G.R. No. 179085 : January 21, 2010 Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 179085 :: January 21, 2010

TAMBUNTING PAWNSHOP, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

- - - - MISSING PART - - - ¹

Petitioner protested the assessment.² As the protest merited no response, it filed a Petition for Review³ with the Court of Tax Appeals (CTA) pursuant to Section 228 of the National Internal Revenue Code,⁴ raising the following arguments:

A. Pawnshops are not subject to Value Added Tax pursuant to Section 108 of the National Internal Revenue Code.⁵

B. Petitioner properly withheld and remitted to the respondent the correct amount of expanded withholding tax for taxable year 1999.⁶

C. Petitioner has already paid the assessed amount of P14,398.38 [sic], representing deficiency withholding tax on compensation, thus, assessment on withholding on compensation must be cancelled.⁷

D. Petitioner's pawn tickets are not subject to documentary stamp tax pursuant to existing laws and jurisprudence.⁸ (emphasis and underscoring in the original)

The First Division of the CTA ruled that petitioner is liable for VAT and documentary stamp tax but not for withholding tax on compensation and expanded withholding tax.⁹ Thus it disposed:

WHEREFORE, premises considered, the Petition for Review is PARTIALLY GRANTED. Respondent's assessments for deficiency Expanded Withholding Tax and Withholding Tax on Compensation for the taxable year 1999, in the amounts of Twenty One Thousand Seven Hundred Twenty Three and 75/100 Pesos (P21,723.75) and Sixty Seven Thousand Two Hundred One and 55/100 Pesos (P67,201.55), respectively, are hereby CANCELLED and SET ASIDE. However, the assessments for deficiency Value-Added Tax and Documentary Stamp Tax are hereby AFFIRMED.

Accordingly, petitioner is ORDERED TO PAY the respondent the amount of Three Million Fifty Five Thousand Five Hundred Sixty Four and 34/100 Pesos (P3,055,564.34) and Four Hundred Six Thousand Ninety Two and 500/100 Pesos (P406,092.50) representing deficiency Value-Added Tax and Documentary Stamp Tax, respectively, for the taxable year 1999, plus 20% delinquency interest from February 18, 2003 up to the time such amount is fully paid pursuant to Section 249 (c) of the 1997 NIRC.

SO ORDERED.¹⁰ (emphasis in the original; underscoring supplied)

Petitioner's Motion for Partial Reconsideration¹¹ having been denied,¹² it filed a Petition for Review¹³ before the CTA En Banc which dismissed¹⁴ it as it did petitioner's Motion for Reconsideration.¹⁵

Hence, the present Petition for Review on Certiorari.¹⁶

To petitioner, a pawnshop is not enumerated as one of those engaged in "sale or exchange of services"¹⁷ in Section 108 of the National Internal Revenue Code.¹⁸ Citing Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshops, Inc.,¹⁹ it contends that the nature of the business of pawnshops does not fall under "service" as defined under the Legal Thesaurus of William C. Burton, viz:

accommodate, administer to, advance, afford, aid, assist, attend, be of use, care for, come to the aid of, commodere, comply, confer a benefit, contribute to, cooperate, deservire, discharge one's duty, do a service, do one's bidding, fill an office, forward, furnish aid, furnish assistance, give help, lend, aid, minister to, promote, render help, servire, submit, succor, supply aid, take care of, tend, wait on, work for.²⁰

The petition is in part meritorious.

On the issue of whether pawnshops are liable to pay VAT, the Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue,²¹ held:

In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated as lending investors subject to lending investor's tax. Subsequently, with the Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of "sale or exchange of services" under Section 108 (A) of the Tax Code of 1997, as amended. R.A. No. 9238 [which was passed in 2004] finally classified pawnshops as Other Non-bank Financial Intermediaries.

The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to the appropriate taxes provided by law, thus -

Under the National Internal Revenue Code of 1977, pawnshops should have been levied the 5% percentage tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119 (now Section 121 of the Tax Code of 1997);

With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);

This was restated by R.A. No. 8241, 24 which amended R.A. No. 7716, although the levy, collection and assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions, were made effective January 1, 1998;

R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed a 10% VAT under Section 108 but the levy, collection and assessment thereof were again deferred until December 31, 1999;

The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December 31, 2000, and by R.A. No. 9010, until December 31, 2002;

With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were finally made effective beginning January 1, 2003;

Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, 28 and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the Tax Code of 1997.

