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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 1 Political Law Cases

1. RODOLFO M. AGDEPPA vs HONORABLE OFFICE OF THE OMBUDSMAN, ACTING THROUGH THE OFFICE OF THE DEPUTY OMBUDSMAN FOR THE MILITARY, MARYDEL B. JARLOS-MARTIN, EMMANUEL M. LAUREZO AND ILUMINADO L. JUNIA, JR. [G.R. No. 146376. April 23, 2014.]

[Administrative Law; Grave Abuse of Discretion; Policy of Non-interference] FACTS:

Petitioner Agdeppa filed a petition for certiorari assailing the resolution of Respondent Office of the Ombudsman for dismissing OMB-MIL-CRIM-00-0470, the administrative complaint initiated by Petitioner against respondents Marydel B. Jarlos-Martin (Jarlos-Martin), Emmanuel M. Laurezo (Laurezo), and Iluminado L. Junia, Jr. (Junia).

Petitioner argued the following points:

(A) PUBLIC RESPONDENT OFFICE OF THE OMBUDSMAN COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT RENDERED A RESOLUTION DISMISSING A CRIMINAL COMPLAINT FOR VIOLATION OF THE ANTI-GRAFT AND CORRUPT PRACTICES ACT AGAINST ITS OWN INVESTIGATORS AND A PRIVATE RESPONDENT BY ADOPTING THE RESULT OF THE PRELIMINARY INVESTIGATION OBTAINED UPON AN ORDER WHICH DID NOT INCLUDE THE PRIVATE RESPONDENT CONCERNED IN THE JOINT INVESTIGATION IN SHEER CONTRAVENTION OF THE RULES OF COURT WHICH APPLY SUPPLETORILY TO THE RULES OF PROCEDURE OF THE OFFICE OF THE OMBUDSMAN.

(B) PUBLIC RESPONDENT OFFICE OF THE OMBUDSMAN ACTED IN EXCESS OF ITS JURISDICTION WHEN IT ALLOWED ANOTHER INVESTIGATING OFFICER TO RENDER THE RESOLUTION OF A CRIMINAL COMPLAINT AGAINST ITS OWN INVESTIGATORS IN CONSPIRACY WITH A PRIVATE INDIVIDUAL OTHER THAN THE INVESTIGATING OFFICER WHO ISSUED THE ORDER TO SUBMIT COUNTER-AFFIDAVIT IN UTTER VIOLATION OF THE RULES OF COURT WHICH APPLY SUPPLETORILY TO THE RULES OF PROCEDURE OF THE OFFICE OF OMBUDSMAN.

(C) PUBLIC RESPONDENT OFFICE OF THE OMBUDSMAN ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT RENDERED A RESOLUTION DISMISSING OMB-MIL-CRIM-00-0470 WHICH ALLOWED THE REALIGNMENT OF THE RULES OF COURT AND THE RULES OF PROCEDURE OF THE OFFICE OF THE OMBUDSMAN IN THE PRELIMINARY INVESTIGATION OF A CRIMINAL CASE TO JUSTIFY ITS DISMISSAL.

(D) PUBLIC RESPONDENT OFFICE OF THE OMBUDSMAN COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT RENDERED A RESOLUTION DISMISSING OMB-MIL-CRIM-00-0470 BY TOLERATING THE POSTPONEMENT OF THE RESOLUTION OF OMB-0-99-1015 WHICH TOLERANCE WAS AT THE EXPENSE OF THE CONSTITUTIONAL RIGHT OF THE PETITIONER TO “SPEEDY DISPOSITION OF CASES.”

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 2 ABUSE OF DISCRETION WHEN IT CONSIDERED AS GOSPEL TRUTH THE ALLEGATION IN THE COUNTER-AFFIDAVIT OF RESPONDENT LAUREZO THAT PRIVATE RESPONDENT JUNIA APPEARED BEFORE HIM ON OCTOBER 6, 1999 TO HAVE HIS AFFIDAVIT COMPLAINT PLACED UNDER OATH EVEN IF THERE IS NO EVIDENCE OF THE TRUTH OF SUCH AN ALLEGATION COMING FROM THE SAID PRIVATE RESPONDENT HIMSELF.

ISSUE:

Whether or not Respondent Office of the Ombudsman acted in grave abuse of discretion when it issued a resolution dismissing OMB-MIL-CRIM-00-0470, the administrative complaint initiated by Petitioner against respondents Jarlos-Martin, Laurezo, and Junia.

RULING:

Respondent Office of the Ombudsman did not act in grave abuse of discretion. The resolution is valid. The petition is dismissed.

In general, the Court follows a policy of non-interference with the exercise by the Office of the Ombudsman of its investigatory and prosecutorial powers, in respect of the initiative and independence inherent in the said Office, which, “beholden to no one, acts as the champion of the people and the preserver of the integrity of the public service.”

Not every error in the proceedings, or every erroneous conclusion of law or fact, constitutes grave abuse of discretion.While the prosecutor, or in this case, the investigating officers of the Office of the Ombudsman, may err or even abuse the discretion lodged in them by law, such error or abuse alone does not render their act amenable to correction and annulment by the extraordinary remedy of certiorari.The requirement for judicial intrusion is still for the petitioner to demonstrate clearly that the Office of the Ombudsman committed grave abuse of discretion amounting to lack or excess of jurisdiction. Unless such a clear demonstration is made, the intervention is disallowed in deference to the doctrine of non-interference.

The fact alone that the investigating officer of the Office of the Ombudsman who issued the resolution was not the one who conducted the preliminary investigation does not render said investigating officer’s resolution erroneous or irregular. The investigating officer may rely on the pleadings and evidence on record and enjoy the presumption of regularity in the performance of his duties as a public officer, unless disputed by evidence to the contrary.

There is no merit to Agdeppa’s contention that by dismissing his Affidavit-Complaint in OMB-MIL-CRIM-00-0470, the Office of the Ombudsman tolerated the realignment of the Ombudsman Rules of Procedure and violation of Agdeppa’s right to the speedy disposition of his case. There is utter lack of evidence presented by Agdeppa that Jarlos-Martin, Laurezo, and Junia conspired to maliciously and deliberately conduct the preliminary investigation in OMB-0-99-1015 to Agdeppa’s prejudice.

