Republic of the Philippines The Facts
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160016 February 27, 2006
ABACUS SECURITIES CORPORATION, Petitioner,
vs.
RUBEN U. AMPIL, Respondent.
DECISION
PANGANIBAN, CJ:
Stock market transactions affect the general public and the national
economy. The rise and fall of stock market indices reflect to a
considerable degree the state of the economy. Trends in stock prices
tend to herald changes in business conditions. Consequently, securities
transactions are impressed with public interest, and are thus subject to
public regulation. In particular, the laws and regulations requiring
payment of traded shares within specified periods are meant to protect
the economy from excessive stock market speculations, and are thus
mandatory.
In the present case, respondent cannot escape payment of stocks validly
traded by petitioner on his behalf. These transactions took place before
both parties violated the trading law and rules. Hence, they fall outside
the purview of the pari delicto rule.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of
Court, challenging the March 21, 2003 Decision2 and the September 19,
2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 68273.
The assailed Decision disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE THUS, this appeal is
hereby DISMISSED. With costs."4
The CA denied reconsideration in its September 19, 2003 Resolution.
The factual antecedents were summarized by the trial court (and
reproduced by the CA in its assailed Decision) in this wise:
"Evidence adduced by the [petitioner] has established the fact that
[petitioner] is engaged in business as a broker and dealer of securities of
listed companies at the Philippine Stock Exchange Center.
"Sometime in April 1997, [respondent] opened a cash or regular account
with [petitioner] for the purpose of buying and selling securities as
evidenced by the Account Application Form. The parties’ business
relationship was governed by the terms and conditions [stated therein] x x
x.
"Since April 10, 1997, [respondent] actively traded his account, and as a
result of such trading activities, he accumulated an outstanding obligation
in favor of [petitioner] in the principal sum of ₱6,617,036.22 as of April 30,
1997.
"Despite the lapse of the period within which to pay his account as well as
sufficient time given by [petitioner] for [respondent] to comply with his
proposal to settle his account, the latter failed to do so. Such that
[petitioner] thereafter sold [respondent’s] securities to set off against his
unsettled obligations.
"After the sale of [respondent’s] securities and application of the proceeds
thereof against his account, [respondent’s] remaining unsettled obligation
to [petitioner] was ₱3,364,313.56. [Petitioner] then referred the matter to
its legal counsel for collection purposes.
"In a letter dated August 15, 1997, [petitioner] through counsel demanded
that [respondent] settle his obligation plus the agreed penalty charges
accruing thereon equivalent to the average 90-day Treasury Bill rate plus
2% per annum (200 basis points).
"In a letter dated August [26], 1997, [respondent] acknowledged receipt of
[petitioner’s] demand [letter] and admitted his unpaid obligation and at the
same time request[ed] for 60 days to raise funds to pay the same, which
was granted by [petitioner].
"Despite said demand and the lapse of said requested extension,
[respondent] failed and/or refused to pay his accountabilities to
[petitioner].
"For his defense, [respondent] claims that he was induced to trade in a
stock security with [petitioner] because the latter allowed offset
settlements wherein he is not obliged to pay the purchase price. Rather, it
waits for the customer to sell. And if there is a loss, [petitioner] only
requires the payment of the deficiency (i.e., the difference between the
higher buying price and the lower selling price). In addition, it charges a
commission for brokering the sale.
"However, if the customer sells and there is a profit, [petitioner] deducts
the purchase price and delivers only the surplus – after charging its
commission.
"[respondent] further claims that all his trades with [petitioner] were not
paid in full in cash at anytime after purchase or within the T+4 [4 days
subsequent to trading] and none of these trades was cancelled by
[petitioner] as required in Exhibit ‘A-1’. Neither did [petitioner] apply with
either the Philippine Stock Exchange or the SEC for an extension of time
for the payment or settlement of his cash purchases. This was not
brought to his attention by his broker and so with the requirement of
collaterals in margin account. Thus, his trade under an offset transaction
with [petitioner] is unlimited subject only to the discretion of the broker. x
x x [Had petitioner] followed the provision under par. 8 of Exh. ‘A-1’ which
stipulated the liquidation within the T+3 [3 days subsequent to trading],
his net deficit would only be ₱1,601,369.59. [respondent] however
affirmed that this is not in accordance with RSA [Rule 25-1 par. C, which
mandates that if you do not pay for the first] order, you cannot
subsequently make any further order without depositing the cash price in
full. So, if RSA Rule 25-1, par. C, was applied, he was limited only to the
first transaction. That [petitioner] did not comply with the T+4 mandated in
cash transaction. When [respondent] failed to comply with the T+3,
[petitioner] did not require him to put up a deposit before it executed its
subsequent orders. [Petitioner] did not likewise apply for extension of the
T+4 rule. Because of the offset transaction, [respondent] was induced to
[take a] risk which resulted [in] the filing of the instant suit against him
[because of which] he suffered sleepless nights, lost appetite which if
quantified in money, would amount to ₱500,000.00 moral damages and
₱100,000.00 exemplary damages."5
In its Decision6 dated June 26, 2000, the Regional Trial Court (RTC) of
Makati City (Branch 57) held that petitioner violated Sections 23 and 25
of the Revised Securities Act (RSA) and Rule 25-1 of the Rules
Implementing the Act (RSA Rules) when it failed to: 1) require the
respondent to pay for his stock purchases within three (T+3) or four days
(T+4) from trading; and 2) request from the appropriate authority an
extension of time for the payment of respondent’s cash purchases. The
trial court noted that despite respondent’s non-payment within the
required period, petitioner did not cancel the purchases of respondent.
Neither did it require him to deposit cash payments before it executed the
buy and/or sell orders subsequent to the first unsettled transaction.
According to the RTC, by allowing respondent to trade his account
actively without cash, petitioner effectively induced him to purchase
securities thereby incurring excessive credits.
The trial court also found respondent to be equally at fault, by incurring
excessive credits and waiting to see how his investments turned out
before deciding to invoke the RSA. Thus, the RTC concluded that
petitioner and respondent were in pari delicto and therefore without
recourse against each other.
Ruling of the Court of Appeals
The CA upheld the lower court’s finding that the parties were in pari
delicto. It castigated petitioner for allowing respondent to keep on trading
despite the latter’s failure to pay his outstanding obligations. It explained
that "the reason [behind petitioner’s act] is elemental in its simplicity. And
it is not exactly altruistic. Because whether [respondent’s] trading
transaction would result in a surplus or deficit, he would still be liable to
pay [petitioner] its commission. [Petitioner’s] cash register will keep on
ringing to the sound of incoming money, no matter what happened to
[respondent]."7
The CA debunked petitioner’s contention that the trial court lacked
jurisdiction to determine violations of the RSA. The court a quo held that
petitioner was estopped from raising the question, because it had actively
and voluntarily participated in the assailed proceedings.
Hence, this Petition.8
Issues
Petitioner submits the following issues for our consideration:
"I.
Whether or not the Court of Appeal’s ruling that petitioner and respondent
are in pari delicto which allegedly bars any recovery, is in accord with law
and applicable jurisprudence considering that respondent was the first
one who violated the terms of the Account Opening Form, [which was
the] agreement between the parties.
"II.
Whether or not the Court of Appeal’s ruling that the petitioner and
respondent are in pari delicto is in accord with law and applicable
jurisprudence considering the Account Opening Form is a valid
agreement.
"III.
Whether or not the Court of Appeal’s ruling that petitioner cannot recover
from respondent is in accord with law and applicable jurisprudence since
the evidence and admission of respondent proves that he is liable to
petitioner for his outstanding obligations arising from the stock trading
through petitioner.
"IV.
Whether or not the Court of Appeal’s ruling on petitioner’s alleged
violation of the Revised Securities Act [is] in accord with law and
jurisprudence since the lower court has no jurisdiction over violations of
the Revised Securities Act."9
Briefly, the issues are (1) whether the pari delicto rule is applicable in the
present case, and (2) whether the trial court had jurisdiction over the
case.
The Court’s Ruling
The Petition is partly meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present controversy, the following pertinent facts are undisputed:
(1) on April 8, 1997, respondent opened a cash account with petitioner for
his transactions in securities;10 (2) respondent’s purchases were
consistently unpaid from April 10 to 30, 1997; 11 (3) respondent failed to
pay in full, or even just his deficiency, 12 for the transactions on April 10
and 11, 1997;13 (4) despite respondent’s failure to cover his initial
deficiency, petitioner subsequently purchased and sold securities for
respondent’s account on April 25 and 29; 14 (5) petitioner did not cancel or
liquidate a substantial amount of respondent’s stock transactions until
May 6, 1997.15
The provisions governing the above transactions are Sections 23 and 25
of the RSA16 and Rule 25-1 of the RSA Rules, which state as follows:
"SEC. 23. Margin Requirements. –
xxxxxxxxx
(b) It shall be unlawful for any member of an exchange or any broker or
dealer, directly or indirectly, to extend or maintain credit or arrange for the
extension or maintenance of credit to or for any customer –
(1) On any security other than an exempted security, in contravention of
the rules and regulations which the Commission shall prescribe under
subsection (a) of this Section;
(2) Without collateral or on any collateral other than securities, except (i)
to maintain a credit initially extended in conformity with the rules and
regulations of the Commission and (ii) in cases where the extension or
maintenance of credit is not for the purpose of purchasing or carrying
securities or of evading or circumventing the provisions of subparagraph
(1) of this subsection.
x x x x x x x x x"
"SEC. 25. Enforcement of margin requirements and restrictions on
borrowings. – To prevent indirect violations of the margin requirements
under Section 23 hereof, the broker or dealer shall require the customer
in nonmargin transactions to pay the price of the security purchased for
his account within such period as the Commission may prescribe, which
shall in no case exceed three trading days; otherwise, the broker shall
sell the security purchased starting on the next trading day but not
beyond ten trading days following the last day for the customer to pay
such purchase price, unless such sale cannot be effected within said
period for justifiable reasons. The sale shall be without prejudice to the
right of the broker or dealer to recover any deficiency from the customer.
x x x."
"RSA RULE 25-1
"Purchases and Sales in Cash Account
"(a) Purchases by a customer in a cash account shall be paid in full within
three (3) business days after the trade date.
"(b) If full payment is not received within the required time period, the
broker or dealer shall cancel or otherwise liquidate the transaction, or the
unsettled portion thereof, starting on the next business day but not
beyond ten (10) business days following the last day for the customer to
pay, unless such sale cannot be effected within said period for justifiable
reasons.
"(c) If a transaction is cancelled or otherwise liquidated as a result of non-
payment by the customer, prior to any subsequent purchase during the
next ninety (90) days, the customer shall be required to deposit sufficient
funds in the account to cover each purchase transaction prior to
execution.
xxxxxxxxx
"(f) Written application for an extension of the period of time required for
payment under paragraph (a) be made by the broker or dealer to the
Philippine Stock Exchange, in the case of a member of the Exchange, or
to the Commission, in the case of a non-member of the Exchange.
Applications for the extension must be based upon exceptional
circumstances and must be filed and acted upon before the expiration of
the original payment period or the expiration of any subsequent
extension."
Section 23(b) above -- the alleged violation of petitioner which provides
the basis for respondent’s defense -- makes it unlawful for a broker to
extend or maintain credit on any securities other than in conformity with
the rules and regulations issued by Securities and Exchange Commission
(SEC). Section 25 lays down the rules to prevent indirect violations of
Section 23 by brokers or dealers. RSA Rule 25-1 prescribes in detail the
regulations governing cash accounts.
The United States, from which our country’s security policies are