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision on "sale or exchange of services" as defined under Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration . . . ." Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial intermediaries[.]

Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be. (emphasis and underscoring supplied)

In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.

In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues that such tickets are neither securities nor printed evidence of indebtedness.²² The argument fails.

Section 195 of the National Internal Revenue Code provides:

Section 195. On every mortgage or pledge of lands, estate or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax x x x. (underscoring supplied)

Construing this provision vis a vis pawn tickets, the Court held in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue:

x x x A D[ocumentary] S[tamp] T[ax] is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. x x x

x x x x

Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person. This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans.

x x x x

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed evidence of indebtedness."

True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. There is therefore no basis in petitioner's assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket.²³ (emphasis and underscoring supplied)

With respect to petitioner's argument against liability for surcharges and interest - that it was in good faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes²⁴ - the Court finds the same meritorious.

It is settled that good faith and honest belief that one is not subject to tax on the basis of previous interpretations of government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest.²⁵

WHEREFORE, the petition is IN PART GRANTED. The May 24, 2007 Decision of the Court of Tax Appeals is AFFIRMED with the MODIFICATION that the assessment deficiency value-added taxes for the taxable year 1999 and for surcharges and delinquency interest on deficient Value-Added Tax and Documentary Income Tax are SET ASIDE.

SO ORDERED.

CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO Associate Justice

LUCAS P. BERSAMIN Associate Justice

MARTIN S. VILLARAMA, JR.
Associate Justice

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

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

REYNATO S. PUNO
Chief Justice

---

Endnotes:

¹ CIR records, pp. 293-303.

² Id. at 304-308.

³ CTA First Division rollo, pp. 1-13.

⁴ Section 228:

x x x x

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory, and demandable.

⁵ CTA First Division rollo, p. 3.

⁶ Id. at 9.

⁷ Id. at 10.

⁸ Ibid.

⁹ Decision of October 5, 2006, penned by CTA Associate Justice Lovell R. Bautista, with the concurrence of Presiding Justice Ernesto D. Acosta and Associate Justice Caesar A. Casanova. Id. at 143-156.

¹⁰ Id. at 155-156.

¹¹ Id. at 157-170.

¹² Id. at 174-175.

¹³ CTA En Banc rollo, pp. 8-36.

¹⁴ Decision of May 24, 2007, penned by CTA Associate Justice Olga Palanca-Enriquez, with the concurrence of Presiding Justice Ernesto D. Acosta and Associate Justice Juanito C. Castañeda, Jr. cta En Banc rollo, pp. 64-83.

¹⁵ Id. at 105-106.

¹⁶ Rollo, pp. 8-30.

¹⁷ Id. at 11-16.

¹⁸ SECTION 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;

(2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;

(3) The supply of scientific, technical, industrial or commercial knowledge or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3);

(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person;

(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines.

The term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.

x x x x

¹⁹ 453 Phil. 1043 (2003).

²⁰ quoted in rollo, p. 14.

²¹ G.R. No. 174134, July 30, 2008, 560 SCRA 606.

²² Rollo, pp. 22-23.

²³ Michel J. Lhuillier Pawnshop, Inc. v. Commissioner on Internal Revenue, G.R. No. 166786, May 3, 2006, 489 SCRA 147, 152-154.

²⁴ Vide rollo, pp. 23-24; CIR records, pp. 317-318.

²⁵ Vide Michel J. Lhuillier Pawnshop, Inc. v. Commissioner on Internal Revenue, G.R. No. 166786, September 11, 2006, 501 SCRA 450, 460.

G.R. No. 177114 : January 21, 2010 Manolo A. Peñaflor vs. Outdoor Clothing Manufacturing Corporation, et al.

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177114 :: January 21, 2010

MANOLO A. PEÑAFLOR, Petitioner, vs. OUTDOOR CLOTHING MANUFACTURING CORPORATION, NATHANIEL T. SYFU, President, MEDYLENE M. DEMOGENA, Finance Manager, and PAUL U. LEE, Chairman, Respondents.