Absent a clear showing of grave abuse of discretion amounting to lack or excess of jurisdiction by the Office of the Ombudsman in the issuance of its Resolution dated July 31, 2000 and Order dated September 28, 2000 in OMB-MIL-CRIM-00-0470, the Court cannot depart from the policy of non-interference.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 3 Thus, Respondent Office of the Ombudsman did not act in grave abuse of discretion. The resolution is valid. The petition is dismissed.

2. MACEDA vs. COURT INTERPRETER [A.M. No. P-12-3093. March 26, 2014.]

[Administrative law] FACTS:

On June 28, 2010, an anonymous complainant, claiming to be a student at the University of Eastern Philippines (UEP), filed a letter-complaint before the Office of the Court Administrator (OCA) charging Otelia Lyn G. Maceda (Maceda), Court Interpreter, Municipal Trial Court (MTC), Palapag, Northern Samar, of falsifying her attendance in court so she could attend her law classes at UEP in Catarman, Northern Samar. The complaint questioned Maceda’s status as she was enjoying the privilege of a regular employee and at the same time a regular student. She was said to have been habitually tardy and absent from her office because she leaves the office everyday before 3:00 p.m. to catch up her classes, since the travel time from her office to her school is more or less three hours. Maceda was said to have made it appear in her Daily Time Records that she was still in office until 5:00 p.m. when in fact she was already in school.

In a report, dated April 5, 2011, by Executive Judge Jose F. Falcotelo (Judge Falcotelo) of the Regional Trial Court, Branch 22 of Laoang, Northern Samar, Maceda admitted that she is an irregular law student and that she requested permission to continue her law studies from then MTC Presiding Judge Eustaquio C. Lagrimas (Judge Lagrimas), and that Judge Lagrimas granted her request. Judge Falcotelo recommended the dismissal of the letter-complaint considering that Maceda pursued her studies for self-improvement and the she merely relied on Judge Lagrimas’ permission for her to attend her classes at UEP.

The OCA recommended in its report, dated August 16, 2012, that the instant administrative matter be re-docketed as a regular complaint for Dishonesty and that Maceda be found guilty of Dishonesty and be suspended for six months, without pay, with a stern warning. The case was then re-docketed as a regular administrative matter.

Maceda filed her manifestation on February 5, 2012, stating that she was not willing to submit the instant case for decision based on the pleadings filed because of the anonymity of the complainant, the inadmissibility of the documents presented in the complaint, and the absence of counsel during the investigation of the case.

ISSUE:

1. Whether or not an anonymous complaint may prosper.

2. Whether or not the documents attached to the complaint are admissible as evidence.

3. Whether or not Maceda be granted additional time before resolution of the administrative matter so she can engage the services of counsel as she was not represented during the earlier proceedings.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 4 4. Whether or not Maceda is guilty of dishonesty.

RULING:

Yes. The complaint may be acted upon by the Court. The Court stresses that an anonymous complaint is always received with great caution, originating as it does from an unknown author. However, a complaint of such sort does not always justify its outright dismissal for being baseless or unfounded for such complaint may be easily verified and may, without much difficulty, be substantiated and established by other competent evidence.

Any conduct, act or omission on the part of all those involved in the administration of justice which would violate the norm of public accountability and would diminish the faith of the people in the Judiciary cannot be countenanced. Hence, anonymous complaints of this nature should be acted upon by the Court.

1. The evidence is admissible. Proceedings in administrative investigation are not strictly governed by the technical rules of evidence. They are summary in nature. As the Court have declared in Office of the Court Administrator v. Indar:

It is settled that “technical rules of procedure and evidence are not strictly applied to administrative proceedings. Thus, administrative due process cannot be fully equated with due process in its strict judicial sense.” It is enough that the party is given the chance to be heard before the case against him is decided. Otherwise stated, in the application of the principle of due process, what is sought to be safeguarded is not lack of previous notice but the denial of the opportunity to be heard.

Maceda cannot claim that the admission and consideration of the documentary evidence attached to the complaint violated her right to due process. She had the opportunity to contest to the truthfulness of the documents and/or submit evidence controverting the same.

2. Maceda’s request can no longer be accommodated. She has knowingly and voluntarily participated in the administrative investigation conducted by Judge Falcotelo, by the OCA, and by the Court. Being a court employee and law student, Maceda is capable of understanding the charges against her and adducing her defenses herself. A party in an administrative inquiry may or may not be assisted by counsel, irrespective of the nature of the charges and of petitioner’s capacity to represent herself, and no duty rests on such body to furnish the person being investigated with counsel. The right to counsel is not always imperative in administrative investigations because such inquiries are conducted merely to determine whether there are facts that merit the imposition of disciplinary measures against erring public officers and employees, with the purpose of maintaining the dignity of government service.

3. Maceda is guilty of dishonesty. It was impossible for Maceda to have left the MTC only at 5:00 p.m. as she had consistently logged in her DTRs during the months she was also attending her classes. Maceda’s repeated assertion that she continued her law studies for self-improvement and with the permission of Judge Lagrimas are not acceptable excuses for not properly declaring the time she logged-off from work in her DTRs. Her acts constitute dishonesty which is defined as the “disposition to lie, cheat, deceive, or defraud; untrustworthiness; lack of integrity; lack of honesty, probity or integrity in principle; lack of fairness and straightforwardness; disposition to defraud, deceive or betray.”

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 5 Labor Case Digest

1. TABANGAO SHELL REFINERY EMPLOYEES ASSOCIATION vs. PILIPINAS SHELL PETROLEUM CORPORATION [G.R. No. 170007. April 7, 2014.]

[deadlock] Facts:

The Collective Bargaining Agreement between the petitioner labor union and respondent corporation was about to expire so both started negotiating for a new CBA. The union proposed a 20% annual across-the-board basic salary increase for the next three years that would be covered by the new CBA. In lieu of the annual salary increases, the company made a counter-proposal to grant all covered employees a lump sum amount of P80,000.00 yearly for the three-year period of the new CBA. Due to the constant disagreement on several meetings, the company proposed the declaration of a deadlock and recommended that the help of a third party be sought. However, the union filed a Notice of Strike in the National Conciliation and Mediation Board (NCMB), alleging bad faith bargaining on the part of the company. Upon being aware of this development, the company filed a Petition for Assumption of Jurisdiction with the Secretary of Labor and Employment.