patterned,17 abound with authorities explaining the main purpose of the
above statute on margin18 requirements. This purpose is to regulate the
volume of credit flow, by way of speculative transactions, into the
securities market and redirect resources into more productive uses.
Specifically, the main objective of the law on margins is explained in this
wise:
"The main purpose of these margin provisions xxx is not to increase the
safety of security loans for lenders. Banks and brokers normally require
sufficient collateral to make themselves safe without the help of law. Nor
is the main purpose even protection of the small speculator by making it
impossible for him to spread himself too thinly – although such a result
will be achieved as a byproduct of the main purpose.
xxxxxxxxx
"The main purpose is to give a [g]overnment credit agency an effective
method of reducing the aggregate amount of the nation’s credit resources
which can be directed by speculation into the stock market and out of
other more desirable uses of commerce and industry x x x." 19
A related purpose of the governmental regulation of margins is the
stabilization of the economy.20 Restrictions on margin percentages are
imposed "in order to achieve the objectives of the government with due
regard for the promotion of the economy and prevention of the use of
excessive credit."21
Otherwise stated, the margin requirements set out in the RSA are
primarily intended to achieve a macroeconomic purpose -- the protection
of the overall economy from excessive speculation in securities. Their
recognized secondary purpose is to protect small investors.
The law places the burden of compliance with margin requirements
primarily upon the brokers and dealers.22Sections 23 and 25 and Rule 25-
1, otherwise known as the "mandatory close-out rule,"23 clearly vest upon
petitioner the obligation, not just the right, to cancel or otherwise liquidate
a customer’s order, if payment is not received within three days from the
date of purchase. The word "shall" as opposed to the word "may," is
imperative and operates to impose a duty, which may be legally enforced.
For transactions subsequent to an unpaid order, the broker should
require its customer to deposit funds into the account sufficient to cover
each purchase transaction prior to its execution. These duties are
imposed upon the broker to ensure faithful compliance with the margin
requirements of the law, which forbids a broker from extending undue
credit to a customer.
It will be noted that trading on credit (or "margin trading") allows investors
to buy more securities than their cash position would normally
allow.24 Investors pay only a portion of the purchase price of the
securities; their broker advances for them the balance of the purchase
price and keeps the securities as collateral for the advance or
loan.25 Brokers take these securities/stocks to their bank and borrow the
"balance" on it, since they have to pay in full for the traded stock. Hence,
increasing margins26 i.e., decreasing the amounts which brokers may
lend for the speculative purchase and carrying of stocks is the most direct
and effective method of discouraging an abnormal attraction of funds into
the stock market and achieving a more balanced use of such resources.
"x x x [T]he x x x primary concern is the efficacy of security credit controls
in preventing speculative excesses that produce dangerously large and
rapid securities price rises and accelerated declines in the prices of given
securities issues and in the general price level of securities. Losses to a
given investor resulting from price declines in thinly margined securities
are not of serious significance from a regulatory point of view. When
forced sales occur and put pressures on securities prices, however, they
may cause other forced sales and the resultant snowballing effect may in
turn have a general adverse effect upon the entire market." 27
The nature of the stock brokerage business enables brokers, not the
clients, to verify, at any time, the status of the client’s account. 28 Brokers,
therefore, are in the superior position to prevent the unlawful extension of
credit.29Because of this awareness, the law imposes upon them the
primary obligation to enforce the margin requirements.
Right is one thing; obligation is quite another. A right may not be
exercised; it may even be waived. An obligation, however, must be
performed; those who do not discharge it prudently must necessarily face
the consequence of their dereliction or omission. 30
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these margin requirements are applicable only to
transactions entered into by the present parties subsequent to the initial
trades of April 10 and 11, 1997. Thus, we hold that petitioner can still
collect from respondent to the extent of the difference between the latter’s
outstanding obligation as of April 11, 1997 less the proceeds from the
mandatory sell out of the shares pursuant to the RSA Rules. Petitioner’s
right to collect is justified under the general law on obligations and
contracts.31
Article 1236 (second paragraph) of the Civil Code, provides:
"Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been
beneficial to the debtor." (Emphasis supplied)
Since a brokerage relationship is essentially a contract for the
employment of an agent, principles of contract law also govern the
broker-principal relationship.32
The right to collect cannot be denied to petitioner as the initial
transactions were entered pursuant to the instructions of respondent. The
obligation of respondent for stock transactions made and entered into on
April 10 and 11, 1997 remains outstanding. These transactions were valid
and the obligations incurred by respondent concerning his stock
purchases on these dates subsist. At that time, there was no violation of
the RSA yet. Petitioner’s fault arose only when it failed to: 1) liquidate the
transactions on the fourth day following the stock purchases, or on April
14 and 15, 1997; and 2) complete its liquidation no later than ten days
thereafter, applying the proceeds thereof as payment for respondent’s
outstanding obligation.33
Elucidating further, since the buyer was not able to pay for the
transactions that took place on April 10 and 11, that is at T+4, the broker
was duty-bound to advance the payment to the settlement banks without
prejudice to the right of the broker to collect later from the client. 34
In securities trading, the brokers are essentially the counterparties to the
stock transactions at the Exchange. 35Since the principals of the broker
are generally undisclosed, the broker is personally liable for the contracts
thus made.36 Hence, petitioner had to advance the payments for
respondent’s trades. Brokers have a right to be reimbursed for sums
advanced by them with the express or implied authorization of the
principal,37 in this case, respondent.
It should be clear that Congress imposed the margin requirements to
protect the general economy, not to give the customer a free ride at the
expense of the broker.38 Not to require respondent to pay for his April 10
and 11 trades would put a premium on his circumvention of the laws and
would enable him to enrich himself unjustly at the expense of petitioner.
In the present case, petitioner obviously failed to enforce the terms and
conditions of its Agreement with respondent, specifically paragraph 8
thereof, purportedly acting on the plea39 of respondent to give him time to
raise funds therefor. These stipulations, in relation to paragraph
4,40 constituted faithful compliance with the RSA. By failing to ensure
respondent’s payment of his first purchase transaction within the period
prescribed by law, thereby allowing him to make subsequent purchases,
petitioner effectively converted respondent’s cash account into a credit
account. However, extension or maintenance of credits on nonmargin
transactions, are specifically prohibited under Section 23(b). Thus,
petitioner was remiss in its duty and cannot be said to have come to court
with "clean hands" insofar as it intended to collect on transactions
subsequent to the initial trades of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other hand, we find respondent equally guilty in entering into the
transactions in violation of the RSA and RSA Rules. We are not prepared
to accept his self-serving assertions of being an "innocent victim" in all
the transactions. Clearly, he is not an unsophisticated, small investor
merely prodded by petitioner to speculate on the market with the
possibility of large profits with low -- or no -- capital outlay, as he pictures
himself to be. Rather, he is an experienced and knowledgeable trader
who is well versed in the securities market and who made his own
investment decisions. In fact, in the Account Opening Form (AOF), he
indicated that he had excellent knowledge of stock investments; had
experience in stocks trading, considering that he had similar accounts
with other firms.41Obviously, he knowingly speculated on the market, by
taking advantage of the "no-cash-out" arrangement extended to him by
petitioner.
We note that it was respondent who repeatedly asked for some time to
pay his obligations for his stock transactions. Petitioner acceded to his
requests. It is only when sued upon his indebtedness that respondent
raised as a defense the invalidity of the transactions due to alleged
violations of the RSA. It was respondent’s privilege to gamble or
speculate, as he apparently did so by asking for extensions of time and
refraining from giving orders to his broker to sell, in the hope that the
prices would rise. Sustaining his argument now would amount to relieving
him of the risk and consequences of his own speculation and saddling
them on the petitioner after the result was known to be
unfavorable.42 Such contention finds no legal or even moral justification
and must necessarily be overruled. Respondent’s conduct is precisely the
behavior of an investor deplored by the law.
In the final analysis, both parties acted in violation of the law and did not
come to court with clean hands with regard to transactions subsequent to
the initial trades made on April 10 and 11, 1997. Thus, the peculiar facts
of the present case bar the application of the pari delicto rule --
expressed in the maxims "Ex dolo malo non oritur action" and "In pari
delicto potior est conditio defendentis" -- to all the transactions entered
into by the parties. The pari delecto rule refuses legal remedy to either
party to an illegal agreement and leaves them where they were. 43 In this
case, the pari delicto rule applies only to transactions entered into after
the initial trades made on April 10 and 11, 1997.
Since the initial trades are valid and subsisting obligations, respondent is
liable for them. Justice and good conscience require all persons to satisfy
their debts. Ours are courts of both law and equity; they compel fair
dealing; they do not abet clever attempts to escape just obligations.
Ineludibly, this Court would not hesitate to grant relief in accordance with
good faith and conscience.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the
transaction (sold the stocks) on the fourth day following the transaction
(T+4) and completed its liquidation not later than ten days following the
last day for the customer to pay (effectively T+14). Respondent’s
outstanding obligation is therefore to be determined by using the closing
prices of the stocks purchased at T+14 as basis.
We consider the foregoing formula to be just and fair under the
circumstances. When petitioner tolerated the subsequent purchases of
respondent without performing its obligation to liquidate the first failed
transaction, and without requiring respondent to deposit cash before
embarking on trading stocks any further, petitioner, as the broker,
violated the law at its own peril. Hence, it cannot now complain for failing
to obtain the full amount of its claim for these latter transactions.
On the other hand, with respect to respondent’s counterclaim for
damages for having been allegedly induced by petitioner to generate
additional purchases despite his outstanding obligations, we hold that he
deserves no legal or equitable relief consistent with our foregoing finding
that he was not an innocent investor as he presented himself to be.
Second Issue:
Jurisdiction
It is axiomatic that the allegations in the complaint, not the defenses set
up in the answer or in the motion to dismiss determine which court has
jurisdiction over an action.44 Were we to be governed by the latter rule,
the question of jurisdiction would depend almost entirely upon the
defendant.45
The instant controversy is an ordinary civil case seeking to enforce rights
arising from the Agreement (AOF) between petitioner and respondent. It
relates to acts committed by the parties in the course of their business
relationship. The purpose of the suit is to collect respondent’s alleged
outstanding debt to petitioner for stock purchases.
affirmative relief, to afterwards deny that same jurisdiction to escape a
penalty."46
WHEREFORE, the assailed Decision and Resolution of the Court of
Appeals are hereby MODIFIED. Respondent is ordered to pay petitioner
the difference between the former’s outstanding obligation as of April 11,
1997 less the proceeds from the mandatory sell out of shares pursuant to
the RSA Rules, with interest thereon at the legal rate until fully paid.
The RTC of Makati, Branch 57 is hereby directed to make a computation
of respondent’s outstanding obligation using the closing prices of the
stocks at T+14 as basis -- counted from April 11, 1997 and to issue the
proper order for payment if warranted. It may hold trial and hear the
parties to be able to make this determination.
No finding as to costs in this instance.
SO ORDERED.

