Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19650 September 29, 1966

CALTEX (PHILIPPINES), INC., petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as THE POSTMASTER GENERAL, respondent-appellant.

Office of the Solicitor General for respondent and appellant.

Ross, Selph and Carrascoso for petitioner and appellee.

CASTRO, J.:

In the year 1960 the Caltex (Philippines) Inc. (hereinafter referred to as Caltex) conceived and laid
the groundwork for a promotional scheme calculated to drum up patronage for its oil products.
Denominated "Caltex Hooded Pump Contest", it calls for participants therein to estimate the actual
number of liters a hooded gas pump at each Caltex station will dispense during a specified period.
Employees of the Caltex (Philippines) Inc., its dealers and its advertising agency, and their
immediate families excepted, participation is to be open indiscriminately to all "motor vehicle owners
and/or licensed drivers". For the privilege to participate, no fee or consideration is required to be
paid, no purchase of Caltex products required to be made. Entry forms are to be made available
upon request at each Caltex station where a sealed can will be provided for the deposit of
accomplished entry stubs.

A three-staged winner selection system is envisioned. At the station level, called "Dealer Contest",
the contestant whose estimate is closest to the actual number of liters dispensed by the hooded
pump thereat is to be awarded the first prize; the next closest, the second; and the next, the third.
Prizes at this level consist of a 3-burner kerosene stove for first; a thermos bottle and a Ray-O-Vac
hunter lantern for second; and an Everready Magnet-lite flashlight with batteries and a screwdriver
set for third. The first-prize winner in each station will then be qualified to join in the "Regional
Contest" in seven different regions. The winning stubs of the qualified contestants in each region will
be deposited in a sealed can from which the first-prize, second-prize and third-prize winners of that
region will be drawn. The regional first-prize winners will be entitled to make a three-day all-
expenses-paid round trip to Manila, accompanied by their respective Caltex dealers, in order to take
part in the "National Contest". The regional second-prize and third-prize winners will receive cash
prizes of P500 and P300, respectively. At the national level, the stubs of the seven regional first-prize
winners will be placed inside a sealed can from which the drawing for the final first-prize, second-
prize and third-prize winners will be made. Cash prizes in store for winners at this final stage are:
P3,000 for first; P2,000 for second; Pl,500 for third; and P650 as consolation prize for each of the
remaining four participants.

Foreseeing the extensive use of the mails not only as amongst the media for publicizing the contest
but also for the transmission of communications relative thereto, representations were made by
Caltex with the postal authorities for the contest to be cleared in advance for mailing, having in view
sections 1954(a), 1982 and 1983 of the Revised Administrative Code, the pertinent provisions of
which read as follows:

SECTION 1954. Absolutely non-mailable matter. No matter belonging to any of the

following classes, whether sealed as first-class matter or not, shall be imported into the
Philippines through the mails, or to be deposited in or carried by the mails of the Philippines,
or be delivered to its addressee by any officer or employee of the Bureau of Posts:

Written or printed matter in any form advertising, describing, or in any manner pertaining to,
or conveying or purporting to convey any information concerning any lottery, gift enterprise,
or similar scheme depending in whole or in part upon lot or chance, or any scheme, device,
or enterprise for obtaining any money or property of any kind by means of false or fraudulent
pretenses, representations, or promises.

"SECTION 1982. Fraud orders.Upon satisfactory evidence that any person or company is
engaged in conducting any lottery, gift enterprise, or scheme for the distribution of money, or
of any real or personal property by lot, chance, or drawing of any kind, or that any person or
company is conducting any scheme, device, or enterprise for obtaining money or property of
any kind through the mails by means of false or fraudulent pretenses, representations, or
promises, the Director of Posts may instruct any postmaster or other officer or employee of
the Bureau to return to the person, depositing the same in the mails, with the word
"fraudulent" plainly written or stamped upon the outside cover thereof, any mail matter of
whatever class mailed by or addressed to such person or company or the representative or
agent of such person or company.

SECTION 1983. Deprivation of use of money order system and telegraphic transfer service.
The Director of Posts may, upon evidence satisfactory to him that any person or company
is engaged in conducting any lottery, gift enterprise or scheme for the distribution of money,
or of any real or personal property by lot, chance, or drawing of any kind, or that any person
or company is conducting any scheme, device, or enterprise for obtaining money or property
of any kind through the mails by means of false or fraudulent pretenses, representations, or
promise, forbid the issue or payment by any postmaster of any postal money order or
telegraphic transfer to said person or company or to the agent of any such person or
company, whether such agent is acting as an individual or as a firm, bank, corporation, or
association of any kind, and may provide by regulation for the return to the remitters of the
sums named in money orders or telegraphic transfers drawn in favor of such person or
company or its agent.

The overtures were later formalized in a letter to the Postmaster General, dated October 31, 1960, in
which the Caltex, thru counsel, enclosed a copy of the contest rules and endeavored to justify its
position that the contest does not violate the anti-lottery provisions of the Postal Law. Unimpressed,
the then Acting Postmaster General opined that the scheme falls within the purview of the provisions
aforesaid and declined to grant the requested clearance. In its counsel's letter of December 7, 1960,
Caltex sought a reconsideration of the foregoing stand, stressing that there being involved no
consideration in the part of any contestant, the contest was not, under controlling authorities,
condemnable as a lottery. Relying, however, on an opinion rendered by the Secretary of Justice on
an unrelated case seven years before (Opinion 217, Series of 1953), the Postmaster General
maintained his view that the contest involves consideration, or that, if it does not, it is nevertheless a
"gift enterprise" which is equally banned by the Postal Law, and in his letter of December 10, 1960
not only denied the use of the mails for purposes of the proposed contest but as well threatened that
if the contest was conducted, "a fraud order will have to be issued against it (Caltex) and all its
representatives".

Caltex thereupon invoked judicial intervention by filing the present petition for declaratory relief
against Postmaster General Enrico Palomar, praying "that judgment be rendered declaring its
'Caltex Hooded Pump Contest' not to be violative of the Postal Law, and ordering respondent to
allow petitioner the use of the mails to bring the contest to the attention of the public". After issues
were joined and upon the respective memoranda of the parties, the trial court rendered judgment as
follows:

In view of the foregoing considerations, the Court holds that the proposed 'Caltex Hooded
Pump Contest' announced to be conducted by the petitioner under the rules marked as
Annex B of the petitioner does not violate the Postal Law and the respondent has no right to
bar the public distribution of said rules by the mails.

The respondent appealed.

The parties are now before us, arrayed against each other upon two basic issues: first, whether the
petition states a sufficient cause of action for declaratory relief; and second, whether the proposed
"Caltex Hooded Pump Contest" violates the Postal Law. We shall take these up in seriatim.

1. By express mandate of section 1 of Rule 66 of the old Rules of Court, which was the applicable
legal basis for the remedy at the time it was invoked, declaratory relief is available to any person
"whose rights are affected by a statute . . . to determine any question of construction or validity
arising under the . . . statute and for a declaration of his rights thereunder" (now section 1, Rule 64,
Revised Rules of Court). In amplification, this Court, conformably to established jurisprudence on the
matter, laid down certain conditions sine qua non therefor, to wit: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are adverse; (3) the party
seeking declaratory relief must have a legal interest in the controversy; and (4) the issue involved
must be ripe for judicial determination (Tolentino vs. The Board of Accountancy, et al., G.R. No. L-
3062, September 28, 1951; Delumen, et al. vs. Republic of the Philippines, 50 O.G., No. 2, pp. 576,
578-579; Edades vs. Edades, et al., G.R. No. L-8964, July 31, 1956). The gravamen of the
appellant's stand being that the petition herein states no sufficient cause of action for declaratory
relief, our duty is to assay the factual bases thereof upon the foregoing crucible.
As we look in retrospect at the incidents that generated the present controversy, a number of
significant points stand out in bold relief. The appellee (Caltex), as a business enterprise of some
consequence, concededly has the unquestioned right to exploit every legitimate means, and to avail
of all appropriate media to advertise and stimulate increased patronage for its products. In contrast,
the appellant, as the authority charged with the enforcement of the Postal Law, admittedly has the
power and the duty to suppress transgressions thereof particularly thru the issuance of fraud
orders, under Sections 1982 and 1983 of the Revised Administrative Code, against legally non-
mailable schemes. Obviously pursuing its right aforesaid, the appellee laid out plans for the sales
promotion scheme hereinbefore detailed. To forestall possible difficulties in the dissemination of
information thereon thru the mails, amongst other media, it was found expedient to request the
appellant for an advance clearance therefor. However, likewise by virtue of his jurisdiction in the
premises and construing the pertinent provisions of the Postal Law, the appellant saw a violation
thereof in the proposed scheme and accordingly declined the request. A point of difference as to the
correct construction to be given to the applicable statute was thus reached. Communications in
which the parties expounded on their respective theories were exchanged. The confidence with
which the appellee insisted upon its position was matched only by the obstinacy with which the
appellant stood his ground. And this impasse was climaxed by the appellant's open warning to the
appellee that if the proposed contest was "conducted, a fraud order will have to be issued against it
and all its representatives."

Against this backdrop, the stage was indeed set for the remedy prayed for. The appellee's insistent
assertion of its claim to the use of the mails for its proposed contest, and the challenge thereto and
consequent denial by the appellant of the privilege demanded, undoubtedly spawned a live
controversy. The justiciability of the dispute cannot be gainsaid. There is an active antagonistic
assertion of a legal right on one side and a denial thereof on the other, concerning a real not a
mere theoretical question or issue. The contenders are as real as their interests are substantial.
To the appellee, the uncertainty occasioned by the divergence of views on the issue of construction
hampers or disturbs its freedom to enhance its business. To the appellant, the suppression of the
appellee's proposed contest believed to transgress a law he has sworn to uphold and enforce is an
unavoidable duty. With the appellee's bent to hold the contest and the appellant's threat to issue a
fraud order therefor if carried out, the contenders are confronted by the ominous shadow of an
imminent and inevitable litigation unless their differences are settled and stabilized by a tranquilizing
declaration (Pablo y Sen, et al. vs. Republic of the Philippines, G.R. No. L-6868, April 30, 1955).
And, contrary to the insinuation of the appellant, the time is long past when it can rightly be said that
merely the appellee's "desires are thwarted by its own doubts, or by the fears of others" which
admittedly does not confer a cause of action. Doubt, if any there was, has ripened into a justiciable
controversy when, as in the case at bar, it was translated into a positive claim of right which is
actually contested (III Moran, Comments on the Rules of Court, 1963 ed., pp. 132-133, citing:
Woodward vs. Fox West Coast Theaters, 36 Ariz., 251, 284 Pac. 350).

We cannot hospitably entertain the appellant's pretense that there is here no question of
construction because the said appellant "simply applied the clear provisions of the law to a given set
of facts as embodied in the rules of the contest", hence, there is no room for declaratory relief. The
infirmity of this pose lies in the fact that it proceeds from the assumption that, if the circumstances
here presented, the construction of the legal provisions can be divorced from the matter of their
application to the appellee's contest. This is not feasible. Construction, verily, is the art or process of
discovering and expounding the meaning and intention of the authors of the law with respect to its
application to a given case, where that intention is rendered doubtful, amongst others, by reason of
the fact that the given case is not explicitly provided for in the law (Black, Interpretation of Laws, p.
1). This is precisely the case here. Whether or not the scheme proposed by the appellee is within the
coverage of the prohibitive provisions of the Postal Law inescapably requires an inquiry into the
intended meaning of the words used therein. To our mind, this is as much a question of construction
or interpretation as any other.