Convinced that such a strike would have adverse consequences on the national economy, the Secretary of Labor and Employment ruled that the labor dispute between the parties would cause or likely to cause a strike in an industry indispensable to the national interest. Thus, the Secretary of Labor and Employment assumed jurisdiction over the dispute of the parties.

The union assailed the jurisdiction of the Secretary of Labor and Employment. It contended that the issue is the unfair labor practice of the company in the form of bad faith bargaining and not the CBA deadlock. It further alleged that there was no CBA deadlock on account of the union's non-conformity with the declaration of a deadlock, as item 8 of the said ground rules provided that a "deadlock can only be declared upon mutual consent of both parties." Thus, the Secretary of Labor and Employment committed grave abuse of discretion when she assumed jurisdiction and directed the parties to submit position papers even on the economic issues.

Issues:

1. Whether or not there was deadlock

2. Whether or not the Secretary of Labor and Employment has jurisdiction

Ruling:

1. There was a deadlock. A deadlock is defined as follows:

A 'deadlock' is . . . the counteraction of things producing entire stoppage; . . . There is a deadlock when there is a complete blocking or stoppage resulting from the action of equal and opposed forces . . . . The word is synonymous with the word impasse, which . . . 'presupposes reasonable effort at good faith bargaining which, despite noble intentions, does not conclude in agreement between the parties.'

While the purpose of collective bargaining is the reaching of an agreement between the employer and the employee's union resulting in a binding contract between the parties, the failure to reach an agreement after negotiations continued for a reasonable period does not mean lack of good faith. The laws invite and contemplate a collective bargaining contract but do not compel one. For after all, a CBA, like any contract is a product of mutual consent and not of compulsion. As such, the duty to bargain does not include the obligation to reach an agreement. In this light,

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 6 the corporation's unswerving position on the matter of annual lump sum payment in lieu of wage increase did not, by itself, constitute bad faith even if such position caused a stalemate in the negotiations, as correctly ruled by the Secretary of Labor and Employment in the decision dated June 8, 2005.

As there was no bad faith on the part of the company in its bargaining with the union, deadlock was possible and did occur. The union's reliance on item 8 of the ground rules governing the parties' negotiations which required mutual consent for a declaration of deadlock was reduced to irrelevance by the actual facts. And the fact is that the negotiations between the union and the company were stalled by the opposing offers of yearly wage increase by the union, on the one hand, and annual lump sum payment by the company, on the other hand. Each party found the other's offer unacceptable and neither party was willing to yield. Thus, because of the unresolved issue on wage increase, there was actually a complete stoppage of the ongoing negotiations between the parties and the union filed a Notice of Strike. Thus, the absence of the parties' mutual declaration of deadlock does not mean that there was no deadlock. At most, it would have been simply a recognition of the prevailing status quo between the parties.

2. The secretary of DOLE has jurisdiction over the case. The Secretary of the DOLE has been explicitly granted by Article 263(g) of the Labor Code the authority to assume jurisdiction over a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest, and decide the same accordingly. And, as a matter of necessity, it includes questions incidental to the labor dispute; that is, issues that are necessarily involved in the dispute itself, and not just to that ascribed in the Notice of Strike or otherwise submitted to him for resolution.

A "labor dispute" is defined under Article 212 (l) of the Labor Code as follows: ART. 212. Definitions. —

(l) "Labor dispute" includes any controversy or matter concerning terms or conditions of employment or the association or representation of persons in negotiating, fixing, maintaining, changing or arranging the terms and conditions of employment, regardless of whether the disputants stand in the proximate relation of employer and employee.

In this case, there was a dispute, an unresolved issue on several matters, between the union and the company in the course of the negotiations for a new CBA. Among the unsettled issues was the matter of compensation.

Thus, the labor dispute between the union and the company concerned the unresolved matters between the parties in relation to their negotiations for a new CBA. The power of the Secretary of Labor and Employment to assume jurisdiction over this dispute includes and extends to all questions and controversies arising from the said dispute, such as, but not limited to the union's allegation of bad faith bargaining. It also includes and extends to the various unresolved provisions of the new CBA such as compensation, particularly the matter of annual wage increase or yearly lump sum payment in lieu of such wage increase, whether or not there was deadlock in the negotiations.

As there is already an existing controversy on the matter of wage increase, the Secretary of Labor and Employment need not wait for a deadlock in the negotiations to take cognizance of the matter. That is the significance of the power of the Secretary of Labor and Employment under Article 263 (g) of the Labor Code to assume jurisdiction over a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest.

Article 263(g) is both an extraordinary and a preemptive power to address an extraordinary situation — a strike or lockout in an industry indispensable to the national interest. This grant is not limited to the grounds cited in the notice of strike or lockout that may have preceded the strike

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 7 or lockout; nor is it limited to the incidents of the strike or lockout that in the meanwhile may have taken place. As the term "assume jurisdiction" connotes, the intent of the law is to give the Labor Secretary full authority to resolve all matters within the dispute that gave rise to or which arose out of the strike or lockout; it includes and extends to all questions and controversies arising from or related to the dispute, including cases over which the labor arbiter has exclusive jurisdiction.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 8 Civil Law Cases

1. PHILNICO INDUSTRIAL CORPORATION vs. PRIVATIZATION AND

MANAGEMENT OFFICE.

G.R. No. 199420. August 27, 2014.

PRIVATIZATION AND MANAGEMENT OFFICE vs. PHILNICO INDUSTRIAL CORPORATION.

G.R. No. 199432. August 27, 2014.