To be sure, the RSA and its Rules are to be read into the Agreement
entered into between petitioner and respondent. Compliance with the
terms of the AOF necessarily means compliance with the laws. Thus, to
determine whether the parties fulfilled their obligations in the AOF, this
Court had to pass upon their compliance with the RSA and its Rules.
This, in no way, deprived the Securities and Exchange Commission
(SEC) of its authority to determine willful violations of the RSA and
impose appropriate sanctions therefor, as provided under Sections 45
and 46 of the Act.

Moreover, we uphold the SEC in its Opinion, thus:

"As to the issue of jurisdiction, it is settled that a party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and
after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction.

"Indeed, after voluntarily submitting a cause and encountering an adverse

decision on the merits, it is too late for petitioner to question the
jurisdictional power of the court. It is not right for a party who has affirmed
and invoked the jurisdiction of a court in a particular matter to secure an
 Republic of the Philippines SEC. 2 of the aforesaid Act provides that "the tax collected or foreign
SUPREME COURT exchange used for the payment of costs transportation and/or other
Manila charges incident to importation into the Philippines of rice, flour ..soya
beans, butterfat, chocolate, malt syrup .. shall be refunded to any
EN BANC importer making application therefor, upon satisfactory proof of actual
importation . . ."
G.R. No. L-8888 November 29, 1957
In support of its contention appellant quotes from dictionaries and
SONG KIAT CHOCOLATE FACTORY, plaintiff-appellant, encyclopedias interchangeably using the words "chocolate", "cacao" and
vs. "cocoa". Yet we notice that the quotations refer to "cocoa" as chocolate
CENTRAL BANK OF THE PHILIPPINES and VICENTE GELLA, in his nut" "chocolate bean" or "chocolate tree." And the legal exemption refers
capacity as Treasurer of the Philippines,defendants-appellees. to "chocolate" not the bean, nor the nut nor the tree. We agree with the
Solicitor General and the other counsel of respondents that in common
parlance the law is presumed to refer to it 1 — chocolate is a
Rogelio M. Jalandoni for appellant.
manufactured or finished product made out of cocoa beans, or "cacao"
Office of the Solicitor General Ambrosio Padilla and Solicitor Jose P.
beans as they are locally known. We may take notice of the fact that
Alejandro for appellee, Vicente Gella.
grocery stores sell powdered cocoa beans as chocolate, labeled "cocoa
Nat. M. Balbao and F. E. Evangelista for appellee, Central Bank of the
powder", or simply "cocoa". They are, however, really chocolate; they are
Philippines.
not cocoa beans. The manufacture of chocolate involves several
processes, such as selecting and drying the cocoa beans, then roasting,
BENGZON, J.: grinding, sieving and blending.2 Cocoa beans do not become chocolate
unless and until they have undergone the manufacturing processes
The question in this appeal is whether cocoa beans may be considered above described. The first is raw material, the other finished product.
as "chocolate" for the purposes of exemption from the foreign exchange
tax imposed by Republic Act No. 601 as amended. The courts regard "chocolate" as