Nor is it accurate to say, as the appellant intimates, that a pronouncement on the matter at hand can
amount to nothing more than an advisory opinion the handing down of which is anathema to a
declaratory relief action. Of course, no breach of the Postal Law has as yet been committed. Yet, the
disagreement over the construction thereof is no longer nebulous or contingent. It has taken a fixed
and final shape, presenting clearly defined legal issues susceptible of immediate resolution. With the
battle lines drawn, in a manner of speaking, the propriety nay, the necessity of setting the
dispute at rest before it accumulates the asperity distemper, animosity, passion and violence of a
full-blown battle which looms ahead (III Moran, Comments on the Rules of Court, 1963 ed., p. 132
and cases cited), cannot but be conceded. Paraphrasing the language in Zeitlin vs. Arnebergh 59
Cal., 2d., 901, 31 Cal. Rptr., 800, 383 P. 2d., 152, cited in 22 Am. Jur., 2d., p. 869, to deny
declaratory relief to the appellee in the situation into which it has been cast, would be to force it to
choose between undesirable alternatives. If it cannot obtain a final and definitive pronouncement as
to whether the anti-lottery provisions of the Postal Law apply to its proposed contest, it would be
faced with these choices: If it launches the contest and uses the mails for purposes thereof, it not
only incurs the risk, but is also actually threatened with the certain imposition, of a fraud order with
its concomitant stigma which may attach even if the appellee will eventually be vindicated; if it
abandons the contest, it becomes a self-appointed censor, or permits the appellant to put into effect
a virtual fiat of previous censorship which is constitutionally unwarranted. As we weigh these
considerations in one equation and in the spirit of liberality with which the Rules of Court are to be
interpreted in order to promote their object (section 1, Rule 1, Revised Rules of Court) which, in
the instant case, is to settle, and afford relief from uncertainty and insecurity with respect to, rights
and duties under a law we can see in the present case any imposition upon our jurisdiction or any
futility or prematurity in our intervention.

The appellant, we apprehend, underrates the force and binding effect of the ruling we hand down in
this case if he believes that it will not have the final and pacifying function that a declaratory
judgment is calculated to subserve. At the very least, the appellant will be bound. But more than this,
he obviously overlooks that in this jurisdiction, "Judicial decisions applying or interpreting the law
shall form a part of the legal system" (Article 8, Civil Code of the Philippines). In effect, judicial
decisions assume the same authority as the statute itself and, until authoritatively abandoned,
necessarily become, to the extent that they are applicable, the criteria which must control the
actuations not only of those called upon to abide thereby but also of those in duty bound to enforce
obedience thereto. Accordingly, we entertain no misgivings that our resolution of this case will
terminate the controversy at hand.

It is not amiss to point out at this juncture that the conclusion we have herein just reached is not
without precedent. In Liberty Calendar Co. vs. Cohen, 19 N.J., 399, 117 A. 2d., 487, where a
corporation engaged in promotional advertising was advised by the county prosecutor that its
proposed sales promotion plan had the characteristics of a lottery, and that if such sales promotion
were conducted, the corporation would be subject to criminal prosecution, it was held that the
corporation was entitled to maintain a declaratory relief action against the county prosecutor to
determine the legality of its sales promotion plan. In pari materia, see also: Bunis vs. Conway, 17
App. Div. 2d., 207, 234 N.Y.S. 2d., 435; Zeitlin vs. Arnebergh, supra; Thrillo, Inc. vs. Scott, 15 N.J.
Super. 124, 82 A. 2d., 903.

In fine, we hold that the appellee has made out a case for declaratory relief.

2. The Postal Law, chapter 52 of the Revised Administrative Code, using almost identical
terminology in sections 1954(a), 1982 and 1983 thereof, supra, condemns as absolutely non-
mailable, and empowers the Postmaster General to issue fraud orders against, or otherwise deny
the use of the facilities of the postal service to, any information concerning "any lottery, gift
enterprise, or scheme for the distribution of money, or of any real or personal property by lot,
chance, or drawing of any kind". Upon these words hinges the resolution of the second issue posed
in this appeal.

Happily, this is not an altogether untrodden judicial path. As early as in 1922, in "El Debate", Inc. vs.
Topacio, 44 Phil., 278, 283-284, which significantly dwelt on the power of the postal authorities under
the abovementioned provisions of the Postal Law, this Court declared that

While countless definitions of lottery have been attempted, the authoritative one for this
jurisdiction is that of the United States Supreme Court, in analogous cases having to do with
the power of the United States Postmaster General, viz.: The term "lottery" extends to all
schemes for the distribution of prizes by chance, such as policy playing, gift exhibitions, prize
concerts, raffles at fairs, etc., and various forms of gambling. The three essential elements of
a lottery are: First, consideration; second, prize; and third, chance. (Horner vs. States [1892],
147 U.S. 449; Public Clearing House vs. Coyne [1903], 194 U.S., 497; U.S. vs. Filart and
Singson [1915], 30 Phil., 80; U.S. vs. Olsen and Marker [1917], 36 Phil., 395; U.S. vs. Baguio
[1919], 39 Phil., 962; Valhalla Hotel Construction Company vs. Carmona, p. 233, ante.)

Unanimity there is in all quarters, and we agree, that the elements of prize and chance are too
obvious in the disputed scheme to be the subject of contention. Consequently as the appellant
himself concedes, the field of inquiry is narrowed down to the existence of the element of
consideration therein. Respecting this matter, our task is considerably lightened inasmuch as in the
same case just cited, this Court has laid down a definitive yard-stick in the following terms

In respect to the last element of consideration, the law does not condemn the gratuitous
distribution of property by chance, if no consideration is derived directly or indirectly from the
party receiving the chance, but does condemn as criminal schemes in which a valuable
consideration of some kind is paid directly or indirectly for the chance to draw a prize.

Reverting to the rules of the proposed contest, we are struck by the clarity of the language in which
the invitation to participate therein is couched. Thus
 No puzzles, no rhymes? You don't need wrappers, labels or boxtops? You don't have to buy
anything? Simply estimate the actual number of liter the Caltex gas pump with the hood at
your favorite Caltex dealer will dispense from to , and win valuable prizes . . . ." .

Nowhere in the said rules is any requirement that any fee be paid, any merchandise be bought, any
service be rendered, or any value whatsoever be given for the privilege to participate. A prospective
contestant has but to go to a Caltex station, request for the entry form which is available on demand,
and accomplish and submit the same for the drawing of the winner. Viewed from all angles or turned
inside out, the contest fails to exhibit any discernible consideration which would brand it as a lottery.
Indeed, even as we head the stern injunction, "look beyond the fair exterior, to the substance, in
order to unmask the real element and pernicious tendencies which the law is seeking to prevent" ("El
Debate", Inc. vs. Topacio, supra, p. 291), we find none. In our appraisal, the scheme does not only
appear to be, but actually is, a gratuitous distribution of property by chance.

There is no point to the appellant's insistence that non-Caltex customers who may buy Caltex
products simply to win a prize would actually be indirectly paying a consideration for the privilege to
join the contest. Perhaps this would be tenable if the purchase of any Caltex product or the use of
any Caltex service were a pre-requisite to participation. But it is not. A contestant, it hardly needs
reiterating, does not have to buy anything or to give anything of value. 1awphl.nt

Off-tangent, too, is the suggestion that the scheme, being admittedly for sales promotion, would
naturally benefit the sponsor in the way of increased patronage by those who will be encouraged to
prefer Caltex products "if only to get the chance to draw a prize by securing entry blanks". The
required element of consideration does not consist of the benefit derived by the proponent of the
contest. The true test, as laid down in People vs. Cardas, 28 P. 2d., 99, 137 Cal. App. (Supp.) 788, is
whether the participant pays a valuable consideration for the chance, and not whether those
conducting the enterprise receive something of value in return for the distribution of the prize.
Perspective properly oriented, the standpoint of the contestant is all that matters, not that of the
sponsor. The following, culled from Corpus Juris Secundum, should set the matter at rest:

The fact that the holder of the drawing expects thereby to receive, or in fact does receive,
some benefit in the way of patronage or otherwise, as a result of the drawing; does not
supply the element of consideration.Griffith Amusement Co. vs. Morgan, Tex. Civ. App., 98
S.W., 2d., 844" (54 C.J.S., p. 849).

Thus enlightened, we join the trial court in declaring that the "Caltex Hooded Pump Contest"
proposed by the appellee is not a lottery that may be administratively and adversely dealt with under
the Postal Law.

But it may be asked: Is it not at least a "gift enterprise, or scheme for the distribution of money, or of
any real or personal property by lot, chance, or drawing of any kind", which is equally prescribed?
Incidentally, while the appellant's brief appears to have concentrated on the issue of consideration,
this aspect of the case cannot be avoided if the remedy here invoked is to achieve its tranquilizing
effect as an instrument of both curative and preventive justice. Recalling that the appellant's action
was predicated, amongst other bases, upon Opinion 217, Series 1953, of the Secretary of Justice,
which opined in effect that a scheme, though not a lottery for want of consideration, may
nevertheless be a gift enterprise in which that element is not essential, the determination of whether
or not the proposed contest wanting in consideration as we have found it to be is a prohibited
gift enterprise, cannot be passed over sub silencio.

While an all-embracing concept of the term "gift enterprise" is yet to be spelled out in explicit words,
there appears to be a consensus among lexicographers and standard authorities that the term is
commonly applied to a sporting artifice of under which goods are sold for their market value but by
way of inducement each purchaser is given a chance to win a prize (54 C.J.S., 850; 34 Am. Jur.,
654; Black, Law Dictionary, 4th ed., p. 817; Ballantine, Law Dictionary with Pronunciations, 2nd ed.,
p. 55; Retail Section of Chamber of Commerce of Plattsmouth vs. Kieck, 257 N.W., 493, 128 Neb.
13; Barker vs. State, 193 S.E., 605, 56 Ga. App., 705; Bell vs. State, 37 Tenn. 507, 509, 5 Sneed,
507, 509). As thus conceived, the term clearly cannot embrace the scheme at bar. As already noted,
there is no sale of anything to which the chance offered is attached as an inducement to the
purchaser. The contest is open to all qualified contestants irrespective of whether or not they buy the
appellee's products.

Going a step farther, however, and assuming that the appellee's contest can be encompassed within
the broadest sweep that the term "gift enterprise" is capable of being extended, we think that the
appellant's pose will gain no added comfort. As stated in the opinion relied upon, rulings there are
indeed holding that a gift enterprise involving an award by chance, even in default of the element of
consideration necessary to constitute a lottery, is prohibited (E.g.: Crimes vs. States, 235 Ala 192,
178 So. 73; Russell vs. Equitable Loan & Sec. Co., 129 Ga. 154, 58 S.E., 88; State ex rel. Stafford
vs. Fox-Great Falls Theater Corporation, 132 P. 2d., 689, 694, 698, 114 Mont. 52). But this is only
one side of the coin. Equally impressive authorities declare that, like a lottery, a gift enterprise comes
within the prohibitive statutes only if it exhibits the tripartite elements of prize, chance and
consideration (E.g.: Bills vs. People, 157 P. 2d., 139, 142, 113 Colo., 326; D'Orio vs. Jacobs, 275 P.
563, 565, 151 Wash., 297; People vs. Psallis, 12 N.Y.S., 2d., 796; City and County of Denver vs.
Frueauff, 88 P., 389, 394, 39 Colo., 20, 7 L.R.A., N.S., 1131, 12 Ann. Cas., 521; 54 C.J.S., 851,
citing: Barker vs. State, 193 S.E., 605, 607, 56 Ga. App., 705; 18 Words and Phrases, perm. ed., pp.
590-594). The apparent conflict of opinions is explained by the fact that the specific statutory
provisions relied upon are not identical. In some cases, as pointed out in 54 C.J.S., 851, the terms
"lottery" and "gift enterprise" are used interchangeably (Bills vs. People, supra); in others, the
necessity for the element of consideration or chance has been specifically eliminated by statute. (54
C.J.S., 351-352, citing Barker vs. State, supra; State ex rel. Stafford vs. Fox-Great Falls Theater
Corporation, supra). The lesson that we derive from this state of the pertinent jurisprudence is,
therefore, that every case must be resolved upon the particular phraseology of the applicable
statutory provision.