BRION, J.;

Petitioner Manolo A. Peñaflor (Peñaflor) seeks the reversal of the Court of Appeals (CA) decision¹ dated December 29, 2006 and its resolution² dated March 14, 2007, through the present petition for review on certiorari filed under Rule 45 of the Rules of Court. The assailed CA decision affirmed the September 24, 2002 decision³ of the National Labor Relations Commission (NLRC) that in turn reversed the August 15, 2001 decision⁴ of the Labor Arbiter.⁵

THE FACTUAL ANTECEDENTS

Peñaflor was hired on September 2, 1999 as probationary Human Resource Department (HRD) Manager of respondent Outdoor Clothing Manufacturing Corporation (Outdoor Clothing or the company). As HRD head, Peñaflor was expected to (1) secure and maintain the right quality and quantity of people needed by the company; (2) maintain the harmonious relationship between the employees and management in a role that supports organizational goals and individual aspirations; and (3) represent the company in labor cases or proceedings. Two staff members were assigned to work with him to assist him in undertaking these functions.

Peñaflor claimed that his relationship with Outdoor Clothing went well during the first few months of his employment; he designed and created the companys Policy Manual, Personnel Handbook, Job Expectations, and Organizational Set-Up during this period. His woes began when the companys Vice President for Operations, Edgar Lee (Lee), left the company after a big fight between Lee and Chief Corporate Officer Nathaniel Syfu (Syfu). Because of his close association with Lee, Peñaflor claimed that he was among those who bore Syfus ire.

When Outdoor Clothing began undertaking its alleged downsizing program due to negative business returns, Peñaflor alleged that his department had been singled out. On the pretext of retrenchment, Peñaflors two staff members were dismissed, leaving him as the only member of Outdoor Clothings HRD and compelling him to perform all personnel-related work. He worked as a one-man department, carrying out all clerical, administrative and liaison work; he personally went to various government offices to process the companys papers.

When an Outdoor Clothing employee, Lynn Padilla (Padilla), suffered injuries in a bombing incident, the company required Peñaflor to attend to her hospitalization needs; he had to work outside office premises to undertake this task. As he was acting on the companys orders, Peñaflor considered himself to be on official business, but was surprised when the company deducted six days salary corresponding to the time he assisted Padilla. According to Finance Manager Medylene Demogena (Demogena), he failed to submit his trip ticket, but Peñaflor belied this claim as a trip ticket was required only when a company vehicle was used and he did not use any company vehicle when he attended to his off-premises work.⁶

After Peñaflor returned from his field work on March 13, 2000, his officemates informed him that while he was away, Syfu had appointed Nathaniel Buenaobra (Buenaobra) as the new HRD Manager. This information was confirmed by Syfus memorandum of March 10, 2000 to the entire office stating that Buenaobra was the concurrent HRD and Accounting Manager.⁷ Peñaflor was surprised by the news; he also felt betrayed and discouraged. He tried to talk to Syfu to clarify the matter, but was unable to do so. Peñaflor claimed that under these circumstances, he had no option but to resign. He submitted a letter to Syfu declaring his irrevocable resignation from his employment with Outdoor Clothing effective at the close of office hours on March 15, 2000.⁸

Peñaflor then filed a complaint for illegal dismissal with the labor arbiter, claiming that he had been constructively dismissed. He included in his complaint a prayer for reinstatement and payment of backwages, illegally deducted salaries, damages, attorneys fees, and other monetary claims.

Outdoor Clothing denied Peñaflors allegation of constructive dismissal. It posited instead that Peñaflor had voluntarily resigned from his work. Contrary to Peñaflors statement that he had been dismissed from employment upon Syfus appointment of Buenaobra as the new HRD Manager on March 10, 2000, Peñaflor had in fact continued working for the company until his resignation on March 15, 2000. The company cited as evidence the security report that Peñaflor himself prepared and signed on March 13, 2000.⁹

Outdoor Clothing disclaimed liability for any of Peñaflors monetary claims. Since Peñaflor had voluntarily resigned, Outdoor Clothing alleged that he was not entitled to any backwages and damages. The company likewise denied making any illegal deduction from Peñaflors salary; while deductions were made, they were due to Peñaflors failure to report for work during the dates the company questioned. As a probationary employee, he was not yet entitled to any leave credit that would offset his absences.