[Pactum Commissorium; Elements; Present even if agreement in 2 or more separate contracts; Intent rather than written form]

FACTS:

Philnico Industrial Corporation (PIC) along with Philnico Processing Corporation (PPC) and Pacific Nickel Philippines, Inc. (PNPI) form the Philnico Group. The group is engaged in nickel mining and refining. Privatization and Management Ofice (PMO) is a government agency under the Department of Finance who succeeded the Asset Privatization Trust (APT) which is tasked to take title to and possession of, conserve, provisionally manage, and dispose of assets previously identified for privatization.

By virtue of foreclosure proceedings, DBP and PNB became holders of all the shares of PPC. In 1987, they transferred these shares to PMO (then the APT). In 1996, PMO, PIC, and PPC executed a contract, denominated as the Amended and Restated Definitive Agreement (ARDA), which laid down the terms and conditions of the purchase and acquisition by PIC from PMO of 22,500,000 shares of stock of PPC (representing 90% of ownership of PPC), as well as receivables of PMO from PPC to be paid in instalments.

One of the conditions in the ARDA was for the execution of a pledge over the shares to which it was further stipulated in Section 8.02 that in case of default, the title of the shares shall ipso facto revert to the Seller (PMO) without need of demand if not remedied by the Buyer (PIC) within 90 days. This is the subject of the present dispute as PIC failed to pay the instalments due partly because of the financial crisis affecting Asia at that time. This prompted PIC to file a prohibition suit before the RTC before the shares would be reverted to PMO alleging that the conditions constituted a pactum commissorium.

The RTC ruled that indeed the condition set forth in the ARDA constituted a pactum commissorium which is prohibited by law and that provision is thus void and issued a writ of preliminary injunction. It was the fact that automatic appropriation of the shares upon default was provided in the agreement that made it a pactum commissorium despite what PMO claims that it is a valid agreement between the parties.

This decision was challenged before the CA to which the CA ruled that the ARDA did not constitute a pactum commissorium as only 1 of 2 elements is present but still declared the reversion clause invalid as it is contrary to law.

ISSUE:

WON Section 8.02 of the ARDA on ipso facto or automatic reversion of the PPC shares of stock to PMO in case of default by PIC constitutes pactum commissorium.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 9 Section 8.02 of the ARDA constitutes a pactum commissorium.

RATIO:

Pactum commissorium is defined as "a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale."

There are two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of nonpayment of the principal obligation within the stipulated period.

Both elements of pactum commissorium are present in the instant case: (1) By virtue of the Pledge Agreement dated May 2, 1997, PIC pledged its PPC shares of stock in favor of PMO as security for the fulfillment of the former's obligations under the ARDA dated May 10, 1996 and the Pledge Agreement itself; and (2) There is automatic appropriation as under Section 8.02 of the ARDA, in the event of default by PIC, title to the PPC shares of stock shall ipso facto revert from PIC to PMO without need of demand.

The Court of Appeals, in ruling that there is no pactum commissorium, adopted the position of PMO that the ARDA and the Pledge Agreement are entirely separate and distinct contracts. Neither contract contains both elements of pactum commissorium: the ARDA solely has the second element, while the Pledge Agreement only has the first element. This is clearly erroneous as the ARDA and the Pledge Agreement, although executed in separate written instruments, are integral to one another.

The Court, in determining the existence of pactum commissorium, had focused more on the evident intention of the parties, rather than the formal or written form. Appreciating the ARDA together with the Pledge Agreement, the Court can only conclude that Section 8.02 of the ARDA constitutes pactum commissorium and, therefore, null and void.

2. REPUBLIC REPRESENTED BY AKLAN NATIONAL COLLEGE OF FISHERIES (ANCF) VS. HEIRS OF MAXIMA LACHICA SIN. (G.R. 157485):

[Property; Regalian Doctrine vs. Private Rights; Judicial Confirmation of an Imperfect Title]

FACTS: Respondents claim that they are the lawful heirs of the late Maxima Lachica Sin, who was the owner of a parcel of land. Respondents filed a complaint against Lucio Arquisola, in his capacity as ANCF, for recovery of possession, quieting of title, and declaration of ownership with damages. Respondents claim that the land they inherited had been usurped by ANCF, creating doubts with respect tot their ownership over the land they wish to remove from the ANCF reservation.

Petitioner countered contending that the land being claimed by the respondents was subject to Proc. No. 2074 of then Pres. Marcos allocating a certain number of hectares within the area, which happened to include said portion of respondent’s alleged property, as civil reservation for

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 10 educational purposes of ANCF. It was further contended that the subject parcel of land is timberland, thus not capable of private ownership.

Before the MCTC, respondent heirs presented evidence that they inherited a bigger parcel of land from their mother, Maxima Sin, who died in the year 1945, who acquired the same by virtue of a Deed of Sale, and developed the same by planting various kinds of trees, and usufructing the produce of said land until her death.

A few years after her death, a portion of the said inherited lands was occupied by ANCF and was converted into a fishpond for an educational purpose. Also, the subject land was a swampy land until it was converted into a fishpond by ANCF. To assert their ownership, they presented several tax declarations, the earliest of which was in the year 1945.

MCTC ruled in favor of respondents holding that the disputed property is alienable and disposable land of public domain. Furthermore, the land covered by Civil Reservation under Proclamation No. 2074 was classified as timberland only on December 22, 1960. The RTC affirmed the decision of MCTC, but absolved the ANCF Superintendent, from liability as it was not shown their was bad faith in the implementation of Proc No. 2074.

The case was elevated to the CA by the petitioners, but was later on dismissed for lack of merit. ISSUES:

1) WON respondents heirs had private rights to disputed lands despite the same being certified as timberland.

HELD: The MCTC, RTC rulings are reversed. Thus, the petitioner’s prayer is granted.

The MCTC, the RTC and the Court of Appeals unanimously held that respondents retain private rights to the disputed property, thus preventing the application of the above proclamation thereon. The private right referred to is an alleged imperfect title, which respondents supposedly acquired by possession of the subject property, through their predecessors-in-interest, for 30 years before it was declared as a timberland on December 22, 1960.

The requirements for judicial confirmation of imperfect title are found in Section 48 (b) of the Public Land Act, as amended by Presidential Decree No. 1073, as follows:

Sec. 48. The following described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 11 (b) Those who by themselves or through their predecessors in interest have been in the open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain, under a bona fide claim of acquisition or ownership, since June 12, 1945, or earlier, immediately preceding the filing of the application for confirmation of title except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

An equivalent provision is found in Section 14 (1) of the Property Registration Decree, which provides:

SECTION 14. Who may apply. — The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: TAcSCH

(1) those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.