Taking this cue, we note that in the Postal Law, the term in question is used in association with the
word "lottery". With the meaning of lottery settled, and consonant to the well-known principle of legal
hermeneutics noscitur a sociis which Opinion 217 aforesaid also relied upon although only insofar
as the element of chance is concerned it is only logical that the term under a construction should
be accorded no other meaning than that which is consistent with the nature of the word associated
therewith. Hence, if lottery is prohibited only if it involves a consideration, so also must the term "gift
enterprise" be so construed. Significantly, there is not in the law the slightest indicium of any intent to
eliminate that element of consideration from the "gift enterprise" therein included.
This conclusion firms up in the light of the mischief sought to be remedied by the law, resort to the
determination thereof being an accepted extrinsic aid in statutory construction. Mail fraud orders, it is
axiomatic, are designed to prevent the use of the mails as a medium for disseminating printed
matters which on grounds of public policy are declared non-mailable. As applied to lotteries, gift
enterprises and similar schemes, justification lies in the recognized necessity to suppress their
tendency to inflame the gambling spirit and to corrupt public morals (Com. vs. Lund, 15 A. 2d., 839,
143 Pa. Super. 208). Since in gambling it is inherent that something of value be hazarded for a
chance to gain a larger amount, it follows ineluctably that where no consideration is paid by the
contestant to participate, the reason behind the law can hardly be said to obtain. If, as it has been
held

Gratuitous distribution of property by lot or chance does not constitute "lottery", if it is not
resorted to as a device to evade the law and no consideration is derived, directly or indirectly,
from the party receiving the chance, gambling spirit not being cultivated or stimulated
thereby. City of Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258." (25 Words and Phrases,
perm. ed., p. 695, emphasis supplied).

we find no obstacle in saying the same respecting a gift enterprise. In the end, we are persuaded to
hold that, under the prohibitive provisions of the Postal Law which we have heretofore examined, gift
enterprises and similar schemes therein contemplated are condemnable only if, like lotteries, they
involve the element of consideration. Finding none in the contest here in question, we rule that the
appellee may not be denied the use of the mails for purposes thereof.

Recapitulating, we hold that the petition herein states a sufficient cause of action for declaratory
relief, and that the "Caltex Hooded Pump Contest" as described in the rules submitted by the
appellee does not transgress the provisions of the Postal Law.

ACCORDINGLY, the judgment appealed from is affirmed. No costs.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
 EN BANC

JOSEPH PETER SISON, G.R. No. 177011

ROSEMARIE SIOTING, FE P.
VALENZUELA, ROBERTO L.
BAUTISTA, MARIO P.
ESCOBER, ARLENE PUZON,
DANILO G. GERONA, NECITAS
B. CLEMENTE, RAMON Present:
MACATANGAY and NEOFITO
HERNANDEZ, PUNO, C.J.,
Petitioners, QUISUMBING,
YNARES-SANTIAGO,
- versus - CARPIO,
CORONA,
ROGELIO TABLANG, Director CARPIO MORALES,*
IV, Commission on Audit; CHICO-NAZARIO,*
ELIZABETH S. ZOSA, Assistant VELASCO, JR.,
Commissioner Legal NACHURA,
Adjudication and Settlement LEONARDO-DE CASTRO,
Board Chairperson; EMMA M. BRION,
ESPINA, JAIME P. NARANJO, PERALTA, and
AMORSONIA B. ESCARDA and BERSAMIN, JJ.
CARMELA S. PEREZ, Members
of the Commission on Audit Legal Promulgated:
Adjudication and Settlement
Board, June 5, 2009
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:
 This is a petition for certiorari assailing the decision[1] of the Adjudication
and Settlement Board (ASB) of the Commission on Audit (COA) dated March 5,
2007, which affirmed the Notices of Disallowance (ND) issued by the Legal and
Adjudication Office-Corporate (LAO-C), disallowing the payment of honoraria in
the amount of P364,299.31 made by the National Housing Authority (NHA) to
petitioners, as members of the Bids and Awards Committee (BAC) and the
Technical Working Group (TWG).

Audit Observation Memoranda[2] were issued by the Supervising Auditor of

the NHA, informing that there were excess/unauthorized payments of honoraria to
members of the BAC and the TWG. Thus, three (3) separate NDs were issued by
the LAO-C, to wit:

(1) Notice of Disallowance No. 2004-001 (04) dated November 22, 2004
disallowing in audit the amount of P73,768.00 as overpayment of honoraria
covering the periods January and March 2004 for want of legal basis;

(2) Notice of Disallowance No. 2004-002 (03) dated December 2, 2004

disallowing in audit the amount of P290,531.31 for honoraria paid covering the
periods from March to September 2003 for want of legal basis; and for the period
covering October to December 2003, on the ground that they were paid in excess
of the allowed rates, contrary to Section 4.1 of Budget Circular No. 2004-5 dated
March 23, 2004 of the Department of Budget and Management (DBM); and

(3) Notice of Disallowance No. 2005-001 (04) dated May 24, 2005
disallowing in audit the amount of P68,096.00 for the period covering April to
June 2004, together with the honoraria received by the regular and provisionary
members of the BAC for the months of January to June 2004, the same having
been paid contrary to the allowed rates provided in DBM Circular No. 2004-5
dated March 23, 2004.

On January 3, 2005, petitioner Joseph Peter Sison, Assistant General

Manager and Chairperson-BAC of the NHA, and the other petitioners, as members
of the BAC and the TWG, sought reconsideration of the NDs on the following
grounds:
 1. That the payment of honoraria was based on the number of projects
completed by the BAC and TWGs under their respective level of
responsibility and on the rate provided for under the IRR of R.A. 9184,
which should be in an amount not to exceed 25% of their respective basic
monthly salary subject to availability of funds.

2. Since DBM has yet to issue the necessary Implementing Rules and
Regulations for the grant of honoraria, the BAC and TWG members were
given straight 25% of their basic monthly salary as honoraria for every
month from March 2003-March 2004.

3. That the work of BAC and its TWG is up to the Recommendation of

Award to the NHA General Manager. It is Managements responsibility to
present such recommendation to the Board for
notation/confirmation/approval. The payment of honoraria should not be
based on the Notice of Award but should be reckoned on the date of
Recommendation of Award, as it sometimes takes several months before
an award is approved by the Board.

4. That they should not be made to refund immediately whatever remaining

disallowance after a computation of the same is made using the
recommendation of Award as the reckoning date, but instead they request
that the same be deducted from the remaining unpaid COLA which they
are collecting from NHA or from succeeding honoraria they are to receive
as members of the BAC and TWG.[3]

On September 13, 2005, the LAO-C denied the motions for reconsideration
filed by petitioners in LAO-C Decision No. 2005-064. [4] It also rejected
petitioners request for a set-off of the disallowed amount against future
collectibles from the NHA, as this was not in accordance with law and
jurisprudence.[5]

A petition for review[6] was then filed by petitioners before the ASB of the
COA which was denied on March 5, 2007 for lack of merit. The LAO-C decision,
covering the three (3) NDs, was affirmed.[7]

Aggrieved, petitioners filed the instant petition maintaining that the grant of
honoraria, not exceeding 25% of the basic monthly salaries of the BAC members,
was justified. They aver that the payments were in accordance with Republic Act
(R.A.) No. 9184, which was the applicable law at that time, and stressed that they
did not exceed the 25% limit provided under Section 15 thereof.
 The petition is bereft of merit.

It must first be stressed that petitioners failed to appeal the decision of the
ASB to the Commission on Audit Proper before filing the instant petition with this
Court, in derogation of the principle of exhaustion of administrative remedies. The
general rule is that before a party may seek the intervention of the court, he should
first avail himself of all the means afforded him by administrative processes. The
issues which administrative agencies are authorized to decide should not be
summarily taken from them and submitted to the court without first giving such
administrative agency the opportunity to dispose of the same after due deliberation.
[8]

On January 30, 2003, the COA issued Resolution No. 2003-001 delegating
the authority to adjudicate and settle appeals from the decisions of the Directors
involving suspensions and disallowances in amounts not exceeding five hundred
thousand pesos (P500,000.00) to the ASB of the Commission. It also clearly
provides that appeals from the decision of the Board shall be brought before the
Commission Proper in the same manner as other cases under the Commissions
existing rules and regulations.[9]

Correlatively, the 1997 Revised Rules of Procedure of the COA states that:

RULE VI
APPEAL FROM DIRECTOR TO COMMISSION PROPER

Section 1. Who May Appeal and Where to Appeal. The party aggrieved
by a final order or decision of the Director may appeal to the Commission Proper.

xxxx

RULE XI
JUDICIAL REVIEW

Section 1. Petition for Certiorari. Any decision, order or resolution of

the Commission may be brought to the Supreme Court on certiorari by the
aggrieved party within thirty (30) days from receipt of a copy thereof in the
manner provided by law, the Rules of Court and these Rules.
 It is, therefore, imperative that the Commission Proper be first given the
opportunity to review the decision of the ASB. Only after the Commission shall
have acted thereon may a petition for certiorari be brought to the Court by the
aggrieved party. While the principle of exhaustion of administrative remedies
admits of exceptions, the Court does not find any cogent reason to apply the cited
exceptions to the instant case.[10] The non-observance of the doctrine results in the
petition having no cause of action, thus, justifying its dismissal. In this case, the
necessary consequence of the failure to exhaust administrative remedies is
obvious: the disallowance as ruled by the LAO-C has now become final and
executory.[11]

But even if we were to disregard this patent infirmity, we still find sufficient
bases to uphold the three (3) NDs issued by the LAO-C.

Section 15 of R.A. No. 9184, otherwise known as the Government

Procurement Act,[12] provides that:

Section 15. Honoraria of BAC Members. The Procuring Entity may grant
payment of honoraria to the BAC members in an amount not to exceed twenty
five percent (25%) of their respective basic monthly salary subject to availability
of funds. For this purpose, the Department of Budget and Management (DBM)
shall promulgate the necessary guidelines.

Section 15 of the Implementing Rules and Regulations (IRR) of R.A. No.

9184, issued on October 8, 2003, reads as follows:

Section 15. Honoraria of BAC and TWG Members

The procuring entity may grant payment of honoraria to the BAC members in an
amount not to exceed twenty five percent (25%) of their respective basic monthly
salary subject to availability of funds. For this purpose, the [Department of
Budget and Management] DBM shall promulgate the necessary guidelines. The
procuring entity may also grant payment of honoraria to the TWG members,
subject to the relevant rules of the DBM.

There is no dispute that petitioners can be paid honoraria for the services
they rendered as BAC and TWG members. However, the payment of honoraria is
subject to the availability of funds and shall follow the guidelines and relevant
rules which are promulgated by the DBM.

For this purpose, DBM Budget Circular No. 2004-5 was issued on March
23, 2004, prescribing the guidelines for the grant of honoraria to government
personnel involved in government procurement, in accordance with the R.A. No.
9184. Paragraphs 4.1 and 4.2 of the budget circular provide that:

4.1 The chairs and members of the Bids and Awards Committee (BAC)
and the Technical Working Group (TWG) may be paid honoraria only
for successfully completed procurement projects. The honoraria shall
not exceed the rates indicated below per procurement project:

Honorarium Rate Per Procurement

Project
BAC Chair 3,000.00
BAC Members 2,500.00
TWG Chair and Members 2,000.00

4.2 The total amount of honoraria received in a month may not exceed
twenty-five percent (25%) of the monthly basic salary.[13]

Given the foregoing provisions, it was, therefore, error for petitioners to

remunerate themselves the amount equivalent to 25% of their basic monthly
salaries as honoraria for their services rendered as BAC members even before the
DBM guidelines were promulgated. We quote with favor the ASBs rationale for
the disallowance:

A reading of the above-quoted provision would reveal that the first

sentence sets the limit as to the amount of honoraria that may be granted to BAC
members, that is 25% of their respective basic monthly salary subject to
availability of funds. Further reading of the same would reveal that an enabling
rule, a DBM guideline, is needed for its implementation as contained in the
second sentence thereof. Thus, the provision of Sec. 15 of the GPRA
authorizing procuring entities or agencies to grant honoraria to BAC members is
not self-executing, as it still needs an implementing guideline to be promulgated
by the DBM (Government Procurement Tool Kit, Sofronio B. Ursal, 2004 ed., p.
90).[14]
 Petitioners contend that it would be unjust if the BAC and the TWG
members were not paid their honoraria for work already performed just because
the DBM had not yet promulgated the necessary guidelines.[15]

This contention is untenable.