In his August 15, 2001 decision, the labor arbiter found that Peñaflor had been illegally dismissed.¹⁰ Outdoor Clothing was consequently ordered to reinstate Peñaflor to his former or to an equivalent position, and to pay him his illegally deducted salary for six days, proportionate 13th month pay, attorneys fees, moral and exemplary damages.

Outdoor Clothing appealed the labor arbiters decision with the NLRC. It insisted that Peñaflor had not been constructively dismissed, claiming that Peñaflor tendered his resignation on March 1, 2000 because he saw no future with the corporation due to its dire financial standing. Syfu alleged that he was compelled to appoint Buenaobra as concurrent HRD Manager through a memorandum dated March 1, 2000 to cover the position that Peñaflor would soon vacate.¹¹ The appointment was also made to address the personnel matters that had to be taken cared of while Peñaflor was on unauthorized leave. Incidentally, Outdoor Clothing alleged that Peñaflor had already been given two notices, on March 6 and 11, 2000 (absence without official leave memoranda or the AWOL memoranda), for his unauthorized absences. In a memorandum dated March 3, 2000 addressed to Syfu, Buenaobra accepted the appointment.¹²

Peñaflor contested Syfus March 1, 2000 memorandum, Buenaobras March 3, 2000 memorandum, and the AWOL memoranda, claiming these pieces of evidence were fabricated and were never presented before the labor arbiter. He pointed out that nothing in this resignation letter indicated that it was submitted to and received by Syfu on March 1, 2000. He claimed that it was submitted on March 15, 2000, the same date he made his resignation effective. The AWOL memoranda could not be relied on, as he was never furnished copies of these. Moreover, he could not be on prolonged absence without official leave, as his residence was just a few meters away from the office.

The NLRC apparently found Outdoor Clothings submitted memoranda sufficient to overturn the labor arbiters decision.¹³ It characterized Peñaflors resignation as a response, not to the allegedly degrading and hostile treatment that he was subjected to by Syfu, but to Outdoor Clothings downward financial spiral. Buenaobras appointment was made only after Peñaflor had submitted his resignation letter, and this was made to cover the vacancy Peñaflors resignation would create. Thus, Peñaflor was not eased out from his position as HRD manager. No malice likewise was present in the companys decision to dismiss Peñaflors two staff members; the company simply exercised its management prerogative to address the financial problems it faced. Peñaflor, in fact, drafted the dismissal letters of his staff members. In the absence of any illegal dismissal, no basis existed for the monetary awards the labor arbiter granted.

Peñaflor anchored his certiorari petition with the CA on the claim that the NLRC decision was tainted with grave abuse of discretion, although he essentially adopted the same arguments he presented before the labor arbiter and the NLRC.

In a decision dated December 29, 2006,¹⁴ the CA affirmed the NLRCs decision, stating that Peñaflor failed to present sufficient evidence supporting his claim that he had been constructively dismissed. The CA ruled that Peñaflors resignation was knowingly and voluntarily made. Accordingly, it dismissed Peñaflors certiorari petition. It likewise denied the motion for reconsideration that Peñaflor subsequently filed.¹⁵ Faced with these CA actions, Peñaflor filed with us the present petition for review on certiorari.

THE PARTIES ARGUMENTS

Peñaflor insists that, contrary to the findings of the NLRC and the CA, he had been constructively dismissed from his employment with Outdoor Clothing. He alleges that the dismissal of his two staff members, the demeaning liaison work he had to perform as HRD Manager, the salary deduction for his alleged unauthorized absences, and the appointment of Buenaobra as the new HRD manager even before he tendered his resignation, were clear acts of discrimination that made his continued employment with the Outdoor Clothing unbearable. He was thus forced to resign.