During the period from January 8, 1953 to October 9, 1953, the plaintiff "Chocolate" is a preparation of roasted cacao beans without the
appellant imported sun dried cocoa beans for which it paid the foreign abstraction of the butter and always contains sugar and added
exchange tax of 17 per cent totalling P74,671.04. Claiming exemption cacao butter. Rockwood & Co., vs. American President Lines, D.
from said tax under section 2 of same Act, it sued the Central Bank that C. N. J., 68 F. Supp. 224, 226.
had exacted payment; and in its amended complaint it included the
Treasurer of the Philippines. The suit was filed in the Manila Court of First
Chocolate is a cocoa bean roasted, cracked, shelled, crushed,
Instance, wherein defendants submitted in due time a motion to dismiss
ground, and molded in cakes. It contains no sugar, and is in
on the grounds: first, the complaint stated no cause of action because
general use in families. Sweetened chocolate is manufactured in
cocoa beans were not "chocolate"; and second, it was a suit against the
the same way but the paste is mixed wit sugar, and is used by
Government without the latter's consent. .
confectioners in making chocolate confections. In re Schiling, 53
F. 81, 82, 3 C. C. A. 440.
The Hon. Gregorio S. Narvasa, Judge, sustained the motion, and
dismissed the case by his order of November 19, 1954. Hence this
In view of the foregoing, and having in mind the principle of strict
appeal.
construction of statutes exempting from taxation, 3we are of the opinion
and so hold, that the exemption for "chocolate" in the above section 2
The lower court, appellant contends, erred in dismissing the case and in does not include "cocoa beans". The one is raw material, the other
holding that the term "chocolate" does not include sun dried cocoa beans.
manufactured consumer product; the latter is ready for human
consumption; the former is not.
However, we cannot stop here, because in August 1954 — suit was
brought in May 1954 — Congress approved Republic Act 1197 amending
section 2 by substituting "cocoa beans" for "chocolate." This shows,
maintains the appellant, the Legislature's intention to include cocoa
beans in the word "chocolate." In fact, it goes on, the Committee
Chairman who reported House Bill No. 2676 which became Republic Act
1197, declared before the House.
Mr. ROCES: Mr. SPEAKER, on line 8 page 1, after the word
'canned', strike out the words, 'fresh, frozen and' and also the
words 'other beef', on line 9 and on the same line, line 9, after the
word 'chocolate', insert the words '(COCOA BEANS)' in
parenthesis ( ). I am proposing to insert the words '(COCOA
BEANS)' in parenthesis ( ) after the word chocolate, Mr. Speaker,
in order to clarify any doubt and manifest the intention of the past
Congress that the word 'chocolate' should mean 'cocoa beans.
In reply to this, appellees point out that said chairman could not have
spoken of the Congressional intention in approving Republic Act 601
because he was not a member of the Congress that passed said Act.
Naturally, all he could state was his own interpretation of such piece of
legislation. Courts do not usually give decisive weight to one legislator's
opinion, expressed in Congressional debates concerning the application
of existing laws.4 Yet even among the legislators taking part in the
consideration of the amendatory statute (Republic Act 1197) the
impression prevailed that, as the law then stood5 chocolate candy or
chocolate bar was exempted, but cocoa beans were not. Here are
Senator Peralta's statements during the discussion of the same House
Bill No. 2576:
SENATOR PERALTA: I signed that conference report and I am
really bound by it, but, Mr. President, a few hours ago I received
some information which maybe the chairman would like to know,
to the effect that we allow chocolate bar, chocolate candy to
come this country except from the 17 per cent tax when we do
not allow cocoa beans, out of which our local manufacturers can
make chocolate candy, exempted. So why do we not take off that
exemption for chocolate and instead put 'cocoa beans' so as to
benefit our manufacturers of chocolate candy?
xxx xxx xxx.
Senator PERALTA: Yes, I agree with the chairman, only I was
just wondering if the chairman, might not consider the fact that in
view of the information, this seems to be inconsistent we allow
chocolate to come here exempt and not exempt cocoa beans
which is used by our manufacturers in making chocolate candy.
And Senator Puyat is quoted as saying, in the same connection:
MR. PRESIDENT, On the same page (page 1), line 9, delete
"cocoa beans". The text as it came to the Senate was misleading.
In the original law the exemption is for chocolate and the version
that we got from the Lower House is "(cocoa beans)" giving the
impression that chocolate and cocoa beans are synonymous.
Now I think this is a sort of a rider, so your committee
recommends the deletion of those words. (Journal of the Senate,
July 30, 1954, re H. B. No. 2576, Emphasis ours.)
Other parts of the Congressional record quoted in the briefs would seem
to show that in approving House Bill No. 2576, the Congress agreed to
exempt "cocoa beans" instead of chocolate with a view to favoring
local manufacturers of chocolate products.6 A change of legislative policy,
as appellees contend7 — not a declaration or clarification of previous
Congressional purpose. In fact, as indicating, the Government's new
policy of exempting for the first time importations of "cocoa beans," there
is the President's proclamation No. 62 of September 2, 1954 issued in
accordance with Republic Act No. 1197 specifying that said exemption (of
cocoa beans) shall operate from and after September 3, 1954 — not
before. As a general rule, it may be added, statutes operate
prospectively.
Observe that appellant's cocoa beans had been imported during January-
October 1953, i.e. before the exemption decree.
After the foregoing discussion, it is hardly necessary to express our
approval of the lower court's opinion about plaintiff's cause of action, or
the lack of it. And it becomes unnecessary to consider the other
contention of defendants that this is a suit against the Government
without its consent.
The order of dismissal is affirmed, with costs against appellant.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 115507 May 19, 1998
ALEJANDRO TAN, ISMAEL RAMILO and FRED
MORENO, petitioners,
vs.
THE PEOPLE OF THE PHILIPPINES and THE COURT OF
APPEALS, respondents.
PANGANIBAN, J.:
In denying this petition, the Court reiterates that the gathering, collection
and/or possession, without license, of lumber, which is considered timber
or forest product, are prohibited and penalized under the Forestry Reform
Code, as amended.
The Case
In this petition for review on certiorari under Rule 45 of the Rules of
Court, petitioners seek to set aside the Decision 1 of the Court of
Appeals 2 in CA-GR No. CR-12815 promulgated on July 30, 1993, and
its Resolution 3promugated on April 28, 1994. The assailed Decision
affirmed the judgment 4 of the Regional Trial Court of Romblon,
Branch 81, 5 which, in the complaint against petitioners for violation
of Section 68, PD 705 (Forestry Reform Code) as amended,
disposed as follows:
WHEREFORE, this court finds:
a) the accused ALEJANDRO TAN, ISMAEL RAMILO and FRED
MORENO GUILTY beyond reasonable doubt of the crime of
illegal possession of lumber under the Information, dated March
16, 1990, under Section 68, P.D. No. 705, as amended by
Executive Order No. 277, and sentences each of them to an
indeterminate sentence of SIX (6) MONTHS, as minimum, to
FOUR (4) YEARS and TWO (2) MONTHS, as maximum, with the
accessory penalties of the law, and to pay the costs, and
b) the accused ALEJANDRO TAN, ISMAEL RAMILO and
CRISPIN CABUDOL GUILTY beyond reasonable doubt of the
crime of illegal possession of lumber under the Information, dated
March 16, 1990, under Section 68, P.D. No. 705, as amended by
Executive Order No. 277, and sentences each of them to an
indeterminate sentence of SIX (6) MONTHS, as minimum, to
FOUR (4) YEARS and TWO (2) MONTHS, as maximum, with the
accessory penalties of the law, and to pay the costs.
The two (2) terms of imprisonment of each of the accused shall
be served successively under Article 70, RPC.
The preventive imprisonment which any of the accused may have
suffered is credited in his favor to its full extent.
The Court further orders the confiscation of the lumber described
in the aforesaid Informations in favor of the government.
SO ORDERED.
The Facts
On October 26, 1989, about 6:30 p.m., in the town proper of Cajidiocan,
Sibuyan Island, Romblon, Forest Guards Joseph Panadero and Eduardo
Rabino intercepted a dump truck loaded with narra and
white lauanlumber. The truck was driven by Petitioner Fred Moreno, an
employee of A & E Construction. Again, about 8:00 p.m. on October 30,
1989, this time in Barangay Cambajao, Forest Guards Panadero and
Rabino apprehended another dump truck with Plate No. DEK-646 loaded
with tanguile lumber. Said truck was driven by Crispin Cabudol, also an
employee of A & E Construction. Both motor vehicles, as well as the
construction firm, were owned by Petitioner Alejandro Tan. In both
instances, no documents showing legal possession of the lumber were,
upon demand, presented to the forest guards; thus, the pieces of lumber
were confiscated.
On March 16, 1990, Tan and Moreno, together with Ismael Ramilo,
caretaker and time keeper of A & E Construction, were charged by First
Assistant Provincial Prosecutor Felix R. Rocero with violation of Section
68, 6 PD No. 705, as amended by EO No. 277, in an Information 7 which
reads:
That on or about the 26th day of October, 1989, at around 6:30
o'clock in the Poblacion, municipality of Cajidiocan, province of
Romblon, Philippines, and within the jurisdiction of this Honorable
Court, the said accused, conspiring, confederating and mutually
helping one another, with intent of gain and without the legal
documents as required under existing forest laws and regulations,
did then and there willfully, unlawfully and feloniously have in their
possession and under their custody and control 13 pieces narra
lumber about 171 board feet and 41 pieces tanguile lumber about
834 board feet valued at P8,724.00, Philippine currency, to the
damage and prejudice of the government in the aforestated
amount.
In another Information, 8 Tan and Ramilo, together with Crispin Cabudol,
were also charged for the same violation in connection with the October
30, 1989 incident.
On April 26, 1990, all the accused, assisted by counsel, were arraigned
on the basis of the aforementioned Informations; each pleaded not
guilty. 9 The cases were thence jointly tried, pursuant to Section 14, Rule
119 of the Rules of Court. 10
During the trial, the defense did not contest the above factual
circumstances except to deny that the forest guards demanded, on either
of the two occasions, papers or documents showing legal possession of
the lumber. Additionally, Prisco Marin, who claimed to have been the
officer-in-charge (OIC) of the Bureau of Forest Development of Sibuyan,
testified that the seized pieces of lumber were bought by Tan's Cajidiocan
Trading, one of the licensed lumber dealers in the island, from Matzhou
Development Corporation ("Matzhou") which thus delivered to the former
Auxiliary Invoice No. 763850 11 dated March 19, 1987 issued by the
Bureau of Internal Revenue office in Romblon. According to Marin, the
director of forestry had granted Matzhou a Tree Recovery Permit
covering the entire island of Sibuyan. He added that he had inspected the
lumber in question in the compound of A & E Construction or Cajidiocan
Trading, where he was shown the auxiliary invoice covering the subject. 12
Ruling of the Trial Court
The trial court brushed aside the version of the defense and ruled that the
confiscated pieces of lumber which were admittedly owned by Accused
Tan were not legitimate deliveries but aborted nocturnal hauling. It
convicted all the accused as charged, for their failure to comply with the
Forestry Reform Code, which requires the following legal documents: (1)
an auxiliary invoice, (2) a certificate of origin, (3) a sales invoice, (4)
scale/tally sheets and (5) a lumber dealer permit.
Ruling of Respondent Court of Appeals
On appeal, the accused assigned to the trial court these ten errors: (1)
holding them liable under Section 68 of EO 277; (2) ruling that their
possession of the lumber were unauthorized or illegal; (3) retroactively
applying E.O. 277; (4) ruling that the accused did not have the necessary
documents to make their possession legal; (5) convicting them despite
the absence of the corpus delicti; (6) admitting in evidence the alleged
seizure receipts or, assuming their admissibility, considering them as
evidence of corpus delicti; (7) finding that the deliveries were aborted
nocturnal hauling; (8) convicting Alejandro Tan on the ground of
conspiracy; (9) ruling that the guilt of the accused was proved beyond
reasonable doubt; and (10) sustaining the constitutionality of EO 277. 13
As regards the first assigned error, the Court of Appeals held petitioners'
"artful distinction between timberand lumber" "to be fallacious and utterly
unmeritorious." It thereby upheld the solicitor general's manifestation that
"forest products" include "wood" which is defined by Webster's Dictionary
as "the hard fibrous substance beneath the back of trees and shrubs."
Respondent Court succinctly ruled that to construe "sawn lumber" as not
covered by "sawn timber" would defeat the evident intent and purpose of
the law, for "what would prevent an illegal logger [from bringing] with him
a portable saw and having the timber illegally cut/gathered [and] sawn
right on the spot, thus gaining immunity for himself[?]" 14
As to the next three assigned errors which relied heavily on Prisco
Marin's testimony, Respondent Court dismissed the said witness' account
as "anything but credible." It added that Marin's testimony largely focused
on a certification he made stating that, five years ago, he inspected the
same confiscated lumber which were to be used for the repair of school
building by A & E Construction in Sibuyan. But during the cross-
examination, he admitted that he made the inspection in December 1989.
The appellate tribunal noted that, by then, he had already been relieved
of his position as OIC of the Bureau of Forest Development in Romblon;
hence, he had no business inspecting the lumberyard of Petitioner Tan.
In fact, he admitted that in December 1989, it was Romulae Gadaoni who
was already the highest forest officer in the island. 15
As to the fifth and sixth alleged errors, Respondent Court ruled
that corpus delicti does not refer literally to the object of the crime — in
this case, the forest products possessed without the required legal
documents. The fact that the crimes charged were perpetrated by the
petitioners was credibly and amply proven by the detailed testomonies of
the prosecution witnesses, including the admission of Defense Witness
Ismael Ramilo. The seizure receipts merely served to corroborate their
testimonies. 16
The seventh and ninth assigned errors were deemed answered in the
foregoing discussions. As to the eighth, no other than the admission of
his caretaker or katiwala, Co-Accused Ramilo, proved that Tan was
involved in the conspiracy. Ramilo testified that the deliveries of lumber
on the subject dates (October 26 and 30, 1989) were made pursuant to
the instruction of Tan; and that the latter owned said lumber, the trucks
and the construction firm. The two accused truck drivers who were
caught in flagrante delicto were mere employees of Tan. 17
The last assigned error was set aside by Respondent Court as
unnecessary. Absolutely of no concern to the petitioners, who were
caught in possession of lumber without the required legal documents,
was the alleged unconstitutionality of the inclusion of "firewood, bark,
honey, beeswax, and even grass, shrub, 'the associated water' or fish" in
EO 277. There being other grounds to resolve the case, the
constitutionality of said phrase was not passed upon. 18
In their motion for reconsideration, petitioners raised these additional
grounds: (1) the Forestry Reform Code and the laws and regulations of
the Department of Environment and Natural Resources (DENR)
distinguish between timber and lumber and between lumber and other
forest products; (2) the Informations alleged and the facts proved that
lumber is not covered by the provision supposedly violated; (3) judicial
interpretation or construction may not be resorted to in order to fill a gap
or clear an ambiguity in penal statutes and, assuming the propriety
thereof, construction should be in favor of the accused; (4) lack of
documents for possession of lumber is not punishable under the law; and
(5) the perceived weakness in the testimony of Defense Witness Prisco
Marin should not strengthen the case for the prosecution. In its April 28,
1994 Resolution, Respondent Court found "no cogent reason for the
reversal or modification" of its Decision. Hence, this petition. 19
The Issues
Petitioners now ask this Court to likewise pass upon their foregoing
submissions. Many of the errors raised, however, involve factual
questions, the review of which is not within the ambit of this Court's
functions, particularly in this case where the findings of the trial court
were affirmed by the appellate court and where petitioners failed to show
any misappreciation of the evidence presented. 20 We shall therefore limit
our review only to questions of law.
Accordingly, we shall rule on the following legal issues: (1) the
constitutionality of Section 68 of EO 277, (2) the treatment by the lower
court of lumber as timber and/or forest product within the contemplation
of PD 705, as amended, and (3) the alleged retroactive application of EO
277.
The Court's Ruling
The petition is not meritorious.
Preliminary Issue:
Constitutionality of Sec. 68, E.O. 277
The impugned legal provision reads:
Sec. 68. Cutting, Gathering and/or Collecting Timber, or other
Forest Products Without License. — Any person who shall cut,
gather, collect, remove timber or other forest products from any
forest land, or timber from alienable or disposable public land, or
from private land without any authority, or possess timber or other
forest products without the legal documents as required under
existing forest laws and regulations, shall be punished with the
penalties imposed under Articles 309 and 310 of the Revised
Penal Code: Provided, That in the case of partnerships,
associations or corporations, the officers who ordered the cutting,
gathering, collection or possession shall be liable and if such
officers are aliens, they shall, in addition to the penalty, be
deported without further proceeding on the part of the
Commission on Immigration and Deportation.
The Court shall further order the confiscation in favor of the
government of the timber or any forest products cut, gathered,
 collected, removed, or possessed, as well as the machinery,
equipment, implements and tools illegally used in the area where
the timber or forest products are found.
Petitioners aver that the above provision is violative of substantive due
process, because it requires the possession of certain legal documents to
justify "mere possession" of forest products which, under Section 3(q) of
PD 705, includes, among others, "firewood, bark, honey, beeswax, and
even grass, shrub, flowering plant, 'the associated water' or fish" and
penalizes failure to present such required documents.
One of the essential requisites for a successful judicial inquiry into the
constitutionality of a law is the existence of an actual case or controversy
involving a conflict of legal rights susceptible of judicial
determination. 21 As Respondent Court of Appeals correctly pointed out,
petitioners were not "charged with the [unlawful] possession of firewood,
bark, honey, beeswax, and even grass, shrub, 'the associated water' or
fish"; thus, the inclusion of any of these enumerated items in EO 277 "is
absolutely of no concern" to petitioners. They are not asserting a legal
right for which they are entitled to a judicial determination at this time.
Besides, they did not present any convincing evidence of a clear and
unequivocal breach of the Constitution that would justify the nullification
of said provision. 22 A statute is always presumed to be constitutional, and
one who attacks it on the ground of unconstitutionality must convincingly
prove its invalidity. 23
Main Issue: Under PD 705 and EO 277,
Is Lumber Considered Timber or Forest Product?
Petitioners contend that possession of manufactured lumber is not
punishable under the Forestry Reform Code, as amended. As explicitly
provided in Section 68 of both PD 705 and EO 277 (the law that
amended the former), only the cutting, gathering, collecting and/or
possession, without license, of timber and other forest products are
prohibited. As expressly defined under Section 3(q) of PD 705, lumber is
not timber or a forest product. It is only in Section 79 of the same law
where the sale of lumber, without compliance with established grading
rules and standards, is prohibited. Petitioners submit that the forest laws
and regulations sufficiently differentiate between timber and lumber;
therefore, court should not construe lumber as timber.
The question of whether lumber is excluded from the coverage of Section
68 of PD 705, as amended, has been settled in Mustang Lumber,
Inc. vs. Court of Appeals, 24 in which this Court expressly ruled that
"lumber is included in the term timber." 25 We quote at length the Court's
discussion:
The Revised Forestry Code contains no definition of either timber
of lumber. While the former is included in forest products as
defined in paragraph (q) of Section 3, the latter is found in
paragraph (aa) of the same section in the definition of
"Processing plant," which reads:
(aa) Processing plant is any mechanical set-up, machine
or combination of machine used for the processing of logs
and other forest raw materials into lumber, veneer,
plywood, wallboard, blackboard, paper board, pulp, paper
or other finished wood products.
This simply means that lumber is a processed log or processed
forest raw material. Clearly, the Code uses the term lumber in its
ordinary or common usage. In the 1993 copyright edition of
Webster's Third New International Dictionary, lumber is
defined, inter alia, as "timber or logs after being prepared for the
market." Simply put, lumber is a processed log or timber.
It is settled that in the absence of legislative intent to the contrary,
words and phrases used in a statute should be given their plain,
ordinary, and common usage meaning. And insofar as
possession of timber without the required legal documents is
concerned, Section 68 of P.D. No. 705, as amended, makes no
distinction between raw or processed timber. Neither do we. Ubi
lex non distinguit nec nos distinguire debemus. 26
Mustang was recently reiterated in Lalican vs. Vergara, 27 where we also
said that "'[t]o exclude possession of 'lumber' from the acts penalized in
Sec. 68 would certainly emasculate the law itself. . . . After all, the phrase
'forest product' is broad enough to encompass lumber which, to reiterate,
is manufactured timber" Indeed, to mention lumber in the aforesaid
section would simply result in tautology.
In addition, under American jurisprudence, lumber has been legally
accepted as a term referring to the manufactured product of logs 28 or to
timber sawed or split into marketable form, especially for use in WHEREFORE, the petition is DENIED for utter lack of merit. The
buildings. 29 questioned Decision of the Court of Appeals is hereby AFFIRMED. Costs
against petitioners.
Consistent with Mustang, we find no error in the holding of both lower
courts. Clearly, petitioners are liable for violation of Section 68 of the SO ORDERED.
Forestry Reform Code, as amended.