An honorarium is defined as something given not as a matter of obligation

but in appreciation for services rendered, a voluntary donation in consideration of
services which admit of no compensation in money.[16] Section 15 of R.A. No.
9184 uses the word may which signifies that the honorarium cannot be
demanded as a matter of right.[17]

The government is not unmindful of the tasks that may be required of

government employees outside of their regular functions. It agrees that they ought
to be compensated; thus, honoraria are given as a recompense for their efforts and
performance of substantially similar duties, with substantially similar degrees of
responsibility and accountability.[18] However, the payment of honoraria to the
members of the BAC and the TWG must be circumscribed by applicable rules and
guidelines prescribed by the DBM, as provided by law. Section 15 of R.A. No.
9185 is explicit as it states: For this purpose, the DBM shallpromulgate the
necessary guidelines. The word shall has always been deemed mandatory, and
not merely directory. Thus, in this case, petitioners should have first waited for the
rules and guidelines of the DBM before payment of the honoraria. As the rules
and guidelines were still forthcoming, petitioners could not just award themselves
the straight amount of 25% of their monthly basic salaries as honoraria. This is not
the intendment of the law.

Furthermore, albeit in hindsight, the DBM Budget Circular provides that

the payment of honoraria should be made only for successfully completed
procurement projects. This phrase was clarified in DBM Budget Circular No.
2004-5A dated October 7, 2005, to wit:

5.1 The chairs and members of the Bids and Awards Committee (BAC) and
the Technical Working Group (TWG) may be paid honoraria only for
successfully completed procurement projects. In accordance with Section
7 of the Implementing Rules and Regulations Part A (IRR-A) of RA No.
9184, a procurement project refers to the entire project identified,
 described, detailed, scheduled and budgeted for in the Project Procurement
Management Plan prepared by the agency.

A procurement project shall be considered successfully completed once

the contract has been awarded to the winning bidder.

No interpretation is needed for a law that is clear, plain and free from
ambiguity. Now, the DBM has already set the guidelines for the payment of
honoraria as required by law. Since the payment of honoraria to petitioners did not
comply with the law and the applicable rules and guidelines of the DBM, the
notices of disallowance are hereby upheld.

IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of

merit.
 SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO

Associate Justice Associate Justice

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

(on official leave) (on official leave)

CONCHITA CARPIO MORALES MINITA V. CHICO-NAZARIO
Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice
 LUCAS P. BERSAMIN
Associate Justice

C E R T I F I C AT I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

*
On official leave.
[1]
Rollo, pp. 15-22.
[2]
Audit Observation Memorandum (AOM) No. 2004-08-119 dated August 31, 2004; AOM No. 2004-10-
127 dated October 4, 2004; and AOM No. 2004-11-138 dated November 18, 2004.
[3]
Rollo, p. 27.
[4]
Id. at 26-29.
[5]
Id. at 28.
[6]
Id. at 30-42.
[7]
Adjudication and Settlement Board Decision No. 2007-017, id. at 15-22.
[8]
Republic v. Lacap, G.R. No. 158253, March 2, 2007, 517 SCRA 255, 265.
[9]
Resolution No. 2003-001, dated January 30, 2003; SUBJECT: Delegating the Authority and Settle
Appeals from Disallowances Involving Amounts not Exceeding P500,000.00.
[10]
Exceptions: (1) when there is a violation of due process; (2) when the issue involved is a purely legal
question; (3) when the administrative action is patently illegal amounting to lack or excess of jurisdiction; (4) when
there is estoppel on the part of the administrative agency concerned; (5) when there is irreparable injury; (6) when
the respondent is a Department Secretary whose acts as an alter ego of the President bear the implied and assumed
approval of the latter; (7) when to require exhaustion of administrative remedies would be unreasonable; (8)
when it would amount to a nullification of a claim; (9) when the subject matter is a private land in land case
proceedings; (10) when the rule does not provide a plain, speedy, adequate remedy; (11) when there are
circumstances indicating the urgency of judicial intervention; (12) when no administrative review is provided by
law; (13) where the rule of qualified political agency applies; and (14) when the issue of non-exhaustion of
administrative remedies has been rendered moot. (Emphasis supplied; rollo, pp. 99-100.)
[11]
Bureau of Fisheries and Aquatic Resources Employees Union, Regional Office No. VII, Cebu City v.
Commission on Audit, G.R. No. 169815, August 13, 2008.
[12]
Approved on July 22, 2002.
[13]
Rollo, p. 19. (Underlining supplied.)
[14]
Id. at 18.
[15]
Id. at 103.
[16]
Santiago v. Commission on Audit, G.R. No. 92284, July 12, 1991, 199 SCRA 125, 130.
[17]
See Allarde v. Commission on Audit, G.R. No. 103578, January 29, 1993, 218 SCRA 227, 232.
[18]
Rationale (for the grant of honoraria), see DBM Circular No. 2004-5, March 23, 2004.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-50999 March 23, 1990

JOSE SONGCO, ROMEO CIPRES, and AMANCIO MANUEL, petitioners,

vs
NATIONAL LABOR RELATIONS COMMISSION (FIRST DIVISION), LABOR ARBITER FLAVIO
AGUAS, and F.E. ZUELLIG (M), INC., respondents.

Raul E. Espinosa for petitioners.

Lucas Emmanuel B. Canilao for petitioner A. Manuel.

Atienza, Tabora, Del Rosario & Castillo for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari seeking to modify the decision of the National Labor Relations
Commission in NLRC Case No. RB-IV-20840-78-T entitled, "Jose Songco and Romeo Cipres,
Complainants-Appellants, v. F.E. Zuellig (M), Inc., Respondent-Appellee" and NLRC Case No. RN-
IV-20855-78-T entitled, "Amancio Manuel, Complainant-Appellant, v. F.E. Zuellig (M), Inc.,
Respondent-Appellee," which dismissed the appeal of petitioners herein and in effect affirmed the
decision of the Labor Arbiter ordering private respondent to pay petitioners separation pay equivalent
to their one month salary (exclusive of commissions, allowances, etc.) for every year of service.

The antecedent facts are as follows:

Private respondent F.E. Zuellig (M), Inc., (hereinafter referred to as Zuellig) filed with the Department
of Labor (Regional Office No. 4) an application seeking clearance to terminate the services of
petitioners Jose Songco, Romeo Cipres, and Amancio Manuel (hereinafter referred to as petitioners)
allegedly on the ground of retrenchment due to financial losses. This application was seasonably
opposed by petitioners alleging that the company is not suffering from any losses. They alleged
further that they are being dismissed because of their membership in the union. At the last hearing of
the case, however, petitioners manifested that they are no longer contesting their dismissal. The
parties then agreed that the sole issue to be resolved is the basis of the separation pay due to
petitioners. Petitioners, who were in the sales force of Zuellig received monthly salaries of at least
P40,000. In addition, they received commissions for every sale they made.

The collective Bargaining Agreement entered into between Zuellig and F.E. Zuellig Employees
Association, of which petitioners are members, contains the following provision (p. 71, Rollo):
 ARTICLE XIV Retirement Gratuity

Section l(a)-Any employee, who is separated from employment due to old age,
sickness, death or permanent lay-off not due to the fault of said employee shall
receive from the company a retirement gratuity in an amount equivalent to one (1)
month's salary per year of service. One month of salary as used in this paragraph
shall be deemed equivalent to the salary at date of retirement; years of service shall
be deemed equivalent to total service credits, a fraction of at least six months being
considered one year, including probationary employment. (Emphasis supplied)

On the other hand, Article 284 of the Labor Code then prevailing provides:

Art. 284. Reduction of personnel. The termination of employment of any employee

due to the installation of labor saving-devices, redundancy, retrenchment to prevent
losses, and other similar causes, shall entitle the employee affected thereby to
separation pay. In case of termination due to the installation of labor-saving devices
or redundancy, the separation pay shall be equivalent to one (1) month pay or to at
least one (1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and other similar causes, the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year. (Emphasis supplied)

In addition, Sections 9(b) and 10, Rule 1, Book VI of the Rules Implementing the Labor Code
provide:

xxx

Sec. 9(b). Where the termination of employment is due to retrechment initiated by the
employer to prevent losses or other similar causes, or where the employee suffers
from a disease and his continued employment is prohibited by law or is prejudicial to
his health or to the health of his co-employees, the employee shall be entitled to
termination pay equivalent at least to his one month salary, or to one-half
month pay for every year of service, whichever is higher, a fraction of at least six (6)
months being considered as one whole year.

xxx

Sec. 10. Basis of termination pay. The computation of the termination pay of an
employee as provided herein shall be based on his latest salary rate, unless the
same was reduced by the employer to defeat the intention of the Code, in which case
the basis of computation shall be the rate before its deduction. (Emphasis supplied)

On June 26,1978, the Labor Arbiter rendered a decision, the dispositive portion of which reads (p.
78, Rollo):
 RESPONSIVE TO THE FOREGOING, respondent should be as it is hereby, ordered
to pay the complainants separation pay equivalent to their one month salary
(exclusive of commissions, allowances, etc.) for every year of service that they have
worked with the company.

SO ORDERED.

The appeal by petitioners to the National Labor Relations Commission was dismissed for lack of
merit.

Hence, the present petition.

On June 2, 1980, the Court, acting on the verified "Notice of Voluntary Abandonment and Withdrawal
of Petition dated April 7, 1980 filed by petitioner Romeo Cipres, based on the ground that he wants
"to abide by the decision appealed from" since he had "received, to his full and complete
satisfaction, his separation pay," resolved to dismiss the petition as to him.

The issue is whether or not earned sales commissions and allowances should be included in the
monthly salary of petitioners for the purpose of computation of their separation pay.

The petition is impressed with merit.

Petitioners' position was that in arriving at the correct and legal amount of separation pay due them,
whether under the Labor Code or the CBA, their basic salary, earned sales commissions and
allowances should be added together. They cited Article 97(f) of the Labor Code which includes
commission as part on one's salary, to wit;

(f) 'Wage' paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of
calculating the same, which is payable by an employer to an employee under a
written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered, and includes the fair and reasonable value, as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily
furnished by the employer to the employee. 'Fair reasonable value' shall not include
any profit to the employer or to any person affiliated with the employer.

Zuellig argues that if it were really the intention of the Labor Code as well as its implementing rules
to include commission in the computation of separation pay, it could have explicitly said so in clear
and unequivocal terms. Furthermore, in the definition of the term "wage", "commission" is used only
as one of the features or designations attached to the word remuneration or earnings.

Insofar as the issue of whether or not allowances should be included in the monthly salary of
petitioners for the purpose of computation of their separation pay is concerned, this has been settled
in the case of Santos v. NLRC, et al., G.R. No. 76721, September 21, 1987, 154 SCRA 166, where
We ruled that "in the computation of backwages and separation pay, account must be taken not only
of the basic salary of petitioner but also of her transportation and emergency living allowances." This
ruling was reiterated in Soriano v. NLRC, et al., G.R. No. 75510, October 27, 1987, 155 SCRA 124
and recently, in Planters Products, Inc. v. NLRC, et al., G.R. No. 78524, January 20, 1989.

We shall concern ourselves now with the issue of whether or not earned sales commission should
be included in the monthly salary of petitioner for the purpose of computation of their separation pay.