There are 2 requisites for judicial confirmation of imperfect of incomplete title namely: a) Open, continuous, exclusive, and notorious possession and occupation of the

subject land by himself or thru his predecessors-in-interest under a bona fide claim of ownership since the immemorial or from June 12 1945;

b) The classification of the land as alienable and disposable land of public domain. With respect to the second requisite, the courts held that the disputed property was alienable and disposable before 1960, citing petitioner’s failure to show concrete evidence that subject land was declared timberland before its formal classification as such on said year.

Petitioner contends that by virtue of the Regalian doctrine, all lands of public domain belong to the State and lands not appearaing to be clearly within private ownership are presumed to belong to the State.

In the case at bar, Petitioner Republic’s failure to show competent evidence that land was declared a timberland before its formal classification in 1960, does not lead to the presumption that said land is alienable and disposable prior to said date. However, the presumption is that unclassified lands are inalienable public lands as such held in previous jurisprudence.

In the case at bar, it is respondents’ burden to identify a positive act of the government (i.e. an official proclamation, declassifying inalienable public land to disposable land for agricultural or other purposes). Since respondents failed to such, the alleged possession by them and their predecessors-in-interest could never ripen to their private ownership. Therefore, respondents cannot be considered to have private rights within the purview of Proc No. 2074 to prevent the application of said proclamation to the subject property.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 12 Taxation Cases

1. FORT BONIFACIO DEVELOPMENT CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE, respondents. [G.R. No. 175707. November 19, 2014.]

[Tax Credit (VAT) ] FACTS:

Petitioner is engaged in the development and sale of real property. It is the owner of, and is developing and selling, parcels of land within a "newtown" development area known as the Fort Bonifacio Global City (the Global City), located within the former military camp known as Fort Bonifacio, Taguig, Metro Manila. The National Government, by virtue of Republic Act No. 7227 and Executive Order No. 40, was the one that conveyed to petitioner these parcels of land on February 8, 1995.

In May 1996, petitioner commenced developing the Global City, and since October 1996, had been selling lots to interested buyers. At the time of acquisition, value-added tax (VAT) was not yet imposed on the sale of real properties. Republic Act No. 7716 (the Expanded Value-Added Tax [E-VAT] Law), which took effect on January 1, 1996, restructured the VAT system by further amending pertinent provisions of the National Internal Revenue Code (NIRC). Section 100 of the old NIRC was so amended by including "real properties" in the definition of the term "goods or properties," thereby subjecting the sale of "real properties" to VAT.

While prior to Republic Act No. 7716, real estate transactions were not subject to VAT, they became subject to VAT upon the effectivity of said law. Thus, the sale of the parcels of land by petitioner became subject to a 10% VAT, and this was later increased to 12%, pursuant to Republic Act No. 9337. Petitioner afterwards became a VAT-registered taxpayer.

On the basis of Section 105 of the NIRC, petitioner claims a transitional or presumptive input tax credit of 8% ofP71,227,503,200.00, the total value of the real properties listed in its inventory, or a total input tax credit of P5,698,200,256.00. After the value of the real properties was reduced due to a reconveyance by petitioner to BCDA of a parcel of land, petitioner claims that it is entitled to input tax credit in the reduced amount of P4,250,475,000.48.

What petitioner seeks to be refunded are the actual VAT payments made by it in cash, which it claims were either erroneously paid by or illegally collected from it. Each Claim for Refund is based on petitioner's position that it is entitled to a transitional input tax credit under Section 105 of the old NIRC, which more than offsets the aforesaid VAT payments On the basis of Section 105 of the NIRC, petitioner claims a transitional or presumptive input tax credit of 8% ofP71,227,503,200.00, the total value of the real properties listed in its inventory, or a total input tax credit of P5,698,200,256.00. After the value of the real properties was reduced due to a reconveyance by petitioner to BCDA of a parcel of land, petitioner claims that it is entitled to input tax credit in the reduced amount of P4,250,475,000.48.

What petitioner seeks to be refunded are the actual VAT payments made by it in cash, which it claims were either erroneously paid by or illegally collected from it. Each Claim for Refund is

(13)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 13 based on petitioner's position that it is entitled to a transitional input tax credit under Section 105 of the old NIRC, which more than offsets the aforesaid VAT payments.

The CTA refused the tax credit on the ground that no tax was previously paid because the dealing with government regarding the land was a tax free exchange.

ISSUE:

Whether or not petitioner is entitled to the 8% transitional input tax granted in Section 105 (now Section 111 [A]) of the NIRC based on the value of its inventory of land, and as a consequence, to a refund of the amounts it paid as VAT.

HELD:

Yes. The Court conclusively held that petitioner is entitled to the 8% transitional input tax on its beginning inventory of land, which is granted in Section 105 (now Section 111 [A]) of the NIRC, and granted the refund of the amounts petitioner had paid as output VAT for the different tax periods in question.

The Court has thus categorically ruled that prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit provided in Section 105 of the old NIRC and that petitioner is entitled to it, despite the fact that petitioner acquired the Global City property under a tax-free transaction. The Court En Banc held:

Contrary to the view of the CTA and the CA, there is nothing in the abovequoted provision to indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR.

To require prior payment of taxes . . . is not only tantamount to judicial legislation but would also render nugatory the provision in Section 105 of the old NIRC that the transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and supplies where no taxes were paid.

(14)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 14 2. HSBC vs Commissioner of Internal Revenue, GR 167728

[Doc Stamp Tax]

As a custodian bank, HSBC serves as the collection/payment agent with respect to dividends and other income derived from its investor-clients’ passive investments.6

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC through instructions given through electronic messages. The said instructions are standard forms known in the banking industry as SWIFT, or “Society for Worldwide Interbank Financial Telecommunication.” In purchasing shares of stock and other investment in securities, the investor-clients would send electronic messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt of the securities

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST) from September to December 1997 and also from January to December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.