Corollary Issue:

No Retroactive Application of EO 277

Petitioners insist that EO 277 is not applicable to them, because the

seized lumber had been lawfully possessed by Cajidiocan Trading since
March 1987, while the amendatory law was issued only on July 25, 1987,
and took effect fifteen days after publication. This strained reasoning
deserves scant consideration. First, at no time during the apprehensions
did petitioners claim that the lumber belonged to Cajidiocan Trading. In
fact, Petitioner Ramilo and the drivers openly claimed that the lumber and
the trucks belonged to A & E Construction which was, in turn, owned by
Petitioner Tan. It was only during the course of the trial, through the
testimony of Prisco Marin (characterized by the appellate court as
"anything but credible"), that the alleged ownership thereof by Cajidiocan
Trading was brought out. Second, the supposed sale of the subject
lumber by Matzhou to Cajidiocan Trading, as evidenced by the auxiliary
invoice, occurred in March 1987, or more than two and a half years prior
to the apprehension and seizure that gave rise to this case. It is highly
doubtful if the lumber bought at the earlier date was the very same
lumber confiscated in October 1989. No evidence was presented to
overcome this veritable doubt. Third and most important, assuming that
indeed they were the very same lumber, forest laws and regulations also
require the following documents: (1) certificate of lumber origin, (2) sales
invoice, (3) delivery receipt, (4) tally sheet, and (5) certificate of transport
agreement. 30 None of these documents were proffered in court or
elsewhere. Petitioners' unlawful possession of the subject lumber
occurred in October 1989. EO 277, which specifically included
"possession" of timber and other forest products within the contemplation
of PD 705, had already been issued and in effect more than two years
previous thereto. Nothing will prevent the indictment of petitioners for
violation of EO 277 at the time they were caught by the forest guards
in flagrante delicto. The prohibited act is a malum prohibitum, and
absence of malice or criminal intent will not save the day for them. 31
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5872 November 29, 1954
ENRIQUE BERNARDO, ET AL., petitioners,
vs.
CRISOSTOMO S. BERNARDO and the COURT OF
APPEALS, respondents.
Cornelio R. Magsarili for petitioners.
De los Santos and De los Santos for respondents.
Alfonso S. Borja, as amicus curiae.
REYES, J.B.L., J.:
Enrique Bernardo, his wife and children, petition this Court for a review of
the decision of the Court of Appeals (in its case No. 6677-R), declaring
the respondent Crisostomo R. Bernardo entitled to preference under
Commonwealth acts Nos. 20 and 539, in the acquisition of lot No. 462-A
of the "Capellania de Concepcion", also known as lot No. 4, block No. 26,
of the Tambobong Estate plan, located in Malabon, Rizal, and having an
area of 208 square meters.
It is uncontested fact that on December 31, 1947, the Republic of the
Philippines purchased from Roman Catholic Church the estate known as
the "Capelania de Tambobong" in Malabon, Rizal, under the provisions of
section 1, of Commonwealth Act No. 539. Said Act authorizes the
expropriation or purchase of private lands and that lands acquired
thereunder should be subdivided into lots, for resale at reasonable prices
to " their bona fide tenants or occupants." Crisostomo R. Bernardo,
respondent herein, applied to the Rural Progress Administration for the
purchase of the lot in question. Petitioners Enrique Bernardo, et al .,
contested the application and claimed preferential right to such purchase,
and on January 12, 1948, the Rural Progress Administration resolved to
recognize the petitioners as entitled to preference. The respondents then
appealed to the Court of First Instance of Rizal, and the latter upheld their
claim, and the decision was affirmed by the Court of Appeals.
The decision of the Court of Appeals expressly finds that:
. . . It has been incontestably proven that the disputed lot had
been held under lease by appellee's deceased parents and later
by him (appellee) continuously from 1912 to 1947. The appellee's
predecessors paid the rentals due on the said lot from the
commencement of their leasehold rights up to 1936, when
Teodora Santos died. The appellee continued paying the rents on
the same lot from 1936 to December 31, 1947, when the
Government acquired the entire Capellania de Concepcion
estate. Since 1912 the values of the leasee hold right of appellee
amounts to about P4,000.00.
The alleged preferential right of the appellant to the purchase of
the disputed lot, which was also the main basis of the decision of
the Rural Progress Administration, is their claim of actual
occupation of the lot for many years before the acquisition of the
Concepcion estate by the Government. The appellants' witness,
Otilia Santos, however, said that the late Romulo Bernardo had
allowed his uncle, appellant Enrique Bernardo, to stay in the
premises since the year 1918. (petitioner's Brief, pp. 72-73).
The Court of Appeals also found that the house standing on the lot had
been since July 13, 1944, sold by petitioner Enrique Bernardo to the
respondent, who thereby became its owner; that because of family
relationship[, the petitioners "were able to remain in the premises sue to
the tolerance of, and out of charity from, the appellee (respondent
Crisostomo Bernardo) and his deceased parents who were the rightful
lessees of the lot in question."
The Court of Appeals likewise found and declared in its decision
Bernardo required the petitioner to vacate the premises. Finally, we
understand that in Case No. 6734-R, the Court of Appeals declared valid
the sale of the house on the lot in question made in 1944 by petitioner
Enrique Bernardo in favor of the respondent Crisostomo R. Bernardo,
and that the aforesaid judgment is now final.
There are thus before us, disputing the right of preference to the
acquisition of the lot, the respondent who is the owner of the house
standing on said lot since 1944, and has held the land in lawful tenancy
since 1912, paying rents and taxes thereon; and the petitioner, who was
allowed by respondent, out of the deference and charity, to gratuitously
occupy the lot and live therein since 1918. Upon the facts on record, we
are of the opinion that petitioner does not come under the description
"bona fide tenant or occupant" employed in the statute (C.A. 539).
The term "bona fide occupant" (admittedly petitioner is not a tenant) has is safe to say that the term "bona fide occupants" was not designed to
been defined as "one who supposes he has a good title and knows of no cloak and protect violence, strategy, double dealing, or breach of trust.
adverse claim" (Philips vs. Stroup, 17 Atl. 220,221); "one who not only
honestly supposes himself to be vested with true title but is ignorant that That the underlying motive behind the Homesite Acts is the desire that
the title is contested by any other person claiming a superior right to it" "the heads of the families concerned be given opportunity to become the
(Gresham vs. Ware to that of a possessor in good faith in our Civil Law owners of their homes and residential lots in which they and their
(Civil Code of 1889, art. 433; new Civil Code, art. 526). The essence of forbears have been raised and born" (Messages of the President, Vol. 4,
the bona fides or good faith, therefore, lies in honest belief in the validity pp. 288-290), favors the respondents rather than the petitioner, for it is an
of one's right, ignorance of a superior claim, and absence of intention to inalterable fact on record that the rentals and taxes on the lot in question
over each another. The petitioner Enrique Bernardo falls short of this were always paid by the parents of respondent Crisostomo Bernardo and
standard: for the precarious nature of his occupancy, as mere licensee of continued by the latter upon his parents' death, to the exclusion of herein
respondents, duty bound to protect and restore that possession to its real respondent.
and legitimate holders upon demand, could never be hidden the
Tambobong Estate, petitioner had already parted with the house that was As pointed out by the decision under review, had not the respondents
his remaining link with the occupancy of the lot; and since 1945, even taken and maintained sincere and affirmative steps to own their lands
before the Government's purchase, he had been required to vacate. Thus through a continuous and faithful payment of their obligations, the
bereft of all stable interest in the land, petitioner nevertheless seeks to chances are that the petitioner would have been long ago speedily
turn respondent's past deferential regard to his own advantage, and to ejected from the premises of the former landowners. To which may be
exploit his gratuitous stay at respondent's expense for the purpose of added that at present, not being the lessee of the lot, nor the owner of the
ousting his benefactors and wiping out the investment that the latter, and house standing thereon, the petitioner's interest in this particular lot
their predecessors in interest, had established and preserved charged for appears to be a purely speculative one.
the lot in question. That the law, in preferring "bona fide occupants,"
intended to protect or sanction such utter disregard of fair dealing may
We therefore rule that a person who, at the time of the acquisition of the
well be doubted.
Tambobong Estate by the Government, has been gratuitously occupying
a lot therein by mere tolerance of its lessee, and who does not own the
The petitioners seeks to justify his stand by claiming that the policy of the house erected on such lot, is not a "bona fide occupant" entitled to its
government, ever since the start of the American sovereignty, had been acquisition, as the term is used in Commonwealth Act. No. 539. Whether
to acquire the landed estates for the benefit of their "actual occupants," or not the situation would be different if the occupant were sublessee of
as allegedly exemplified in Acts 1170 and 1933 (friar Lands' Acts), and the lot, need not be decided in this case, the issue not being involved.
Commonwealth Acts Nos. 20, 260, 378, and 539 (Homesite Acts); that
the words "bona fide occupants" employed in the Commonwealth Acts
Wherefore, the decision appealed from is affirmed, with costs against the
are equivalent to "actual" occupants. Two powerful REASONS nullify this
petitioner.
contention. The first is that section 7 of Act 1170 of the old Philippine
Legislature, employs the terms "actual bona fide settlers and occupants",
plainly indicating that "actual" and "bona fide" are not synonymous, while
the Commonwealth acts deleted the term "actual" and solely used the
words "bona fide occupant", thereby emphasizing the requirement that
the prospective beneficiaries of the acts should be endowed with
legitimate tenure. The second reason is that in carrying out its social
readjustment policies, the government could not simply lay aside moral
standards, and aim to favor usurpers, squatters, and intruders, unmindful
of the lawful or unlawful origin and character of their occupancy. Such a
policy would perpetuate conflicts instead of attaining their just solution. It
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 131787 May 19, 1999
CHINA BANKING CORPORATION AND CBC PROPERTIES AND
COMPUTER CENTER INC., petitioners,
vs.
THE MEMBERS OF THE BOARD OF TRUSTEES, HOME
DEVELOPENT MUTUAL FUND (HDMF); HDMF PRESIDENT; AND
THE HOME MUTUAL DEVELOPMENT FUND, respondent.
GONZAGA-REYES, J.:
This is an appeal by certiorari under Rule 45 of the 1997 Rules of Civil
Procedure "on pure questions of law" from the Order of the Regional Trial
Court of Makati, Branch 59 dated October 10, 1997 and from the Order of
the same court dated December 19, 1997 denying petitioners' motion for
reconsideration.
Briefly, petitioners China Banking Corporation (CBC) and CBC Properties
and Computer Center Inc., (CBC-PCCI) are both employers who were
granted by the Home Development Mutual Fund (HDMF) certificates of
waiver dated July 7, 1995 and January 19, 1996 (covering respectively
the periods of July 1, 1997 to June 30, 1996 for CBC and January 1 to
December 31, 1995 for CBC-PCCI) for the identical reason of "Superior
Retirement Plan" pursuant to Section 19 of P. D. 1752 known as the
Home Development Mutual Fund Law of 1980 whereunder employers
who have their own existing provident and/or employees-housing plans
may register for annual certification for waver or suspension from
coverage or participation in the Home Development Mutual Fund created
under said law.
It appears that in June 1994, Republic Act No. 7742, amending P.D. 1752
was approved.1 On September 1, 1995, respondent HDMF Board issued
an Amendments to the Rules and Regulations Implementing R.A. 7742
("The Amendment") and pursuant to said Amendment, the said Board
issued on October 23, 1995 HDMF Circular No. 124-B or the Revised
Guidelines and Procedure for filing Application for Waiver or Suspension
of Fund Coverage under P.D. 1752 ("Guidelines"). Under the Amendment
and the Guidelines, a company must have a provident/retirement and
housing plan superior to that provided under the Pag-IBIG Fund to be
entitled to exemption/waiver from fund coverage.
CBC and CBC-PCCI applied for renewal of waiver of coverage from the
fund for the year 1996, but the application were disapproved for the
identical reason that:
Our evaluation of your company's application indicates that your
retirement plan is not superior to Pag-IBIG Fund. Further, the
amended Implementing Rules and Regulations of R.A. 7741
provides that to qualify for waiver, a company must have
retirement/provident and housing plans which are both superior to
PAG-IBIG Funds.
Petitioners thus a petition for certiorari and prohibition before the
Regional Trial Court of Makati seeking to annul and declare void the
Amendment and the Guidelines for having been issued in excess of
jurisdiction and with grave abuse of discrection amounting to lack of