Article 97(f) by itself is explicit that commission is included in the definition of the term "wage". It has
been repeatedly declared by the courts that where the law speaks in clear and categorical language,
there is no room for interpretation or construction; there is only room for application (Cebu Portland
Cement Co. v. Municipality of Naga, G.R. Nos. 24116-17, August 22, 1968, 24 SCRA 708; Gonzaga
v. Court of Appeals, G.R.No. L-2 7455, June 28,1973, 51 SCRA 381). A plain and unambiguous
statute speaks for itself, and any attempt to make it clearer is vain labor and tends only to obscurity.
How ever, it may be argued that if We correlate Article 97(f) with Article XIV of the Collective
Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10 of the Implementing
Rules, there appears to be an ambiguity. In this regard, the Labor Arbiter rationalized his decision in
this manner (pp. 74-76, Rollo):

The definition of 'wage' provided in Article 96 (sic) of the Code can be correctly be
(sic) stated as a general definition. It is 'wage ' in its generic sense. A careful perusal
of the same does not show any indication that commission is part of salary. We can
say that commission by itself may be considered a wage. This is not something novel
for it cannot be gainsaid that certain types of employees like agents, field personnel
and salesmen do not earn any regular daily, weekly or monthly salaries, but rely
mainly on commission earned.

Upon the other hand, the provisions of Section 10, Rule 1, Book VI of the
implementing rules in conjunction with Articles 273 and 274 (sic) of the Code
specifically states that the basis of the termination pay due to one who is sought to
be legally separated from the service is 'his latest salary rates.

x x x.

Even Articles 273 and 274 (sic) invariably use 'monthly pay or monthly salary'.

The above terms found in those Articles and the particular Rules were intentionally
used to express the intent of the framers of the law that for purposes of separation
pay they mean to be specifically referring to salary only.

.... Each particular benefit provided in the Code and other Decrees on Labor has its
own pecularities and nuances and should be interpreted in that light. Thus, for a
specific provision, a specific meaning is attached to simplify matters that may arise
there from. The general guidelines in (sic) the formation of specific rules for particular
purpose. Thus, that what should be controlling in matters concerning termination pay
should be the specific provisions of both Book VI of the Code and the Rules. At any
 rate, settled is the rule that in matters of conflict between the general provision of law
and that of a particular- or specific provision, the latter should prevail.

On its part, the NLRC ruled (p. 110, Rollo):

From the aforequoted provisions of the law and the implementing rules, it could be
deduced that wage is used in its generic sense and obviously refers to the basic
wage rate to be ascertained on a time, task, piece or commission basis or other
method of calculating the same. It does not, however, mean that commission,
allowances or analogous income necessarily forms part of the employee's salary
because to do so would lead to anomalies (sic), if not absurd, construction of the
word "salary." For what will prevent the employee from insisting that emergency living
allowance, 13th month pay, overtime, and premium pay, and other fringe benefits
should be added to the computation of their separation pay. This situation, to our
mind, is not the real intent of the Code and its rules.

We rule otherwise. The ambiguity between Article 97(f), which defines the term 'wage' and Article
XIV of the Collective Bargaining Agreement, Article 284 of the Labor Code and Sections 9(b) and 10
of the Implementing Rules, which mention the terms "pay" and "salary", is more apparent than real.
Broadly, the word "salary" means a recompense or consideration made to a person for his pains or
industry in another man's business. Whether it be derived from "salarium," or more fancifully from
"sal," the pay of the Roman soldier, it carries with it the fundamental idea of compensation for
services rendered. Indeed, there is eminent authority for holding that the words "wages" and "salary"
are in essence synonymous (Words and Phrases, Vol. 38 Permanent Edition, p. 44 citing Hopkins
vs. Cromwell, 85 N.Y.S. 839,841,89 App. Div. 481; 38 Am. Jur. 496). "Salary," the etymology of which
is the Latin word "salarium," is often used interchangeably with "wage", the etymology of which is the
Middle English word "wagen". Both words generally refer to one and the same meaning, that is, a
reward or recompense for services performed. Likewise, "pay" is the synonym of "wages" and
"salary" (Black's Law Dictionary, 5th Ed.). Inasmuch as the words "wages", "pay" and "salary" have
the same meaning, and commission is included in the definition of "wage", the logical conclusion,
therefore, is, in the computation of the separation pay of petitioners, their salary base should include
also their earned sales commissions.

The aforequoted provisions are not the only consideration for deciding the petition in favor of the
petitioners.

We agree with the Solicitor General that granting, in gratia argumenti, that the commissions were in
the form of incentives or encouragement, so that the petitioners would be inspired to put a little more
industry on the jobs particularly assigned to them, still these commissions are direct remuneration
services rendered which contributed to the increase of income of Zuellig . Commission is the
recompense, compensation or reward of an agent, salesman, executor, trustees, receiver, factor,
broker or bailee, when the same is calculated as a percentage on the amount of his transactions or
on the profit to the principal (Black's Law Dictionary, 5th Ed., citing Weiner v. Swales, 217 Md. 123,
141 A.2d 749, 750). The nature of the work of a salesman and the reason for such type of
remuneration for services rendered demonstrate clearly that commission are part of petitioners'
wage or salary. We take judicial notice of the fact that some salesmen do not receive any basic
salary but depend on commissions and allowances or commissions alone, are part of petitioners'
wage or salary. We take judicial notice of the fact that some salesman do not received any basic
salary but depend on commissions and allowances or commissions alone, although an employer-
employee relationship exists. Bearing in mind the preceeding dicussions, if we adopt the opposite
view that commissions, do not form part of wage or salary, then, in effect, We will be saying that this
kind of salesmen do not receive any salary and therefore, not entitled to separation pay in the event
of discharge from employment. Will this not be absurd? This narrow interpretation is not in accord
with the liberal spirit of our labor laws and considering the purpose of separation pay which is, to
alleviate the difficulties which confront a dismissed employee thrown the the streets to face the harsh
necessities of life.

Additionally, in Soriano v. NLRC, et al., supra, in resolving the issue of the salary base that should be
used in computing the separation pay, We held that:

The commissions also claimed by petitioner ('override commission' plus 'net deposit
incentive') are not properly includible in such base figure since such commissions
must be earned by actual market transactions attributable to petitioner.

Applying this by analogy, since the commissions in the present case were earned by actual market
transactions attributable to petitioners, these should be included in their separation pay. In the
computation thereof, what should be taken into account is the average commissions earned during
their last year of employment.

The final consideration is, in carrying out and interpreting the Labor Code's provisions and its
implementing regulations, the workingman's welfare should be the primordial and paramount
consideration. This kind of interpretation gives meaning and substance to the liberal and
compassionate spirit of the law as provided for in Article 4 of the Labor Code which states that "all
doubts in the implementation and interpretation of the provisions of the Labor Code including its
implementing rules and regulations shall be resolved in favor of labor" (Abella v. NLRC, G.R. No.
71812, July 30,1987,152 SCRA 140; Manila Electric Company v. NLRC, et al., G.R. No. 78763, July
12,1989), and Article 1702 of the Civil Code which provides that "in case of doubt, all labor
legislation and all labor contracts shall be construed in favor of the safety and decent living for the
laborer.

ACCORDINGLY, the petition is hereby GRANTED. The decision of the respondent National Labor
Relations Commission is MODIFIED by including allowances and commissions in the separation pay
of petitioners Jose Songco and Amancio Manuel. The case is remanded to the Labor Arbiter for the
proper computation of said separation pay.

SO ORDERED.

Narvasa (Chairman), Cruz, Gancayco and Grio-Aquino, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 112371 October 7, 1998

AIDA DOMINGO, petitioner,

vs.
COMMISSION ON AUDIT, respondent.

PURISIMA, J.:

This is an original petition for certiorari under Rule 65 of the Rules of Court seeking to nullify
Decision No. 93-3081 of respondent Commission on Audit.
The antecedent facts that matter are, as follows:

On March 23, 1987, petitioner Aida Domingo was appointed by the President as Regional Director,
Region V of the Department of Social Welfare and Development, and she assumed office as such.

Several government vehicles were thereafter endorsed to her office for the use of the personnel of
the entire Region V of DSWD. Including a Toyota Land Cruiser Jeep, a Kaiser Cargo Truck, a Trailer
Jeep, a Willy's Army Rebuilt Jeep, and a Nissan Double Cab.

On November 14, 1989, Regional Auditor Manuel Caares sent a communication to the petitioner
informing her that post-audit reports on the DSWD Regional Office disbursement accounts showed
that officials provided with government vehicles were still collecting transportation allowances. The
said Auditor then requested the petitioner, in her capacity as Regional Director, to instruct all persons
concerned to cease from collecting the transportation allowances in question.

However, despite the assignment to her of a vehicle for her official use, the petitioner asserted
entitlement to a commutable transportation allowance and collected a total amount of P48,600.00 as
transportation allowance for the period from July 1, 1988 to December 31, 1990.

Petitioner asked for reconsideration of the auditor's directive; contending that she should only be
disallowed to claim transportation allowance on the days she actually used a government vehicle.
According to petitioner, she already refunded P1,600.00 for the thirty two (32) days she actually
utilized a government vehicle.

But on May 18, 1990, the auditor denied petitioner's motion for reconsideration, and issued to
petitioner CSB No. 92-003-101, dated July 8, 1992, with the following notation:

A special audit of your TA account was disallowed inaccordance with COA Decision
No. 1745 dated February 26, 1991 by the Commission proper less payment made
under OR No. 7714009 dated December 6, 1990 P1,600.00.

On August 8, 1992, the petitioner appealed the auditor's action to the Commission on Audit, which
handed down its decision of August 25, 1993, finding petitioner's appeal devoid of merit.

Respondent Commission based its aforesaid decision on an earlier COA decision No. 1745, dated
February 26, 1991, wherein it was held that a government official assigned a vehicle for his/her
official use, is not entitled to collect transportation allowance whether or not he/she actually used
such vehicle.

Undaunted, petitioner found her way to this court via the present petition, posing the issue of
whether or not a commutable transporlation allowance may still be claimed by a government official
provided with a government vehicle, for the days the official did not actually use the vehicle.

The provision of law in point is found in Section 28 of Republic Act 6688, otherwise known as the
General Appropriations Act of 1989, to wit:
 Sec. 28. Representation and Transportation Allowances . . . "The transportation
allowance herein authorized shall not be granted to officials who are assigned a
government vehicle or use government motor transportation, except as may be
approved by the President of the Philippines. Unless otherwise provided by law, no
amount appropriated in this Act shall be used to pay for representation and/or
transportation allowances, whether commutable or reimbursable, which exceed the
rates authorized under this Section. Previous administrative authorization not
consistent with the rates and conditions herein specified shall no longer be valid and
payment shall not be allowed.

The General Appropriations Acts of 1998, 1990 and 1991 provide:

The transportation allowance herein authorized shall not be granted to officials who
are assigned a government vehicle or use a government motor transportation, except
as may be approved by the President of the Philippines. (GAA 1988).

The transportation allowance herein authorized shall not be granted to officials who
are assigned a government vehicle or use government transportation, except as may
be approved by the President of the Philippines. (GAA 1990).

The transportation allowance herein authorized shall not be granted to officials who
are assigned a government vehicle or use government motor transportation. (GAA
1991).

The aforesaid provision in the General Appropriations Law is based on Presidential Decree 733 and
Commission on Audit Circular No. 75-6 dated November 7, 1975, regulating the use of government
vehicles, aircrafts and watercrafts. Portion of said circular, reads:

VI Prohibition Against Use of Government Vehicles by Officials provided with

transportation allowance "No official who has been furnished motor corporation
allowance by any government corporations or other office shall be allowed to use
motor vehicle transportation operated and maintained from funds appropriated in the
abovecited Decree. (Sec. 14, P.D. 733).

In the case of Bustamante vs. Commissioner on Audit, 216 SCRA 134, decided by this Court on
November 27, 1992, COA also disallowed the claim for transportation allowance of the legal counsel
of National Power Corporation because he was already issued a government vehicle. Involving the
circular aforementioned and almost the same facts as in this case, it was therein held that COA
Circular No. 75-6 is categorical in prohibiting the use of government vehicles by officials receiving
transportation allowance and in stressing that the use of government motor vehicle and claim for
transportation allowance are mutually exclusive and incompatible.