On August 23, 1999, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management of funds located in the Philippines which do not involve transfer of funds from abroad are not subject to DST. With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim for the refund of the amount of P19,572,992.10 allegedly representing erroneously paid DST to the BIR for the period covering September to December 1997. Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of the amount of P32,904,437.30 allegedly representing erroneously paid DST to the BIR for the period covering January to December 1998. BIR did not act upon HSBC’s claims, and so the latter brought it up to the CTA. The CTA ruled in favor of HSBC and ordered refunds. However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic messages of HSBC’s investor-clients are subject to DST. ISSUE: WON HSBC is entitled to a refund on erroneously paid DST.

HELD: Yes. The electronic messages of HSBC’s investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code

RATIO:

The DST under Section 181 of the Tax Code is levied on the acceptance or payment of “a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines” and that “a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.” A bill of exchange is one of two general forms of negotiable instruments under the Negotiable Instruments Law.

The Court favorably adopts the finding of the CTA that the electronic messages “cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability

(15)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 15 to be transferred” and that the said electronic messages are “mere memoranda” of the transaction consisting of the “actual debiting of the [investor-client-]payor’s local or foreign currency account in the Philippines” and “entered as such in the books of account of the local bank,” HSBC.

Section 1 of the Negotiable Instruments Law provides:

Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. Under Section 173 of the 1997 Tax Code, the persons primarily liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, instruments or papers.

Acceptance applies only to bills of exchange.Acceptance of a bill of exchange has a very definite meaning in law.

The electronic messages received by HSBC from its investor-clients abroad instructing the former to debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor presentment for payment, then there was no acceptance or payment that could have been subjected to DST to speak of.

Indeed, there had been no acceptance o f a bill o f exchange or order for the payment of money on the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it could not have made any

(16)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 16 payment of a bill of exchange or order for the payment of money drawn abroad but payable here in the Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.

3. CITY OF MANILA, Hon. Alredo S. Lim vs. HON. ANGEL VALERA, and Malaysian Airline System [G.R. No. 120051. December 10, 2014.] (Consolidated case)

[Local Government Tax] Facts:

The City of Manila enacted The Manila Revenue Code, otherwise known as Revenue Code of the City of Manila. It was later amended, imposing a lower business tax rate as contained in section 21 paragraphs B which states that:

Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes Under the NIRC. — On any of the following businesses and articles of commerce subject to the excise, value-added or percentage taxes under the National Internal Revenue Code hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year is hereby imposed: xxx xxx xxx

B) On the gross receipts of keepers of garages, cars for rent or hire driven by the lessee, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and owners of animal- drawn two-wheel vehicle.

The City Treasurer of Manila assessed those who are engaged in the transportation business of the said business tax. However, the parties to this consolidated petitions--- Maerks, Eastern Shipping, William Lines, among others, assailed the constitutionality of Section 21 paragraph B of the Manila Revenue Code. They argue that under the Local Government Code, Local Government Units shall not levy taxes on the gross receipt of those engaged in transportation business.

The City of Manila counters that the ordinance is valid. According to them, it is based on the exempting clause at the beginning of Section 133, in conjunction with Section 143 (h), of the LGC. More so, although the LGC proscribes the imposition of business taxes by the LGUs on transportation business, a latter provision grants them the general power to tax.

The relevant provisions of the Code are reproduced below:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the exercise

(17)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 17 of the taxing powers of provinces, cities, municipalities,

and barangays shall not extend to the levy of the following: xxx xxx xxx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; SEC. 143. Tax on Business. — The municipality may impose taxes on the following businesses:

xxx xxx xxx

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

Issue:

Whether or not Section 21 (B) of the Manila Revenue Code is valid. Ruling:

Section 21 (B) of the Manila Revenue Code, as amended, was null and void for being beyond the power of the City of Manila and its public officials to enact, approve, and implement under the LGC.

FIRST: The power of a province to tax is limited to the extent that such power is delegated to it either by the Constitution or by statute. Among the common limitations on the taxing power of LGUs is Section 133 (j) of the LGC, which states that "Unless otherwise provided herein, the taxing power of LGUs shall not extend to taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.”

Section 133 (j) of the LGC clearly and unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water.

SECOND: Section 133 (j) of the LGC prevails over Section 143 (h) of the same Code, and Section 21 (B) of the Manila Revenue Code, as amended, was manifestly in contravention of the former. Section 133 (j) of the LGC is a specific provision that explicitly withholds from any LGU the power to tax the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water.

In contrast, Section 143 of the LGC defines the general power of the municipality (as well as the city, if read in relation to Section 151 of the same Code) to tax businesses within its jurisdiction. The omnibus grant of power to municipalities and cities under Section 143 (h) of the LGC cannot overcome the specific exception/exemption in Section 133 (j) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones. A special and specific provision prevails over a general provision irrespective of their relative

(18)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 18 positions in the statute. Generalia specialibus non derogant. Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.

THIRD: Section 143 (h) of the LGC would not be "a hollow decorative provision with no subject to tax” for tax may still be imposed on other kinds of businesses. On the contrary, it would be Section 133 (j) of the LGC which would become inoperative should the Court accept the construction proffered by the City of Manila and its public officials, because then, there would be no instance at all when the gross receipts of the transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water, would not be subject to tax by the LGUs, clearly defeating the limitation imposed by the LGC.

(19)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 19

Commercial Law Cases

1. BRO. BERNARD OCA, FSC, BRO. DENNIS MAGBANUA, FSC, MRS. CIRILA

MOJICA, MRS. JOSEFINA PASCUAL, AND ST. FRANCIS SCHOOL OF GENERAL

TRIAS, CAVITE, INC. vs. LAURITA CUSTODIO.

G.R. NO. 174996. DECEMBER 3, 2014.

[Status Quo Order in Intra-corporate Case; When and How Issued]

FACTS:

Petitioner St. Francis School of General Trias, Cavite, Inc. (SFS) is a non-stock

and non-profit educational institution. Petitioners Oca, Magnaua, Mojica and Pascual are

current members of the Board of Trustees of SFS. Private respondent was one of the

incorporators of SFS and served also as a board member.