jurisdiction alleging that in requiring the employer to have both a
retirement/provident plan and an employee housing plan in order to be
entitled to a certificate of waiver or suspension of coverage from the
HDMF, the HDMF Board exceeded its rule-making power.
Respondent Board filed a Motion to Dismiss and the court a quo, in its
first challenged order dated October 10, 1997 granted the same. The
Court dismissed the petition for certiorari on the grounds (1) that the
denial or grant of an application for waiver/coverage is within the power
and authority of the HDMF Board, and the said Board did not exceed its
jurisdiction or act with grave abuse of discretion in denying the
applications; and (2) the petitioners have lost their right to appeal by
failure to appeal within the periods provided in the Rules for appealing
from the order of denial to the HDMF Board of Trustees, and thereafter,
to the Court of Appeals. The Court stated that certiorari will not lie as a
substitute for a lost remedy of appeal.
Motion for reconsideration of the above-Order having been denied in the
October of December 19, 1997, this petition for review was filed under
Rule 45 alleging that:
 1. The court a quo erred in the appreciation of the issue, as it
mistakenly noted that petitioner is contesting the authority of
respondent to issue rules pursuant to its rule-making power;
2. The court a quo erred in observing that the matter being
assailed by the petitioners were the denial of their application for
waiver (Annexes "H" and "I"), and therefore, appeal is the proper
remedy.
Essentially, petitioners contended that it does not question the power of
respondent HDMF, as an administrative agency, to issue rules and
regulations to implement P.D. 1752 and Section 5 of R.A. 7742; however,
the subject Amendment and Guidelines issued by it should be set aside
and declared null and void for being irrevocably inconsistent with requires
as a pre-condition for exemption for coverage, the existence of either a
superior provident (retirement) plan or superior housing plan, and not the
concurrence of both plans.
Petitioners claim the certiorari is the proper remedy as what are being
questioned are not the orders denying petitioners' application for renewal
of waiver for coverage which were admittedly issued in the exercise of a
quasi-judicial function, but rather the validity of the subject Amendment
and Guidelines, which are a "patent nullity"; hence the doctrine of
exhaustion of administrative remedies does not apply.
In their comment, respondents contend that there is no question of law
involved. The interpretation of the phrase "and/or" is not purely a legal
question and it is susceptible of administrative determination. In denying
petitioners' application for waiver of coverage under Republic Act No.
7742 the respondent Board was exercising its quasi-judicial function and
its findings are generally accorded not only respect but even finality.
Moreover, the Amendment and the Guidelines are consistent with the
enabling law, which is a piece of social legislation intended both a
savings generation and a house building program.
We find merit in the petition.
The core issue posed in the court below and in this Court is whether the
respondent acted in excess of jurisdiction or with grave abuse of
discretion amounting to lack of jurisdiction in issuing the Amendment to
the Rules and Regulations Implementing R.A. 7742 and HDMF Circular
No. 124-B on the Revised Guidelines and Procedure for Filing Application
for Waiver or Suspension of Fund Coverage under P.D. 1752 as
amended by R.A. 7742, insofar as said Amendment and Guidelines
impose as a requirement for exemption from coverage or participation in
the Home Development Mutual Fund the existence of both a superior
housing plan and a provident plan.
The procedural issue raised in the petition as to the propriety
of certiorari in lieu of appeal has not been traversed by the respondent.
Suffice it to note that the petitioners sought to annul or declare null and
void the questioned Amendment and Guidelines and not merely the
denial by the respondent Board of petitioners' application for waiver or
exemption from coverage of the fund. As noted by the court a quo, the
petition below squarely raised in issue the validity of the Amendment to
the Rules and Regulations and of HDMF Circular No. 124-B insofar as
these require the existence of both provident/retirement and housing
plans for the grant of waiver/suspension by the Board and prayed that the
same be declared void for want of jurisdiction.
We hold that it was an error for the court a quo to rule that the petitioners
should have exhausted its remedy of appeal from the orders denying
their application for waiver/suspension to the Board of Trustees and
thereafter to the Court of Appeals pursuant to the Rules. Certiorari is an
appropriate remedy to question the validity of the challenged issuances of
the HDMF which are alleged to have been issued with grave abuse of
discretion amounting to lack of jurisdiction. 2
Moreover, among the accepted exceptions to the rule on exhaustion of
administrative remedies are: (1) where the question in dispute is purely a
legal one; (2) where the controverted act is patently illegal or was
performed without jurisdiction or in excess of jurisdiction. 3 Moreover,
while certiorari as a remedy may not be used as a substitute for an
appeal, especially for a lost appeal, this rule should not be strictly
enforced if the petition is genuinely meritorious. 4 It has been said that
where the rigid application of the rules would frustrate substantial justice,
or bar the vindication of a legitimate grievance, the courts are justified in
exempting a particular case from the operation of the rules. 5
We vote to give the petition due course. The assailed Amendment to the
Rules and Regulations and the Revised Guidelines suffer from a legal
infirmity and should be set aside.
The law pertinent to the Home Development Mutual Fund, otherwise
known as the Pag-IBIG Fund, should be revisited.
The Human Development Mutual Funds were created by Presidential
Decree No. 1530, promulgated on June 11, 1978. The said funds, one for
government employees and another for private employees, were to be
established and maintained from contributions by the employees and
counterpart contributions by their employers. P.D. No. 1752, enacted on
December 13, 1980, amended P.D. 1530 to make the Home
Development Mutual Fund a body corporate and to make its coverage
mandatory upon all employers covered by the Social Security System
and the Government Service Insurance System. Section 19 of P.D. No.
1752 provides for waiver or suspension from coverage or participation in
the fund, thus:
Sec. 19. Existing Provident/Housing Plans. — An employer
and/or employee-group who, at the time this Decree becomes
effective have their own provident and/or employee-
housing plans, may register with the Fund, for any of the following
purposes:
(a) For annual certification of waiver or suspension from
coverage or participation in the Fund, which shall be
granted on the basis of verification that the wavier or
suspension does not contravene any effective collective
bargaining agreement and that the features of the plan or
plans are superior to the Fund or continue to be so; or
(b) For integration with the Fund, either fully or partially.
The establishment of a separate provident and/or housing plan
after the effectivity of this Decree shall not be a ground for waiver
of coverage in the Fund; nor shall such coverage bar any
employer and/or employee-group from establishing separate
provident and/or housing plans. (emphasis supplied)
On June 17, 1994, Republic Act No. 7742, amending certain sections of
P.D. 1752 was approved. Section 5 of the said provides "that within sixty
(60) days from the approval of the Act, the Board of Trustees of the
Home Development Mutual Fund shall promulgate the rules and
regulations necessary for the effective implementation of (this ) Act."
Pursuant to the above authority the Home Development Mutual Fund
Board of Trustees promulgated. The Implementing Rules and
Regulations of Republic Act. 7742 amending Presidential Decree No.
1752, Executive Order Nos. 35 and 90, which was published on August
1, 1994. Rule VII thereof reads:
RULE VII
WAIVER OR SUSPENSION
Sec. 1. Waiver or Suspension Existing Provident or Retirement Plan.
An employer and/or employee group who has an existing provident or
retirement plan as of the effectivity of Republic Act No. 7742, qualified
under Republic Act No. 4917 and actuarially determined to be sound and
reasonable by an independent actuary duly accredited by the Insurance
Commission, may apply with the Fund for waiver or suspension of
coverage. Such waiver or suspension may be granted by the President of
the Fund on the basis of verification that the waiver or suspension does
not contravene any effective collective bargaining or other existing
agreement and that the features of the plan or plans are superior to the
Fund and continue to be so. The certificate of waiver or suspension of
coverage issued herein shall only be for a period of one (1) year but the
same may be renewed for another of sixty (60) days prior to the
expiration of the existing waiver or suspension.
Sec. 2. Waiver or Suspension-Existing Housing Plan.
An employer and/or employee group who has an existing housing plan as
of the effectivity of Republic Act No. 7742 may apply with the fund waiver
or suspension of coverage. Such waiver or suspension of coverage may
be granted by the President of the Fund on the basis of verification that
the waiver or suspension of coverage does not contravene any effective
collective bargaining or other existing agreement and that the features of
the plan or plans are superior to the Fund and continue to be so. The
certificate of waiver or suspension of coverage issued herein shall only
be for a period of one (1) year but the same may be renewed for another
year upon the filing of a proper application within a period of sixty (60)
days prior to the expiration of the existing waiver or suspension.
Subsequently, the HDMF Board adopted in its Special Board Meeting
held on September 1, 1995. Amendments to the Rules and Regulations
Implementing Republic Act 7742. As amended, Rule VII on "Waiver or
Suspension" now reads:
RULE VII
 WAIVER OF SUSPENSION
Sec. 1. Waiver or Suspension Because of Existing Provident/Retirement
and Housing Plan.
Any employer with a plan providing both for a provident/retirement and
housing benefits for all his employees and existing as of December 14,
1980, the effectivity date of Presidential Decree No. 1752, may apply with
the Fund for waiver or suspension of coverage. The provident/retirement
aspect of the plan must be qualified under R.A. 4917 and actuarially
determined to be sound and reasonable by an independent, actuary duly
accredited by the Insurance Commission. The provident/retirement and
housing benefits as provided for under the plan must be superior to the
provident/retirement and housing benefits offered by the Fund.
Such waiver or suspension may be granted by the Fund on the basis of
actual verification that the waiver or suspension does not contravene any
collective bargaining agreement, any other existing agreement or clearly
spelled out management policy and that the features of the Fund and
continue to be so.
Provided further that the application must be endorsed by the labor union
representing a majority of the employees or in the absence thereof by at
least a majority vote of all employees in the said establishment in a
meeting specifically called for the purpose. Provided, furthermore that
such a meeting be held or be conducted under the supervision of an
authorized representative from the Fund.
The certificate of waiver or suspension of coverage issued herein shall be
for a period of one (1) year effective upon issuance thereof. No certificate
of waiver issued by the President of the Fund shall have retroactive
effect. Application for renewal must be filed within-sixty (60) days prior to
the expiration of the existing waiver or suspension and such application
for renewal shall only be granted based on the same conditions and
requirements under which the original application was approved. Pending
the approval of the application for waiver or suspension of coverage or
the application for renewal, the employer and his covered employees
shall continue to be mandatorily covered by the Fund as provided for
under R.A. 7742. (emphasis ours)
On October 23, 1995, HDMF Circular No. 124-B entitled "Revised
Guidelines and Procedure for Filing application for Waiver or Suspension
of Fund Coverage" under P.D. No. 1752, as amended by Republic Act
No. 7742, was promulgated. The Circular pertinently provides:
I. GROUNDS FOR WAIVER OR SUSPENSION OF FUND COVERAGE
A. SUPERIOR PROVIDENT/RETIREMENT PLAN AND HOUSING PLAN
ANY EMPLOYER WHO HAS A PROVIDENT, RETIREMENT,
GRATUITY OR PENSION PLAN AND A HOUSING PLAN, EXISTING AS
OF DECEMBER 14, 1980, THE EFFECTIVITY OF P.D. NO. 1752, may
file an application for waiver or suspension from Fund coverage,
provided, that —
1. The retirement/provident plan is qualified as such under
Republic Act No. 4917 (An Act Providing That Retirement
Benefits of Employees of Private Firms Shall Not Be Subject to
Attachment, Levy, or Execution or Any Tax Whatsoever), as
certified by the Bureau of Internal Revenue;
2. The retirement/provident plan is actuarially determined to be
financially sound and reasonable by an independent actuary duly
accredited by the Insurance Commission;
3. The retirement/provident plan is superior to the
retirement/provident benefits offered by the Fund in terms of:
• vesting features
— full and immediate crediting of employer's contribution to the
employee's account, the TAV of which the employee carries with
him in the event he transfers to another employer, or he becomes
self-employed or unemployed;
• employer's contribution (* For provident plans)
— must be equal to or higher than two percent (2%) of