The issue need no longer be belabored for no less than this Court ruled in the aforesaid case that a
government official, to whom a motor vehicle has been assigned, cannot, at the sametime claim
transportation allowance.
Furthermore, it is an elementary rule that when the law speaks in clear and categorical language,
there is no need, in the absence of legislative intent to the contrary, for any interpretation. Words and
phrases used in a statute should be given their plain, ordinary, and common usage meaning. 1

In the case under consideration, it must be noted that the provisions of law referred to in the General
Appropriations Acts of 1988, 1989, 1990 and 1991, utilized the word "assigned" and not "used".
Webster's Dictionary defines the word "assign" as "to transfer (property) to another in trust". Had
legislative intent been that government officials issued an official vehicle could still collect
transportation allowance if they do not actually use subject vehicle, the word "use" instead of
"assign" should have been employed.

As correctly pointed out by the Solicitor General, there are two instances when transportation
allowance cannot be granted to a government official, as when a government official is assigned a
vehicle, and when a government official uses government transportation facilities. It is undeniable
that several government vehicles were issued to the Regional Office of DSWD in Region V. That the
vehicles thereat were issued not to petitioner herself, as Regional Director, but to the Regional Office
itself, is of no moment. What is important and decisive is that such vehicles were intended primarily
for the official use of subject office and its officials and employees. As maintained by the Solicitor
General, whether or not the herein petitioner used the vehicle assigned to her office, is not an issue,
as it is undeniable that she could have used the said vehicle whenever she wanted to since it was
assigned to her office.

In the case of Ursua vs. Court of Appeals, 256 SCRA 147, it was held that there is a valid
presumption that undesirable consequences were never intended by a legislative measure and a
construction of which the statute is fairly susceptible is favored which will avoid objectionable,
mischievous, indefensible, wrongful, evil, and injurious consequences. It is abundantly clear that the
evil sought to be remedied by the legislative prohibition is the collection of additional transportation
allowance despite the availability of free transportation supplied by a government motor vehicle
assigned to the office.

WHEREFORE, the appealed decision of the Commission on Audit is hereby AFFIRMED. No

pronouncement as to costs.

SO ORDERED.

Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban, Martinez and
Quisumbing, JJ., concur.

Narvasa, C.J. and Mendoza, J., are on official leave.

Footnotes

1 Mustang Lumber Inc. vs. CA, 257 SCRA 430.

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 70443 September 15, 1986

BRAULIO CONDE, RUFINA CONDE, GERARDO CONDE, CONCHITA C. LUNDANG, and

ALFREDO VENTURA,petitioners,
vs.
INTERMEDIATE APPELLATE COURT, HON. CESAR C. PERALEJO, in his capacity as
Presiding Judge, Regional Trial Court, Branch LXVI, Third Judicial Region, Capas, Tarlac, and
MARCELO GUTIERREZ,respondents.

Tomas P. Matic, Jr. for petitioners.

Adelaido G. Rivera for private respondent.

GUTIERREZ, JR., J.:

On January 16, 1984, the petitioners filed an action to annul the judgment of the Court of Appeals
dated September 23, 1981, which reversed the decision of the Regional Trial Court and ordered the
petitioners and/or their successors-in-interest to deliver immediately the ownership and possession
of the property in question to the then plaintiff-appellant Marcelo Gutierrez. In their complaint filed
before the Regional Trial Court of Capas, Tarlac, the petitioners alleged that through fraud, Gutierrez
was able to make it appear that he was the son of Esteban Gutierrez and Fermina Ramos and as a
necessary consequence of such filiation, was the absolute owner by succession of the property in
question.

On February 27, 1984, the trial court dismissed the petitioners' complaint on the ground that it had
no jurisdiction to annul the judgment of the Court of Appeals. Upon the denial of their motion for
reconsideration, the petitioners filed a petition for certiorari, mandamus and a writ of injunction
before the appellate court. The said court in turn, dismissed the petition and a subsequent motion for
reconsideration on the grounds that a Regional Trial Court is without jurisdiction to annul the
judgment of the Court of Appeals and that only the Supreme Court is empowered to review the
judgment of said appellate court. Hence, the petitioners elevated the case before this Court.

On August 31, 1984, we issued a resolution dated August 22, 1984, remanding the case to the
appellate court for decision on the merits.

The resolution reads as follows:

The respondent intermediate Appellate Court erred when it declared that the
complaint for annulment of judgment in this case should be filed with the Supreme
Court. This Court has no original jurisdiction to look into allegations of fraud upon
which the complaint for annulment is based. In January, 1984, the petitioners filed a
complaint with the Regional Trial Court of Tarlac seeking among other things the
annulment of a decision which had already passed, on appeal, the Court of Appeals
in CA-G.R. No. 60139-R. On February 17, 1984, the lower court dismissed the
 petitioners' complaint for annulment of judgment. The petitioners appealed the
dismissal to the respondent Intermediate Appellate Court which denied due course to
the petition stating that what is sought to be annulled is a decision of the Court of
Appeals over which the regional trial court is obviously without jurisdiction. The
decision sought to be annulled calls for the turning over of possession to the original
respondent of the disputed properties. While the judgment being enforced may have
been that of the Court of Appeals, it was actually an appellate judgment rendered on
a review of the trial court's decision. Considering that Section 9 of the Judiciary
Reorganization Act of 1980-B.P. No. 129 gives the Intermediate Appellate Court
exclusive jurisdiction over actions for annulment of judgments of regional trial courts,
the COURT RESOLVED to REMAND this case to the Intermediate Appellate Court
for it to hear and decide the action.

On January 29, 1985, the appellate court rendered a decision dismissing the petition for lack of
jurisdiction and for lack of merit. In its decision on the issue of jurisdiction, the respondent court ruled
that since the decision of the Metropolitan Trial Court can be annulled by the Regional Trial Court
and a decision of the latter is annullable by the Court of Appeals, then logically the decision of the
appellate court should be annullable only by the Supreme Court. Moreover, the appellate court ruled
that it is but logical to conclude that it cannot annul its own decision unless there is an express grant
under the Judiciary Reorganization Act of 1980. Finding none, it stated that it must perforce dismiss
the case for lack of jurisdiction.

On the merits of the petition, the appellate court ruled that the fraud relied upon by the petitioners is
only intrinsic and thus, even on the assumption that it has jurisdiction to decide the case, still the
same has no merit. It dismissed the petition. The petitioners elevated this decision to us.

On June 5, 1985, we resolved to require the respondents to comment on the petition.

Notwithstanding proof that a copy of the petition was served on the respondents' counsel on June
24, 1985, no comment has been filed.

We decide the petition.

We need not emphasize the rule that this Court decides appeals which only involve questions of law
and that "it is not the function of the Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to receiving errors of law that might have been committed by the
lower court." (Baniqued v. Court of Appeals, 127 SCRA 596, 601; citing Tiongco v. de la Merced, 58
SCRA 89). It was, thus, totally pointless for the Intermediate Appellate Court to delve into the
question of whether or not it has jurisdiction to pass upon the merits of the petition which then
alleged the perpetration of fraud by one of the parties in the original case, and which thereby called
for a review of the factual findings of the court. Furthermore, the fact that this Court already
remanded the case to the appellate court for decision on the merits should have prompted the latter
to limit its decision only to the merits of the case.

There are instances when this Court desires a further review of facts or a detailed analysis and
systematic presentation of issues which the appellate court is in a more favored position to
accomplish. Standing between the trial courts and the Supreme Court, the appellate court was
precisely created to take over much of the work that used to be previously done by this Court. It has
been of great help to the Supreme Court in synthesizing facts, issues, and rulings in an orderly and
intelligible manner and in Identifying errors which ordinarily might have escaped detection. Statistics
will show that the great majority of petitions to review the decisions of the appellate court have been
denied due course for lack of merit in minute resolutions. The appellate court has, therefore, freed
this Court to better discharge its constitutional duties and perform its most important work which, in
the words of Dean Vicente G. Sinco, "is less concerned with the decision of cases that begin and
end with the transient rights and obligations of particular individuals but is more intertwined with the
direction of national policies, momentous economic and social problems, the delimitation of
governmental authority and its impact upon fundamental rights." (Philippine Political Law, 10th
Edition, p. 323). It is, therefore, difficult to understand why a Division of the Intermediate Appellate
Court should hesitate to help the Supreme Court and to act on an action which it was specifically
ordered to hear and decide.

If its initial hesitation was due to doubts about the correctness of our action, then it should recall the
admonition inTugade v. Court of Appeals (85 SCRA 226, 230-231) that:

xxx xxx xxx

Respondent Court of Appeals really was devoid of any choice at all It could not have
ruled in any other way on the legal question raised. This Tribunal having spoken, its
duty was to obey. It is as simple as that. There is relevance to this excerpt
from Barrera v. Barrera (34 SCRA 98): 'The delicate task of ascertaining the
significance that attaches to a constitutional or statutory provision, an executive
order, a procedural norm or a municipal ordinance is committed to the judiciary. It
thus discharges a role no less crucial than that appertaining to the other two
departments in the maintenance of the rule of law. To assure stability in legal
relations and avoid confusion, it has to speak with one voice. It does so with finality,
logically and rightly, through the highest judicial organ, this Court. What it says then
should be definitive and authoritative, binding on those occupying the lower ranks in
the judicial hierarchy. They have to defer and to submit.' (Ibid. 107. The opinion of
Justice Laurel in People v. Vera, 65 Phil. 56 [1937] was cited.) The ensuing
paragraphs of the opinion in Barrera further emphasizes the point: 'Such a thought
was reiterated in an opinion of Justice J.B.L. Reyes and further emphasized in these
words: 'Judge Gaudencio Cloribel need not be reminded that the Supreme Court, by
tradition and in our system of judicial administration, has the last word on what the
law is it is the final arbiter of any justifiable controversy. There is only one Supreme
Court from whose decisions an other courts should take their bearings. (Justice
J.B.L. Reyes spoke thus in Albert v. Court of First Instance of Manila [Br. VI], 23
SCRA 948, 961).

The fault of the Intermediate Appellate Court is mitigated by the fact that it still decided the remanded
case on the merits. It stated:
On February of 1950 an original complaint for recovery of possession of a parcel of
land was filed before the Court of First Instance of Tarlac, which was subsequently
amended on March 19, 1951.

On May 20, 1976, after a full blown trial the Regional Trial Court Branch 64 (formerly
Court of First Instance) of Tarlac, rendered a decision dismissing the complaint and
ordering plaintiff Marcelo Gutierrez to pay the defendants the costs of the suit. The
dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered dismissing the complaint and ordering

plaintiff Marcelo Gutierrez to pay the defendants the costs of this suit. He (sic)
pronouncement as to damages for want of proof.

From the above judgment an appeal was filed with the Court of Appeals.

On September 23, 1981, the then Court of Appeals reversed the decision of the
Regional Trial Court, Branch 64, this time ordering the ten appellees (now
petitioners) to deliver the ownership and possession of the litigated property to then
appellant (now respondent Marcelo Gutierrez), which decision became final and
executory on December 20, 1982, the dispositive portion of which reads, as follows:

WHEREFORE, in the light of the foregoing, the decision appealed from, not being in
accordance with the applicable law and evidence and finding validity in the errors
assigned, is hereby reversed and set aside. In lieu thereof, another one is entered
ordering defendants-appellees and/or their successors-in-interest to deliver
immediately the ownership and possession of the property described under par. 3 of
the complaint to herein plaintiff- appellant Marcelo Gutierrez. With costs.

On January 16, 1984, an action to annul the judgment of the former Court of Appeals
was filed before the Regional Trial Court, Branch 56, Third Judicial Region in Capas,
Tarlac.

On February 27, 1984, the respondent Court (Regional Trial Court), dismissed the
case for annulment of judgment on the ground that it has no jurisdiction to annul the
judgment of the Court of Appeals.