On September 8, 1988, to formalize the relationship between the De La Salle

Greenhills (DLSG) and SFS, a Memorandum of Agreement (MOA) was executed.

Through this agreement, DLSG exercised supervisory powers over the School’s

academic affairs. Pursuant to the terms of the MOA, DLSG appointed supervisors who sit

in the meetings of the Board of Trustees without any voting rights. On September 8,

1998, petitioner Bro. Bernard Oca was appointed as a DLSG supervisor. From then Bro.

Oca also served as a member of the Board of Trustees and President of the School. Bro.

Dennis Magbanua was also appointed as DLSG supervisor and also as a Treasurer of the

School.

Custodio challenges the validity of the membership of the DLSG Brothers and

their purported election as officers of the School. The legality of the membership and

election of the DLSG Brothers is the main issue of the case in the lower court. Custodio

alleges that the composition of the membership of the School had no basis there being no

formal admission as members nor election as officers. The legality of the membership

and assumption as officers of the DLSG Brothers was questioned by Custodio following

a disagreement regarding a proposed MOA that would replace the existing MOA with the

DLSG Brothers and her removal as Curriculum Administrator through the Board of

Trustee[s].

On July 8, 2002, the Board of Trustees of St. Francis School resolved to remove

respondent Laurita Custodio as a member of the Board of Trustees and as a member of

the Corporation pursuant to Sections 28 and 91 of the Corporation Code as indicated in

Resolution No. 011-2002. In reaction to her removal, respondent filed with the trial court,

on October 3, 2002, a Complaint with Prayer for the Issuance of a Preliminary Injunction

against petitioners again assailing the legality of the membership of the Board of Trustees

of St. Francis School.

After a series of pleadings and motions, the trial court, acting favorably on private

respondent’s October 9, 2002 Manifestation and Motion issued a Status Quo Order dated

August 21, 2003 which permitted respondent to continue discharging her functions as

school director and curriculum administrator as well as those who are presently and

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 20

actually discharging functions as school officer to continue performing their duties until

the application for the issuance of a temporary restraining order is resolved.

ISSUE:

WON the trial court committed grave abuse of discretion in issuing the assailed Order

dated August 21, 2003 (status quo order).

HELD:

The trial court committed error in issuing the Status Quo Order for failing to comply with

procedural requirements.

RATIO:

A status quo order is merely intended to maintain the last, actual, peaceable and

uncontested state of things which preceded the controversy. It further states that, unlike a

temporary restraining order or a preliminary injunction, a status quo order is more in the

nature of a cease and desist order, since it neither directs the doing or undoing of acts as

in the case of prohibitory or mandatory injunctive relief.

The manner of the issuance of a status quo order in an intra-corporate suit such as

the case at bar is governed by Section 1, Rule 10 of the Interim Rules of Procedure for

Intra-Corporate Controversies which reads:

SECTION 1. Provisional remedies. - A party may apply for any of the

provisional remedies provided in the Rules of Court as may be available

for the purposes. However, no temporary restraining order or status quo

order shall be issued save in exceptional cases and only after hearing the

parties and the posting of a bond.

The Order was clearly erroneously issued as First, the directive to reinstate

respondent to her former position as school director and curriculum administrator is a

command directing the undoing of an act already consummated which is the exclusive

province of prohibitory or mandatory injunctive relief and not of a status quo order which

is limited only to maintaining the last, actual, peaceable and uncontested state of things

which immediately preceded the controversy. It must be remembered that respondent

was already removed as trustee, member of the corporation and curriculum administrator

by the Board of Trustees of St. Francis School of General Trias, Cavite, Inc. months prior

to her filing of the present case in the trial court.

Second, the trial court’s omission of not requiring respondent to file a bond before

the issuance of the Status Quo Order dated August 21, 2003 is in contravention with the

express instruction of Section 1, Rule 10 of the Interim Rules of Procedure for

Intra-Corporate Controversies.

(21)

COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 21

2. [G.R. No. 172652. November 26, 2014.]

METROPOLITAN

BANK

AND

TRUST

COMPANY, petitioner, vs.

WILFRED N. CHIOK, respondent.

(consolidated case)

[Negotiable Instruments Law, Managers Check]

Facts:

Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several

years. He usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate

prevailing on the date of the sale. Chiok pays Nuguid either in cash or manager's check,

to be picked up by the latter or deposited in the latter's bank account. Nuguid delivers the

dollars either on the same day or on a later date as may be agreed upon between them, up

to a week later. Chiok and Nuguid had been dealing in this manner for about six to eight

years, with their transactions running into millions of pesos. For this purpose, Chiok

maintained accounts with petitioners Metropolitan Bank and Trust Company

(Metrobank) and Global Business Bank, Inc. (Global Bank), the latter being then

referred to as the Asian Banking Corporation (Asian Bank). Chiok likewise entered into a

Bills Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA, checks

drawn in favor of, or negotiated to, Chiok may be purchased by Asian Bank. Upon such

purchase, Chiok receives a discounted cash equivalent of the amount of the check earlier

than the normal clearing period.

On July 5, 1995, pursuant to the BPLA, Asian Bank "bills purchased" Security Bank &

Trust Company (SBTC) Manager's Check (MC) No. 037364 in the amount of

P25,500,000.00 issued in the name of Chiok, and credited the same amount to the latter's

Savings Account No. 2-007-03-00201-3.

On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount

of P7,550,000.00 and MC No. 025939 in the amount of P10,905,350.00 to

Gonzalo Bernardo, who is the same person as Gonzalo B. Nuguid. The two Asian

Bank manager's checks, with a total value of P18,455,350.00 were issued

pursuant to Chiok's instruction and was debited from his account. Likewise upon

Chiok's application, Metrobank issued Cashier's Check (CC) No. 003380 in the

amount of P7,613,000.00 in the name of Gonzalo Bernardo. The same was

debited from Chiok's Savings Account No. 154-42504955.

Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939,

and Metrobank CC No. 003380), with an aggregate value of P26,068,350.00 in

Nuguid's account with Far East Bank & Trust Company (FEBTC), the

predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Nuguid

was supposed to deliver US$1,022,288.50, 4 the dollar equivalent of the three

checks as agreed upon, in the afternoon of the same day. Nuguid, however, failed

to do so, prompting Chiok to request that payment on the three checks be stopped.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 22

On July 25, 1995, the RTC issued an Order directing the issuance of a writ of

preliminary prohibitory injunction.

The RTC went on to rule that manager's checks and cashier's checks may be the

subject of a Stop Payment Order from the purchaser on the basis of the payee's

contractual breach.

According to the RTC, both manager's and cashier's checks are still subject to regular

clearing under the regulations of the Bangko Sentral ng Pilipinas. Since manager's and

cashier's checks are the subject of regular clearing, they may consequently be refused for

cause by the drawee, which refusal is in fact provided for in the PCHC Rule Book.

Issues:

1. WON payment of manager's and cashier's checks are subject to the condition that the

payee thereof should comply with his obligations to the purchaser of the checks.

2. Whether or not the purchaser of manager's and cashier's checks has the right to have

the checks cancelled by filing an action for rescission of its contract with the payee.

Held:

1.

The Supreme Court held that the RTC effectively ruled that payment of manager's and

cashier's checks are subject to the condition that the payee thereof complies with his

obligations to the purchaser of the checks:

The dedication of

such

checks pursuant to specific reciprocal undertakings between their

purchasers and payees authorizes rescission by the former to prevent

substantial and material damage to themselves, which authority includes

stopping the payment of the checks.

Moreover, it seems to be fallacious to hold that the unconditional

payment of manager's and cashier's checks is the rule. To begin with,

bothmanager's and cashier's checks are still subject to regular clearing

under the regulations of the Bangko Sentral ng Pilipinas, a fact borne

out by the BSPmanual for banks and intermediaries, which provides,

among others, in its Section 1603.1, c, as follows:

xxx xxx xxx

c. Items for clearing. All checks and documents payable on demand and drawn

against a

bank/branch, institution or entity allowed to clear may be exchanged through the

Clearing Office in Manila and the Regional Clearing Units in regional clearing

centers designated by the Central Bank.

But The Supreme Court also held that the RTC made an error when it said that:

It goes without saying that under the aforecited clearing rule[,] the enumeration of

causes to return checks is not exclusive but may include other causes which are

consistent with long standing and accepted banking practice.

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 23

While indeed, it cannot be said that manager's and cashier's checks are

pre-cleared, clearing should not be confused with acceptance. Manager's and cashier's

checks are still the subject of clearing to ensure that the same have not been materially

altered or otherwise completely counterfeited. However, manager's and cashier's checks

are pre-accepted by the mere issuance thereof by the bank, which is both its drawer and

drawee. Thus, while manager's and cashier's checks are still subject to clearing, they

cannot be countermanded for being drawn against a closed account, for being drawn

against insufficient funds, or for similar reasons such as a condition not appearing on the

face of the check. Long standing and accepted banking practices do not countenance the

countermanding of manager's and cashier's checks on the basis of a mere allegation of

failure of the payee to comply with its obligations towards the purchaser. On the contrary,

the accepted banking practice is that such checks are as good as cash.

Furthermore, under the principle of ejusdem generis, where a statute describes things of a

particular class or kind accompanied by words of a generic character, the generic word

will usually be limited to things of a similar nature with those particularly enumerated,

unless there be something in the context of the statute which would repel such

inference. Thus, any long standing and accepted banking practice which can be

considered as a valid cause to return manager's or cashier's checks should be of a similar

nature to the enumerated cause applicable to manager's or cashier's checks: material

alteration. As stated above, an example of a similar cause is the presentation of a

counterfeit check.

2.

Reciprocal obligations are those which arise from the same cause, and in which each

party is a debtor and a creditor of the other, such that the obligation of one is dependent

upon the obligation of the other. They are to be performed simultaneously such that the

performance of one is conditioned upon the simultaneous fulfillment of the other. When

Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause of action

against Nuguid to ask for the rescission of their contract. On the other hand, Chiok did

not have a cause of action against Metrobank and Global Bank that would allow him to

rescind the contracts of sale of the manager's or cashier's checks, which would have

resulted in the crediting of the amounts thereof back to his accounts.

Otherwise stated, the right of rescission under Article 1191 of the Civil Code can only be

exercised in accordance with the principle of relativity of contracts under Article 1131 of

the same code, which provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,

except in case where the rights and obligations arising from the contract are not

transmissible by their nature, or by stipulation or by provision of law.

In several cases, this Court has ruled that under the civil law principle of relativity of

contracts under Article 1131, contracts can only bind the parties who entered into it, and

it cannot favor or prejudice a third person, even if he is aware of such contract and has

acted with knowledge thereof. 44 Metrobank and Global Bank are not parties to the

contract to buy foreign currency between Chiok and Nuguid. Therefore, they are not

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COMPILED CASE DIGEST | DE CASTRO| ATTY. B.AMAGO IV| 2015 BAR 24

bound by such contract and cannot be prejudiced by the failure of Nuguid to comply with

the terms thereof.

Neither could Chiok be validly granted a writ of injunction against Metrobank and Global

Bank to enjoin said banks from honoring the subject manager's and cashier's checks. It is

elementary that "(a)n injunction should never issue when an action for damages would

adequately compensate the injuries caused. The very foundation of the jurisdiction to

issue the writ of injunction rests in the fact that the damages caused are irreparable and

that damages would not adequately compensate." Chiok could have and should have

proceeded directly against Nuguid to claim damages for breach of contract and to have

the very account where he deposited the subject checks garnished under Section 7

(d) and Section 8, Rule 57 of the Rules of Court. Instead, Chiok filed an action to enjoin

Metrobank and Global Bank from complying with their primary obligation under checks

in which they are liable as both drawer and drawee.

As between two innocent persons, one of whom must suffer the consequences of a

breach of trust, the one who made it possible by his act of confidence must bear the

loss. Evidently, it was the utmost trust and confidence reposed by Chiok to Nuguid that

caused this entire debacle, dragging three banks into the controversy, and having their

resources threatened because of an alleged default in a contract they were not privy to.

References

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