employee's monthly compensation, defined in the HDMF
Implementing Rules and Regulations as the employee's basic
monthly salary plus Cost of Living Allowances;
• retirement age and years of service required to avail of plan
benefits
— 85 or lower
— 10 years of services or less
• amount of benefits extended to EEs
(* For retirement plans)
 — at least fifty (50%) of monthly compensation, as defined in the
HDMF IRR, for every year of service
4. The housing plan must be superior to the PAG-IBIG Housing Loan
Program in terms of:
• residency requirement as employee of the company or member
of the plan to avail of housing loan under the plan
— six (6) months or less;
• interest rates
— equal to or lower than the prescribed rated under the PAG-
IBIG Expanded Housing Loan Program (EHLP);
• repayment period
— 25 years or more;
• loanable amount
— equal to or grater than the maximum loan amount under the
PAG-IBIG Expanded Housing Loan Program; and
• percentage of covered EEs benefited by the Housing Plan
— EEs who have availed of the Housing Plan benefits as of date
of waiver application must be no less than five (5%) of the total.
5. The application for waiver or suspension, based on actual verification
of the Fund, does not contravene any effective collective bargaining or
any other agreement existing between the employer and his employees.
6. The application must be endorsed by the labor union representing a
majority of the employees, or in the absence thereof, at least a majority
vote of all company employees in a meeting specially called for the
purpose and conducted under the supervision of an authorized
representative of the Fund.
As above stated, when petitioners CBC and CBC-PCCI applied for the
renewal of waiver of Fund coverage for the year 1996, the applications
were disapproved on identical grounds namely, that the retirement plan is
not superior to Pag-IBIG Fund and that the amended Implementing Rules
and Regulations of R.A. 7742 provides that to qualify for waiver, a
company must have retirement/provident and housing plan which are
both superior to Pag-IBIG Funds.
Petitioner contends that respondent, in the exercise of its rule making
power has "overstepped the bounds and exceeded its limit". The law
provides as a condition for exemption from coverage, the exercise of
either a superior provident (retirement) plan and/or a superior housing
plan, and not the existence of both plans.
On the other hand, respondents claim that the use of the words "and/or"
in Section 19 of P.D. No. 1752, which words are "diametrically opposed in
meaning", can only be used interchangeably and not together, and the
option of making it either both or any one belongs to the Board of
Trustees of HDMF, which has the power and authority to issue rules and
regulations for the effective implementation of the Pag-IBIG Fund Law,
and the guidelines for the grant of waiver or suspension of coverage.
There is no question that the HDMF Board has rule-making powers.
Section 5 of R.A. No. 7742 states that the said Board shall promulgate
the rules and regulations necessary for the effective implementation of
said Act. Its rule-making power is also provided in Section 13 of P.D. No.
1752 which states insofar as pertinent that the Board is authorized to
make and change needful rules and regulations to provide for, among
others,
a. the effective administration, custody, development, utilization
and disposition of the Fund or parts thereof including payment of
amounts credited to members or to their beneficiaries or states;
b. Extension of Fund coverage to other working groups and
waiver or suspension of coverage or its enforcement for reasons
therein stated.
xxx xxx xxx
i. Other matters that, by express or implied provisions of this Act,
shall require implementation by appropriate policies, rules and
regulations.
The controversy lies in the legal signification of the words "and/or".
In the instant case, the legal meaning of the words "and/or" should be
taken in its ordinary signification, i.e., "either and or"; e.g. butter and/or
eggs means butter and eggs or butter or eggs. 6
The term "and/or" means that effect shall be given to both the
conjunctive "and" and the disjunctive "or;" or that one word or the
other may be taken accordingly as one or the other will best
effectuate the purpose intended by the legislature as gathered
 from the whole statute. The term is used to avoid a construction
which by the use of the disjunctive "or" alone will exclude the
combination of several of the alternatives or by the use of the
conjunctive "and" will exclude the efficacy of any one of the
alternatives standing alone.7
It is according ordinarily held that the intention of the legislature in using
the term "and/or" is that word "and" and the word "or" are to be used
interchangeably.8
It is seems to us clear from the language of the enabling law that Section
19 of P.D. No. 1752, intended that an employer with a provident
plan or an employee housing plan superior to that of the fund may obtain
exemption from coverage. If the law had intended that the employee
should have both a superior provident plan and a housing plan in order to
qualify for exemption, it would have used the words "and instead of
"and/or". Notably, paragraph (a) of Section 19 requires for annual
certification of waiver or suspension, that the features of the plan or
plans are superior to the fund or continue to be so. The law obviously
comptemplates that the existence of either plan is considered as
sufficient basis for the grant of an exemption; needless to state, the
concurrence of both plans is more than sufficient. To require the
existence of both plans would radically impose a more stringent condition
for waiver which was not clearly envisioned by the basic law. By
removing the disjunctive word "or" in the implementing rules the
respondent Board has exceeded its authority.
It is well settled that the rules and regulations which are the product of a
delegated power to create new or additional legal provisions that have
effect of law, should be within the scope of the statutory authority granted
by the legislature to the administrative agency. 9 "Department zeal may
not be permitted to outrun the authority conferred by statute." 10 As aptly
observed in People vs. Macaren 11:
Administrative regulations adopted under legislative authority by a
particular department must be in harmony with the provisions of the law,
and should be for the sole purpose of carrying into effect its general
provisions. By such regulations, of course, the law itself cannot be
extended. U. S. vs. Tupasi Molina, supra). An administrative agency
cannot amend as act of Congress (Santos vs. Estenzo, 109 Phil. 419
422; Teoxon vs. Members of the Board of Administrators, L-25619, June
30, 1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952,
December 29, 1971, 42 SCRA 660; Deluao vs. Casteel, L-21906, August
29, 1969 SCRA 350).
The rule making power must be confined to details for regulating the
mode or proceeding to carry into effect the law as it has been enacted.
The power cannot be extended to amending or expanding the statutory
requirements or to embrace matters not covered by the statute. Rules
that subvert the statute cannot be sanctioned. (University of Santo Tomas
vs. Board of Tax Appeals, 93 Phil. 376, 382, citing 12 C. J. 845-46. As to
invalid regulations, see Collector of Internal Revenue vs. Villaflor, 69 Phil.
319; Wise & Co. vs. Meer, 78 Phil. 655, 676; Del Mar vs. Phil. Veterans
Administration, L-27299, June 27, 1973, 51 SCRA 340, 349).
While it may be conceded that the requirement of the concurrence of both
plans to qualify for exemption would strengthen the Home Development
Mutual Fund and make it more effective both as savings generation and a
house building program, the basic law should prevail as the embodiment
of the legislative purpose, and the rules and regulations issued to
implement said law cannot go beyond its terms and provisions.
We accordingly find merit in petitioner's contention that Section 1, Rule
VII of the Rules and Regulations Implementing R.A. 7742, and HDMF
Circular No. 124-B and the Revised Guidelines and Procedure for Filing
Application for Waiver or Suspension of Fund Coverage under P.D. 1752,
as amended by R.A. 7742, should be declared invalid insofar as they
require that an employer must have both a superior retirement/provident
plan and a superior employees housing plan in order to be entitled to a
certificate of waiver and suspension of coverage from the HDMF.
WHEREFORE, the petition is given due course and the assailed Orders
of the court a quo dated October 10, 1997 and December 19, 1997 are
hereby set aside. Section 1 of Rule VII of the Amendments to the Rules
and Regulations Implementing R.A. 7742, and HDMF Circular No. 124-B
prescribing the Revised Guidelines and Procedure for Filing Applications
for Waiver or Suspension of Fund Coverage under P.D. 1752, as
amended by R.A. No. 7742, insofar as they require that an employer
should have both a provident/retirement plan superior to the
retirement/provident benefits offered by the Fund and a housing plan
superior to the Pag-IBIG housing loan program in order to qualify for
waiver or suspension of fund coverage, are hereby declared null and
void.1âwphi1.nêt
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8238 May 25, 1955
CESAR M. CARANDANG, petitioner,
vs.
VICENTE SANTIAGO, in his capacity as Judge of the Court of First
Instance of Manila and TOMAS VALENTON, Sr. and TOMAS
VALENTON, Jr., respondents.
S. Mejia-Panganiban for petitioner.
Evangelista and Valenton for respondents.
LABRADOR, J.:
This is a petition for certiorari against Honorable Vicente Santiago, Judge
of the Court of First Instance of Manila, to annul his order in Civil Case
No. 21173, entitled Cesar M. Carandang vs. Tomas Valenton, Sr. et al.,
suspending the trial of said civil case to await the result of the criminal
Case No. 534, Court of First Instance of Batangas. In this criminal case,
Tomas Valenton, Jr. was found guilty of the crime of frustrated homicide
committed against the person of Cesar Carandang, petitioner herein.
Tomas Valenton, Jr. appealed the decision to the Court of Appeals where
the case is now pending.
The decision of the Court of First Instance of Batangas in the criminal
case was rendered on September 1, 1953 and petitioner herein filed a
complaint in the Court of First Instance of Manila to recover from the
defendant Tomas Valenton, Jr. and his parents, damages, both actual
and moral, for the bodily injuries received by him on occasion of the
commission of the crime of frustrated homicide by said accused Tomas
Valenton Jr. After the defendants submitted their answer, they presented
a motion to suspend the trial of the civil case, pending the termination of
the criminal case against Tomas Valenton, Jr. in the Court of Appeals.
The judge ruled that the trial of the civil action must await the result of the
criminal case on appeal. A motion for reconsideration was submitted, but
the court denied the same; hence this petition for certiorari.
Petitioner invokes Article 33 of the new Civil Code, which is as follows:
In cases of defamation, fraud and physical injuries, a civil action
for damages, entirely separate and distinct from the criminal
action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution, and shall
require only a preponderance of evidence.
The Code Commission itself states that the civil action allowed (under
Article 33) is similar to the action in tort for libel or slander and assault
and battery under American law (Reports of the Code Commission, pp.
46-47). But respondents argue that the term "physical injuries" is used to
designate a specific crime defined in the Revised Penal Code, and
therefore said term should be understood in its peculiar and technical
sense, in accordance with the rules statutory construction (Sec. 578, 59
C. J. 979).
In the case at bar, the accused was charged with and convicted of the
crime of frustrated homicide, and while it was found in the criminal case
that a wound was inflicted by the defendant on the body of the petitioner
herein Cesar Carandang, which wound is bodily injury, the crime
committed is not physical injuries but frustrated homicide, for the reason
that the infliction of the wound is attended by the intent to kill. So the
question arises whether the term "physical injuries" used in Article 33
means physical injuries in the Revised Penal Code only, or any physical
injury or bodily injury, whether inflicted with intent to kill or not.
The Article in question uses the words "defamation", "fraud" and "physical
injuries." Defamation and fraud are used in their ordinary sense because
there are no specific provisions in the Revised Penal Code using these
terms as means of offenses defined therein, so that these two terms
defamation and fraud must have been used not to impart to them any
technical meaning in the laws of the Philippines, but in their generic
sense. With this apparent circumstance in mind, it is evident that the term
"physical injuries" could not have been used in its specific sense as a
crime defined in the Revised Penal Code, for it is difficult to believe that
the Code Commission would have used terms in the same article —
some in their general and another in its technical sense. In other words,
the term "physical injuries" should be understood to mean bodily injury,
not the crime of physical injuries, because the terms used with the latter
are general terms. In any case the Code Commission recommended that
the civil for assault and battery in American Law, and this
recommendation must have been accepted by the Legislature when it
approved the article intact as recommended. If the intent has been to
establish a civil action for the bodily harm received by the complainant
similar to the civil action for assault and battery, as the Code Commission
states, the civil action should lie whether the offense committed is that of
physical injuries, or frustrated homicide, or attempted homicide, or even
death.