On March 19, 1984, the motion for reconsideration filed by herein petitioner was
denied by the respondent court. Accordingly, a petition for certiorari, mandamus and
a writ of injunction was filed before the Intermediate Appellate Court and raffled to the
Third Special Cases Division, The court dismissed the petition for lack of merit on the
ground that a Regional Trial Court is without jurisdiction to annul a judgment of the
Intermediate Appellate Court, the dispositive portion of which reads:

WHEREFORE, this case should be, as it is hereby DISMISSED OUTRIGHT. With

costs against the petitioners.
 On June 14, 1984, the motion for reconsideration filed by herein petitioner was
denied by this Court.

xxx xxx xxx

Finally, a judgment based on alleged false testimony is not an extrinsic fraud by

which an action for annulment of judgment could be grounded. The Supreme Court
in Ilacad v. Court of Appeals (supra, p. 302), declared that:

xxx xxx xxx

... and speaking of extrinsic fraud, it is that fraudulent scheme of the prevailing litigant which
prevents a party from having his day in court from presenting his case. Fraud has been regarded as
extrinsic or collateral, within the meaning of the rule 'where it is one of the effect of which prevents a
party from having a trial, or real contests, or from presenting all of his case to the court, or where it
operates upon matters pertaining not to the judgment itself, but to the manner by which it was
procured so that there is not a fair submission of the controversy. In other words, extrinsic fraud
refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the
trial of the case, where the defeated party has been prevented from presenting fully his side of the
case, by fraud or deception practiced on him by his opponent.

The resort to fraud in introducing fabricated evidence is definitely an intrinsic fraud,

hence false testimony being a matter of evidence is definitely intrinsic and not
extrinsic. Fraud consisting in acting fictitious cause of false testimony is intrinsic (sic)
(Francisco v. David, 38 CG 714). Intrinsic fraud takes the form of acts of a party in a
litigation during the trial such as the use of forged instruments or perjured testimony,
which did not affect the presentation of the case, but did prevent a fair and just
determination of the case (Libudan v. Palma, [S1, 45 SCRA 17]). Intrinsic fraud is not
sufficient to attack a judgment (Yatco v. Sumagui, 44623-R, July 31, 1971).

Petitioners stand that extrinsic fraud was employed by the respondents, is bereft of
any factual basis, hence, even on the assumption that this court has jurisdiction to
decide this issue, still the petitioners cause of action must fail.

A careful review of the present petition and of the records of the appellate court on this case shows
that even on the assumption that all the facts alleged in the petition are true, the petition should be
dismissed for lack of merit because the fraud allegedly perpetrated by the private respondent in AC-
G.R. SP No. 03301 is only intrinsic in nature and not extrinsic. Fraud is regarded as extrinsic or
collateral where it has prevented a party from having a trial or from presenting an of his case to the
court. (Asian Surety and Insurance Co. v. Island Steel, Inc., 118 SCRA 233, 239; citing Amuran v.
Aquino, 38 Phil. 29). In the case at bar, the fraud was in the nature of documents allegedly
manufactured by Marcelo Gutierrez to make it appear that he was the rightful heir of the disputed
property, Hence, the Intermediate Appellate Court is correct in finding the fraud to be intrinsic in
nature.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. The respondents' counsel, Atty.
Adelaido G. Rivera is fined Five Hundred Pesos (P500.00) for his failure to act on the order to file
comment.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur,

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23607 May 23, 1967

GO KA TOC SONS and CO., ETC., plaintiff-appellee,

vs.
RICE AND CORN BOARD, defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General A. A. Torres, Solicitor C.
S. Gaddi and Atty. A. J. Gustilo for defendant-appellant.
Antonio C. Sanchez and Vicente Cabahug for plaintiff appellee.

BENGZON, J.P., J.:

Plaintiff-appellee Go Ka Toc Sons & Co. is a duly registered partnership, not wholly owned by
Filipinos, engaged since 1958 in the manufacture, processing and marketing of vegetable oil
extracted from corn, rice, copra, soybean, peanuts, fish, and other vegetable products. 1wph1.t

On August 2, 1960, Republic Act 3018 was approved, Section 1 of which prohibited, among others,
partnerships whose capital was not wholly owned by citizens of the Philippines from engaging,
directly or indirectly, in the rice and/or corn industry. The law was to take effect on January 1, 1951.
However, Section 3 (a) allowed such partnerships, upon registration with the municipal treasurer, to
continue business until two years from and after January 1, 1961.

SEC. 3. All such persons, associations, partnerships or corporations that have complied with
the requirements provided in Section two hereof, if they so apply, shall be allowed to
continue to engage in their respective lines of activity in the rice and to and/or corn industry
only for the purpose of liquidation, as follows:

(a) Those engaged in the retail, wholesale, culture, transporting, handling, distribution or
acquisition for the purpose of trade of rice and/or corn and the by-products thereof shall be
allowed to continue to engage therein for a period of two years from the date of effectivity of
this Act;

xxx xxx xxx

On November 21, 1960, the newly created Rice and Corn Board 1 issued Resolution No. 10, pursuant
to Section 6 of the law, defining the term "by product" used in the law, as follows:

By-product shall mean the secondary products resulting from the process of husking,
grinding, milling, and cleaning of palay and corn, such as, but not limited to "binlid," "darak,"
"tanop," "tiktik," "corn husk," "corn drips," and "corn meals."

And on July 10, 1961, the RICOB issued Gen. Circular No. 1, as amended, which defined the term
"capital investment" used in Section 3 of Republic Act 3018 which limits the maximum amount of
capital investments of alien persons and entities engaged in the rice and/or corn industry to the
amount stated in their statement made pursuant to Section 2 of the law.

These two circulars have been duly published and translated into the local dialect pursuant to
Section 6 of Republic Act 3018.

Plaintiff-appellee, having been required by agents of RICOB to register in accordance with Section 2
of the law and the latter's resolution, dated January 3, 1961, ruling that manufacturers and/or dealers
of bijon, noodle, corn starch, gawgaw, rice wine, poultry feeds and other by products of rice and corn
are covered by the law, filed action in the Court of First Instance to declare the said law and RICOB
Resolution No. 10, Nov. 21, 1960 and Gen. Circular No. 1, July 10, 1961, as inapplicable to it.
Pending trial on the merits, the lower court issued the writ of preliminary injunction prayed for.

To abbreviate the proceedings, the parties entered into a stipulation of facts. Thereupon, the lower
court rendered judgment (a) declaring Republic Act 3018 not applicable to plaintiff's business; (b)
declaring null and void RICOB's Resolution No. 10, dated November 21, 1960 and General Circular
No. 10, as amended, dated July 10, 1961 in so far as they were and are being made applicable to
plaintiff's business and (c) making and declaring permanent and perpetual the preliminary writ of
injunction issued in the case.
Not satisfied with the foregoing ruling, defendant RICOB, through the Solicitor General has taken the
instant appeal to raise questions purely of law.

Admittedly, plaintiff-appellee has stopped from engaging in the purchase and sale of rice and/or corn
since the lapse of the two-year period from the effectivity of the law. It has limited its activities to
the trade, processing andmanufacture of corn and rice oil from raw materials consisting of corn germ
proper or embryo ("sungo") and "tahup," as well as from rice husk it secures from others who mill
rice and corn. In the processing and manufacture of coin oil, plaintiff also produces a residue called
"corn meal" or "corn meal germ" which it sells and trades. Are these activities covered by Republic
Act 3018?

Section 1 of the law defines "rice and/or corn industry" as including the handling of distribution, either
in wholesale or retail, and the acquisition for purpose of trade, of the by-products of rice and corn.

SECTION 1. No person who is not a citizen of the Philippines, or association, partnership or

Corporation, the capital or capital stock of which is now wholly owned by citizens of the
Philippines, shall directly or indirectly engage in the rice and/or corn industry except as
provided in Section three of this Act.

As used in this Act, the term rice "and/or corn industry" shall mean and include the culture,
milling, warehousing, transporting, exportation, importation, handling the distribution, either in
wholesale or retail, the provisions of Republic Act Numbered Eleven hundred and eighty to
the contrary notwithstanding, or the acquisition for the purpose of trade of rice (husked or
unhusked) or corn and the by-products thereof:Provided, That public utilities duly licensed
and registered in accordance with law may transport corn or rice. (Emphasis supplied).

Now, "tahup," "sungo" and "rice husk," which plaintiffs acquires from rice and corn millers and from
which it manufactures the vegetable oil and produces the "corn meal" or "corn germ meal" that it
subsequently distributes and sells are clearly by-products of rice and/or corn. 2

Although the term "by-product" is not particularly and by specifically stated in the title of Republic Act
3018, its inclusion in the body of the law is not invalid, as the lower court held, since it is germane to
the subject matter expressed in the title of the law.3

Neither is the statutory inclusion of said term in the definition of the phrases "rice and/or corn
industry" an invalid legislative usurpation of the court's function to interpret the laws, as the lower
court also ruled. This definition is part of the law itself.

Finally, the lower court determined the purpose and intention behind the law, thus:

x x x In the opinion of the Court, it was never the intention of the Legislature in enacting
Republic Act No. 3018 to include in its purpose or scope the processing of the by-products of
rice and corn because Filipinos do not depend for their survival by eating the by-products of
rice and corn. . . . .
 Assuming, without admitting, that the law in question really intended to include in its object
the nationalization not only of the rice and corn industry but also the trade of the by-products
just mentioned above, the business in which the plaintiff has been engaged and since
December 31, 1962, as is at present, engaged, the Court is of the opinion that in the trade,
processing, manufacture of corn and rice oil from the raw materials of corn germ proper or
embryo (sungo) and tahup and from rice husk converting the remaining parts into "corn
meal" or "corn germ meal" which is traded and sold and that it acquired its raw materials
from those engaged milling rice and/or corn. the said Republic Act No. 3018 does not cover
the plaintiff's business activities just mentioned.

This is a fair and reasonable interpretation and application of said Republic Act No. 3018,
because to include in its control, limitation and prohibition the business of the plaintiff
mentioned above, would be not only to render the said law unconstitutional for not including
in its title "and the by-products thereof," but also to unreasonably stretch out and expand the
scope and intention of the law to include in its context the processing and extracting of oil
from rice and corn and the manufacture of corn meal or corn germ meal and the selling and
trading of the same.

As a logical result of this interpretation of the law spelled out by this Court, it must
necessarily follow that the Resolution No. 10, Annex 1 and the general circular dated July 10,
1961, quoted under paragraph 3 of the parties' Stipulation of Facts are hereby declared null
and void in so far as they attempted to include in the scope of said law the defendant's
business activities described above in which it engaged since December 31, 1962, and in
which it has been engaged partly engaged since its formation in 1959.

What the court a quo did was to resort to statutory construction. But this was improper as well as
incorrect. The law is clear in enunciating the policy that only Filipinos and associations, partnerships
or corporations 100% Filipino can engage even in the trade and acquisition of the by-products of rice
and/or corn. So the court's only duty was to apply the law as it was. 4 The purpose of the Act, as
expressed in the introductory note of the bill, can control the language of the law only in case of
ambiguity.5 There is none here. Furthermore, the court below's interpretation would render the
statute nugatory and defeat its aims, rather than apply and effectuate its provisions, 6 since it struck
off the phrase "by-products thereof" from the text of the law.

Since plaintiff-appellee is covered by the statute, there is no necessity for an extensive discussion
regarding the validity of Resolution No. 10 of November 21, 1960. The power and authority of
appellant RICOB to issue such rules and regulations implementing the law, proceeds from the law
itself.7 Said resolution, by enumerating some specific examples of by-products of rice and/,or corn,
merely carried out the provisions of law. And the sole reason why the lower court invalidated it, was
its mistaken stand that the term "by-product" ought not to have been made a part of the statute.

The foregoing considerations render moot and academic the question regarding the validity of
General Circular No. 1 on July 10, 1961.

Wherefore, the judgment appealed from is reversed and the writ of injunction issued therein is
annulled and set aside. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Zaldivar and Castro JJ., concur.
Makalintal, J., took no part.