Outdoor Clothing claims that Peñaflor voluntarily resigned from his work and his contrary allegations were all unsubstantiated. The HRD was not singled out for retrenchment, but was simply the first to lose its staff members because the company had to downsize. Thus, all HRD work had to be performed by Peñaflor. Instead of being grateful that he was not among those immediately dismissed due to the companys retrenchment program, Peñaflor unreasonably felt humiliated in performing work that logically fell under his department; insisted on having a full staff complement; absented himself from work without official leave; and demanded payment for his unauthorized absences.

THE ISSUE and THE COURTS RULING

The Court finds the petition meritorious.

A preliminary contentious issue is Outdoor Clothings argument that we should dismiss the petition outright because it raises questions of facts, not the legal questions that should be raised in a Rule 45 petition.¹⁶

We see no merit in this argument as the rule that a Rule 45 petition deals only with legal issues is not an absolute rule; it admits of exceptions. In the labor law setting, we wade into factual issues when conflict of factual findings exists among the labor arbiter, the NLRC, and the CA. This is the exact situation that obtains in the present case since the labor arbiter found facts supporting the conclusion that there had been constructive dismissal, while the NLRCs and the CAs factual findings contradicted the labor arbiters findings.¹⁷ Under this situation, the conflicting factual findings below are not binding on us, and we retain the authority to pass on the evidence presented and draw conclusions therefrom.¹⁸

The petition turns on the question of whether Peñaflors undisputed resignation was a voluntary or a forced one, in the latter case making it a constructive dismissal equivalent to an illegal dismissal. A critical fact necessary in resolving this issue is whether Peñaflor filed his letter of resignation before or after the appointment of Buenaobra as the new/concurrent HRD manager. This question also gives rise to the side issue of when Buenaobras appointment was made. If the resignation letter was submitted before Syfus appointment of Buenaobra as new HRD manager, little support exists for Peñaflors allegation that he had been forced to resign due to the prevailing abusive and hostile working environment. Buenaobras appointment would then be simply intended to cover the vacancy created by Peñaflors resignation. On the other hand, if the resignation letter was submitted after the appointment of Buenaobra, then factual basis exists indicating that Peñaflor had been constructively dismissed as his resignation was a response to the unacceptable appointment of another person to a position he still occupied.

The question of when Peñaflor submitted his resignation letter arises because this letter undisputably made was undated. Despite Peñaflors claim of having impressive intellectual and academic credentials,¹⁹ his resignation letter, for some reason, was undated. Thus, the parties have directly opposing claims on the matter. Peñaflor claims that he wrote and filed the letter on the same date he made his resignation effective March 15, 2000. Outdoor Clothing, on the other hand, contends that the letter was submitted on March 1, 2000, for which reason Syfu issued a memorandum of the same date appointing Buenaobra as the concurrent HRD manager; Syfus memorandum cited Peñaflors intention to resign so he could devote his time to teaching. The company further cites in support of its case Buenaobras March 3, 2000 memorandum accepting his appointment. Another piece of evidence is the Syfu memorandum of March 10, 2000, which informed the office of the appointment of Buenaobra as the concurrent Head of HRD the position that Peñaflor occupied. Two other memoranda are alleged to exist, namely, the AWOL memoranda of March 6 and 11, 2000, allegedly sent to Penaflor.

Several reasons arising directly from these pieces of evidence lead us to conclude that Peñaflor did indeed submit his resignation letter on March, 15, 2000, i.e., on the same day that it was submitted.

First, we regard the Syfu memorandum of March 1, 2000 and the memorandum of Buenaobra of March 3, 2000 accepting the position of HRD Head to be highly suspect. In our view, these memoranda, while dated, do not constitute conclusive evidence of their dates of preparation and communication. Surprisingly, Peñaflor was never informed about these memoranda when they directly concerned him, particularly the turnover of responsibilities to Buenaobra if indeed Peñaflor had resigned on March 1, 2000 and a smooth turnover to Buenaobra was intended. Even the recipients of these communications do not appear to have signed for and dated their receipt. The AWOL memoranda, to be sure, should have been presented with proof of service if they were to have any binding effect on Peñaflor.