A parallel case arose in that of Bixby vs Sioux City, 164 N. W. 641, 643.
In that case, the appellant sought to take his case from the scope of the
statute by pointing out that inasmuch as notice is required where the
cause of action is founded on injury to the person, it has no application
when the damages sought are for the death of the person. The court
ruled that a claim to recover for death resulting from personal injury is as
certainly "founded on injury to the person" as would be a claim to recover
damages for a non-fatal injury resulting in a crippled body.

For the foregoing considerations, we find that the respondent judge

committed an error in suspending the trial of the civil case, and his order
to that affect is hereby revoked, and he is hereby ordered to proceed with
the trial of said civil case without awaiting the result of the pending
criminal case. With costs against the defendant-appellees.
 Republic of the Philippines
SUPREME COURT
Manila
GR No. 56028, Jul 30, 1981
NILO A. MALANYAON v.
ESTEBAN M. LISING
DECISION
ABAD SANTOS, J.:
The question which is presented to Us for resolution in this petition for
review concerns the interpretation of Section 13 of R.A. No. 3019,
otherwise known as the Anti-Graft and Corrupt Practices Act which
stipulates:
"Sec. 13. Suspension and loss of benefits. - Any public officer against
whom any criminal prosecution under a valid information under this Act or
under the provisions of the Revised Penal Code on bribery is pending in
court, shall be suspended from office. Should he be convicted by final
judgment, he shall lose all retirement or gratuity benefits under any law,
but if he is acquitted, he shall be entitled to reinstatement and to the
salaries and benefits which he failed to receive during suspension, unless
in the meantime administrative proceedings have been filed against him."
The facts are stated in the Order dated October 3, 1980, of the
respondent judge:
"The late Mayor S.B. Pontanal is one of the accused in Criminal Case
No. P-339 for Violation of the Anti-Graft and Corrupt Practices Act. Upon
the filing of the case against him in court and after hearing, he was
suspended from office and during his incumbency he died. Due to his
death the charge against him in Criminal Case No. P-339 was
dismissed. Petitioner now contends that any disbursement of funds by
the respondent, Cesario Goleta, in his capacity as Municipal Treasurer in
favor of the heirs of the late Mayor for salaries corresponding to the
period he was under suspension and other benefits will be illegal and
contrary to the provisions of Section 13 because said late Mayor
S.B. Pontanal was not acquitted of the charge against him."
Nilo A. Malanyaon, the petitioner, was formerly a member of
the Sangguniang Bayan of Bula, Camarines Sur. He filed an action "to
declare illegal the disbursement made by Cesario Goleta as Municipal
Treasurer of the Municipality of Bula, Camarines Sur,
to VenanciaPontanal, widow of the late Mayor S.B. Pontanal, in the
amount of P5,000.00 representing a portion of the salary of the late
Mayor as such mayor of said municipality during the period of his
suspension from August 16, 1977 up to November 28, 1979, and to
restrain or prevent respondent Cesario Goleta as such Municipal
Treasurer of the aforementioned municipality from further paying or
disbursing the balance of the claim." (Par. 1 of the
Order, supra.) However, the respondent judge dismissed the action on
the ground that "the criminal case against the late Mayor
S.B. Pontanal due to his death amounted to acquittal."
We grant the petition and set aside the Order of the court a quo.
It is obvious that when the statute speaks of the suspended officer being
"acquitted" it means that after due hearing and consideration of the
evidence against him the court is of the opinion that his guilt has not been
proved beyond reasonable doubt. Dismissal of the case against the
suspended officer will not suffice because dismissal does not amount to
acquittal. As aptly stated in People v. Salico, 84 Phil. 722, 732-
733[1949]:
"Acquittal is always based on the merits, that is, the defendant is
acquitted because the evidence does not show that defendant's guilt is
beyond a reasonable doubt; but dismissal does not decide the case on
the merits or that the defendant is not guilty. Dismissal terminates the
proceeding, either because the court is not a court of competent
jurisdiction, or the evidence does not show that the offense was
committed within the territorial jurisdiction of the court, or the complaint or
information is not valid or sufficient in form and substance, etc. The only
case in which the word dismissal is commonly but not correctly used,
instead of the proper term acquittal, is when, after the prosecution has
presented all its evidence, the defendant moves for the dismissal and the
court dismisses the case on the ground that the evidence fails to show
beyond a reasonable doubt that the defendant is guilty; for in such case
the dismissal is in reality an acquittal because the case is decided on the
merits. If the prosecution fails to prove that the offense was committed
within the territorial jurisdiction of the court and the case is dismissed, the
dismissal is not an acquittal, inasmuch as if it were so the defendant
could not be again prosecuted before the court of competent jurisdiction;
and it is elemental that in such case the defendant may again be
prosecuted for the same offense before a court of competent jurisdiction."

Respondents invoke Art. 81, No. 1 of the Revised Penal Code which
provides that "Death of the accused pending appeal extinguishes his
criminal and civil liability." We do not see the relevance of this provision to
the case at bar. For one thing the case against Mayor Pontanalwas not
on appeal but on trial. For another thing the claim for back salaries is
neither a criminal nor a civil liability. It is in fact a right provided the
conditions of the law are present.

WHEREFORE, finding the petition to be well-taken, the same is hereby

granted, the order of the court a quo is hereby set aside and another one
is entered declaring illegal the payment of municipal funds for the salaries
of the late Mayor S.B. Pontanal during his suspension from office and
ordering the respondent treasurer to retrieve payments so far
disbursed. No pronouncement as to costs.

SO ORDERED.