the case to the Arbitration
Branch of the National Labor Relations Commission (NLRC) for a full-blown
hearing on the merits.
In Allied Investigation Bureau, Inc. v. Sec. of Labor, we ruled that:

While it is true that under Articles 129 and 217 of the Labor Code,
the Labor Arbiter has jurisdiction to hear and decide cases where
the aggregate money claims of each employee exceeds P5,000.00,
said provisions of law do not contemplate nor cover the visitorial
and enforcement powers of the Secretary of Labor or his duly
authorized representatives.

This was further affirmed in our ruling in Cirineo Bowling Plaza, Inc. v.
Sensing,24 where we sustained the jurisdiction of the DOLE Regional
Director and held that "the visitorial and enforcement powers of the
DOLE Regional Director to order and enforce compliance with
labor standard laws can be exercised even where the individual
claim exceeds P5,000."

Rather, said powers are defined and set forth in Article 128 of the
Labor Code (as amended by R.A. No. 7730) thus:

However, if the labor standards case is covered by the exception clause in

Article 128(b) of the Labor Code, then the Regional Director will have to
endorse the case to the appropriate Arbitration Branch of the NLRC. In
order to divest the Regional Director or his representatives of jurisdiction,
the following elements must be present: (a) that the employer contests
the findings of the labor regulations officer and raises issues thereon; (b)
that in order to resolve such issues, there is a need to examine
evidentiary matters; and (c) that such matters are not verifiable in the
normal course of inspection.25 The rules also provide that the employer
shall raise such objections during the hearing of the case or at any time
after receipt of the notice of inspection results. 26

Art. 128 Visitorial and enforcement power. --- x x x

(b) Notwithstanding the provisions of Article[s] 129 and 217
of this Code to the contrary, and in cases where the
relationship of employer-employee still exists, the Secretary
of Labor and Employment or his duly authorized
representatives shall have the power to issue compliance
orders to give effect to [the labor standards provisions of this
Code and other] labor legislation based on the findings of
labor employment and enforcement officers or industrial
safety engineers made in the course of inspection.The
Secretary or his duly authorized representatives shall issue
writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the
employer contests the findings of the labor employment and
enforcement officer and raises issues supported by
documentary proofs which were not considered in the course
of inspection.
xxxx
The aforequoted provision explicitly excludes from its coverage
Articles 129 and 217 of the Labor Code by the phrase
"(N)otwithstanding the provisions of Articles 129 and 217of this
Code to the contrary x x x" thereby retaining and further
strengthening the power of the Secretary of Labor or his duly
authorized representatives to issue compliance orders to give effect
to the labor standards provisions of said Code and other labor
legislation based on the findings of labor employment and
enforcement officer or industrial safety engineer made in the course
of inspection.23 (Italics in the original)

In this case, the Regional Director validly assumed jurisdiction over the
money claims of private respondents even if the claims exceeded P5,000
because such jurisdiction was exercised in accordance with Article 128(b)
of the Labor Code and the case does not fall under the exception clause.
The Court notes that EBVSAI did not contest the findings of the labor
regulations officer during the hearing or after receipt of the notice of
inspection results. It was only in its supplemental motion for
reconsideration before the Regional Director that EBVSAI questioned the
findings of the labor regulations officer and presented documentary
evidence to controvert the claims of private respondents. But even if this
was the case, the Regional Director and the Secretary of Labor still looked
into and considered EBVSAI's documentary evidence and found that such
did not warrant the reversal of the Regional Director's order. The Secretary
of Labor also doubted the veracity and authenticity of EBVSAI's
documentary evidence. Moreover, the pieces of evidence presented by
EBVSAI were verifiable in the normal course of inspection because all
employment records of the employees should be kept and maintained in
or about the premises of the workplace, which in this case is in Ambuklao
Plant, the establishment where private respondents were regularly
assigned.27

WHEREFORE, we DENY the petition. We AFFIRM the 29 May 2001

Decision and the 26 February 2002 Resolution of the Court of Appeals in
CA-G.R. SP No. 57653.
SO ORDERED.