Footnotes

1
Hereinafter referred to as "RICOB."

2
See RICOB Res. No. 10, Nov. 21, 1960.

3
Sumulong v. COMELEC, 73 Phil. 288; Cordero v. Cabatuando, L-14542, Oct. 31, 1962.

People v. Garcia, 85 Phil. 651 [Resolution on Motion to Reconsider]; Tecson v. S.S.S., L-

4

15798, Dee. 29, 1961.

5
82 C.J.S. 621; 50 Am. Jur. 291, 296.

6
50 Am. Jur. 358-364.

7
Sec. 6, Republic Act 3018.

THIRD DIVISION

[G.R. No. 125183. September 29, 1997]

MUNICIPALITY OF SAN JUAN, METRO MANILA, petitioner, vs. COURT
OF APPEALS, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES, CORAZON DE JESUS HOMEOWNERS
ASSOCIATION, INC., ADRIANO A. DELAMIDA, SR. CELSO T.
TORRES, TARCILA V. ZATA, QUIRICO T. TORRES, CATALINA
BONGAT, MILAGROS A. HERBOLARIO, ROSALINDA A.
PIMENTAL, PURIFICACION MORELLA, FRANCISCO RENION,
SR., MARCELINA CORPUZ, BENEDICTO FALCON, MAXIMO
FALCON, MARIO BOLANOS, VICENTE T. SURIAO, ROSARIO
GREGORIA G. DORADO, JEREMIAS Z. PATRON, ALEX
RODRIGUEZ, MARIA LUISA ALPAPARA, HERMINIA
C. RODRIGUEZ, VICTORIANO ESPANOL, MARIO L. AGUILAR,
FREDDIE AMADOR, SILVERIO PURISIMA, JR., PROCOPIO B.
PENARANDA, ELADIO MAGLUYAN, HELENITA GUEI,
CELESTINO MONTANO, ROMEO GOMEZ, OFELIA LOGO, JIMMY
MACION, DAISY A. MANGA, MAURO MANGA, ARTHUR
HERBOLARIO, MANOLITO HERBOLARIO, ROSARIO ANCHETA,
TERESITA A. VICTORIA, ROSALINA SAMPAGA, MARIQUITA
RUADO, FELIPE ANCHETA, MAGDALENA CABREZA, MARIA
BIANDILLA, NILDA ARENSOL, LORENZO S. TOLEDO, and
NAPOLEON D. VILORIA, SR., respondents.

DECISION

MELO, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules

of Court, assailing and seeking to reverse and set aside: a) the decision dated
November 23, 1995 of the Court of Appeals reversing the decision of the
Regional Trial Court of Pasig, Metro Manila, Branch 159; and b) the resolution
dated May 28, 1996 denying reconsideration of said decision.

The generative facts of the case are as follows:

On February 17, 1978, then President Ferdinand Marcos issued

Proclamation No. 1716 reserving for Municipal Government Center Site
Purposes certain parcels of land of the public domain located in the
Municipality of San Juan, Metro Manila.

Considering that the land covered by the above-mentioned proclamation

was occupied by squatters, the Municipality of San Juan purchased an 18-
hectare land in Taytay, Rizal as resettlement center for the said
squatters. Only after resettling these squatters would the municipality be able
to develop and construct its municipal government center on the subject land.

After hundreds of squatter families were resettled, the Municipality of San

Juan started to develop its government center by constructing the INP
Building, which now serves as the PNP Headquarters, the Fire Station
Headquarters, and the site to house the two salas of the Municipal Trial
Courts and the Office of the Municipal Prosecutors. Also constructed thereon
are the Central Post Office Building and the Municipal High School Annex
Building.

On October 6, 1987, after Congress had already convened on July 26,

1987, former President Corazon Aquino issued Proclamation No. 164,
amending Proclamation No. 1716. Said amendatory proclamation pertinently
reads as follows:

PROCLAMATION NO. 164

AMENDING PROCLAMATION NO. 1716, DATED FEBRUARY 17, 1978, WHICH

RESERVED FOR MUNICIPAL GOVERNMENT CENTER SITE PURPOSES
CERTAIN PARCELS OF LAND OF THE PUBLIC DOMAIN SITUATED IN THE
MUNICIPALITY OF SAN JUAN, METROPOLITAN MANILA, ISLAND OF LUZON,
BY EXCLUDING FROM ITS OPERATION THE PARCELS OF LAND NOT BEING
UTILIZED FOR GOVERNMENT CENTER SITES PURPOSES BUT ACTUALLY
OCCUPIED FOR RESIDENTIAL PURPOSES AND DECLARING THE LAND OPEN
TO DISPOSITION UNDER THE PROVISIONS OF THE PUBLIC LAND ACT, AS
AMENDED.

Upon recommendation of the Secretary of Environment and Natural Resources and by

virtue of the powers vested in me by law, I, CORAZON C. AQUINO, President of the
Philippines, do hereby amend Proclamation No. 1716, dated February 17, 1978, which
established for municipal government center site purposes certain parcels of land
mentioned therein situated in the Municipality of San Juan, Metro Manila, by
excluding from its operation the parcels of land not being utilized for government
center site purposes but actually occupied for residential purposes and declaring the
land so excluded, together with other parcels of land not covered by Proclamation No.
1716 but nevertheless occupied for residential purposes, open to disposition under the
provisions of the Public Land Act, as amended, subject to future survey, which are
hereunder particularly described as follows :

Lot 1 (Port.) Psu-73270

xxx xxx xxx

Lot 4 (Port.) Psd-740

and Psd-810

xxx xxx xxx

Lot 5 (Port.) Psu-73270

xxx xxx xxx

IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the
Republic of the Philippines to be affixed.

Done in the City of Manila, this 6th day of October in the year of Our Lord, nineteen
hundred and eighty-seven.

(Sgd.) CORAZON C. AQUINO

By the President :

(Sgd.) CATALINO MACARAIG, JR.

Acting Executive Secretary

(Rollo, pp. 148-151.)

On June 1, 1988, the Corazon de Jesus Homeowners Association, Inc.,

one of herein private respondents, filed with the Regional Trial Court of the
National Capital Judicial Region (Pasig, Branch 159) a petition for prohibition
with urgent prayer for restraining order against the Municipal Mayor and
Engineer of San Juan and the Curator of Pinaglabanan Shrine, to enjoin them
from either removing or demolishing the houses of the association members
who were claiming that the lots they occupied have been awarded to them by
Proclamation No. 164.

On September 14, 1990, the regional trial court dismissed the petition,
ruling that the property in question is being utilized by the Municipality of San
Juan for government purposes and thus, the condition set forth in
Proclamation No. 164 is absent.

The appeal before the Court of Appeals was dismissed in a decision dated
July 17, 1991. This decision became final and the said judgment was duly
entered on April 8, 1992.

Disregarding the ruling of the court in this final judgment, private

respondents hired a private surveyor to make consolidation-subdivision plans
of the land in question, submitting the same to respondent Department of
Environment and Natural Resources (DENR) in connection with their
application for a grant under Proclamation No. 164.

To prevent DENR from issuing any grant to private respondents, petitioner

municipality filed a petition for prohibition with prayer for issuance of a
temporary restraining order and preliminary injunction against respondent
DENR and private respondent Corazon de Jesus Homeowners Association.

The regional trial court sustained petitioner municipality, enjoining the

DENR from disposing and awarding the parcels of land covered by
Proclamation No. 164.

The Court of Appeals reversed, hence, the present recourse.

Cutting through the other issues, it would appear that ultimately, the
central question and bone of contention in the petition before us boils down to
the correct interpretation of Proclamation No. 164 in relation to Proclamation
No. 1716.
 Petitioner municipality assails the decision of the Court of Appeals by
hammering on the issue of res judicata in view of the fact that an earlier
judgment, which had become final and executory, had already settled the
respective rights of the parties under Proclamation No. 164. This
notwithstanding, petitioner reiterates the reasons why the court had previously
ruled in favor of petitioners rights over the subject property against the claims
of private respondents.

We find good legal basis to sustain petitioners position on the issue of res
judicata insofar as the particular area covered by Proclamation No. 164, which
was the subject matter of the earlier case, is concerned.

The basic elements of res judicata are: (a) the former judgment must be
final; (b) the court which rendered it had jurisdiction over the subject matter
and the parties; (c) it must be a judgment on the merits; and (d) there must be
between the first and second actions identity of parties, subject matter, and
cause of action (Mangoma vs. Court of Appeals, 241 SCRA 21 [1995]).

The existence of the first three elements can not be disputed. As to

identity of parties, we have ruled that only substantial identity is required and
not absolute identity of parties (Suarez vs. Municipality of Naujan, 18 SCRA
682 [1966]). The addition of public respondent DENR in the second case will
thus be of no moment. Likewise, there is identity of cause of action since the
right of the municipality over the subject property, the corresponding obligation
of private respondents to respect such right and the resulting violation of said
right all remain to be the same in both the first and the second actions despite
the fact that in the first action, private respondents were the plaintiff while in
the second action, they were the respondents.

The last requisite is identity of subject matter. Res judicata only extends to
such portion of land covered by Proclamation No. 164 which the court ruled
may not be automatically segregated from the land covered by Proclamation
No. 1716. It does not include those portions which are outside the coverage
of Proclamation No. 1716.

Withal, reversal of the decision of the Court of Appeals would be justified

upon the above premise and our discussion may properly end here. However,
there exists a more basic reason for setting aside the appealed decision and
this has reference to a fundamental and gross error in the issuance of
Proclamation No. 164 on October 16, 1987 by then President Aquino.

Proclamation No. 1716 was issued by the late President Ferdinand E.

Marcos on February 17, 1978 in the due exercise of legislative power vested
upon him by Amendment No. 6 introduced in 1976. Being a valid act of
legislation, said Proclamation may only be amended by an equally valid act of
legislation. Proclamation No. 164 is obviously not a valid act of
legislation. After the so-called bloodless revolution of February 1986,
President Corazon Aquino took the reigns of power under a revolutionary
government. On March 24, 1986, she issued her historic Proclamation No. 3,
promulgating the Provisional Constitution, or more popularly referred to as the
Freedom Constitution. Under Article II, Section 1 of the Freedom Constitution,
the President shall continue to exercise legislative power until a legislature is
elected and convened under a new constitution. Then came the ratification of
the draft constitution, to be known later as the 1987 Constitution. When
Congress was convened on July 26, 1987, President Aquino lost this
legislative power under the Freedom Constitution. Proclamation No. 164,
amending Proclamation No. 1716 was issued on October 6, 1987 when
legislative power was already solely on Congress.

Although quite lamentably, this matter has escaped the attention of

petitioner as well as the courts before which this case has already passed
through, this Court cannot help noticing this basic flaw in the issuance of
Proclamation No. 164. Because this unauthorized act by the then president
constitutes a direct derogation of the most basic principle in the separation of
powers between the three branches of government enshrined in our
Constitution, we cannot simply close our eyes and rely upon the principle of
the presumption of validity of a law.

There is a long standing principle that every statute is presumed to be

valid (Salas vs. Jarencio, 46 SCRA 734 [1970]; Peralta vs. Comelec, 82 SCRA
30 [1978]). However, this rests upon the premise that the statute was duly
enacted by legislature. This presumption cannot apply when there is clear
usurpation of legislative power by the executive branch. For this Court to
allow such disregard of the most basic of all constitutional principles by reason
of the doctrine of presumption of validity of a law would be to turn its back to
its sacred duty to uphold and defend the Constitution. Thus, also, it is in the
discharge of this task that we take this exception from the Courts usual
practice of not entertaining constitutional questions unless they are specifically
raised, insisted upon, and adequately argued.

We, therefore, hold that the issuance of Proclamation No. 164 was an
invalid exercise of legislative power. Consequently, said Proclamation is
hereby declared NULL and VOID.

WHEREFORE, the appealed decision of the Court of Appeals is hereby

SET ASIDE. Public respondent Department of Environment and Natural
Resources is hereby permanently ENJOINED from enforcing Proclamation
No. 164.

SO ORDERED.

Narvasa, C.J. (Chairman), Romero, Francisco and Panganiban,

JJ., concur.