Second,we find it surprising that these pieces of evidence pointing to a March 1, 2000 resignation specifically, Syfus March 1, 2000 memorandum to Buenaobra about Penaflors resignation and Buenaobras own acknowledgment and acceptance were only presented to the NLRC on appeal, not before the labor arbiter. The matter was not even mentioned in the companys position paper filed with the labor arbiter.²⁰ While the presentation of evidence at the NLRC level on appeal is not unheard of in labor cases,²¹ still sufficient explanation must be adduced to explain why this irregular practice should be allowed. In the present case, Outdoor Clothing totally failed to explain the reason for its omission. This failure, to us, is significant, as these were the clinching pieces of evidence that allowed the NLRC to justify the reversal of the labor arbiters decision.

Third, the circumstances and other evidence surrounding Peñaflors resignation support his claim that he was practically compelled to resign from the company.

Foremost among these is the memorandum of March 10, 2000 signed by Syfu informing the whole office ("To: All concerned") about the designation of Buenaobra as concurrent Accounting and HRD Manager. In contrast with the suspect memoranda we discussed above, this memorandum properly bore signatures acknowledging receipt and dates of receipt by at least five company officials, among them the readable signature of Demogene and one Agbayani; three of them acknowledged receipt on March 13, 2000, showing that indeed it was only on that day that the appointment of Buenaobra to the HRD position was disclosed. This evidence is fully consistent with Peñaflors position that it was only in the afternoon of March 13, 2000 that he was told, informally at that, that Buenaobra had taken over his position. It explains as well why as late as March 13, 2000, Peñaflor still prepared and signed a security report,²² and is fully consistent with his position that on that day he was still working on the excuse letter of certain sales personnel of the company.²³

We note that the company only belatedly questioned the motivation that Peñaflor cited for his discriminatory treatment, i.e., that he was caught in the bitter fight between Syfu and Lee, then Vice President for Operations, that led the latter to leave the company.²⁴ After Lee left, Peñaflor alleged that those identified with Lee were singled out for adverse treatment, citing in this regard the downsizing of HRD that occurred on or about this time and which resulted in his one-man HRD operation. We say this downsizing was only "alleged" as the company totally failed despite Penaflors claim of discriminatory practice to adduce evidence showing that there had indeed been a legitimate downsizing. Other than its bare claim that it was facing severe financial problems, Outdoor Clothing never presented any evidence to prove both the reasons for its alleged downsizing and the fact of such downsizing. No evidence was ever offered to rebut Peñaflors claim that his staff members were dismissed to make his life as HRD Head difficult. To be sure, Peñaflors participation in the termination of his staff members employment cannot be used against him, as the termination of employment was a management decision that Peñaflor, at his level, could not have effectively contested without putting his own job on the line.

Peñaflors own service with the company deserves close scrutiny. He started working for the company on September 2, 1999 so that by March 1, 2000, his probationary period would have ended and he would have become a regular employee. We find it highly unlikely that Peñaflor would resign on March 1, 2000 and would then simply leave given his undisputed record of having successfully worked within his probationary period on the companys Policy Manual, Personnel Handbook, Job Expectations, and Organizational Set-up. It does not appear sound and logical to us that an employee would tender his resignation on the very same day he was entitled by law to be considered a regular employee, especially when a downsizing was taking place and he could have availed of its benefits if he would be separated from the service as a regular employee. It was strange, too, that he would submit his resignation on March 1, 2000 and keep completely quiet about this development until its effective date on March 15, 2000. In the usual course, the turnover alone of responsibilities and work loads to the successor in a small company would have prevented the matter from being completely under wraps for 10 days before any announcement was ever made. That Peñaflor was caught by surprise by the turnover of his post to Buenaobra is in fact indicated by the companys own evidence that Peñaflor still submitted a security report on March 13, 2000. On the whole, Peñaflors record with the company is not that of a company official who would simply and voluntarily tender a precipitate resignation on the excuse that he would devote his time to teaching a lame excuse at best considering that March is the month the semester usually ends and is two or three months away from the start of another school year.

In our view, it is more consistent with human experience that Peñaflor indeed learned of the appointment of Buenaobra only on March 13, 2000 and reacted to this development through his resignation letter after realizing that he would only face hostility and frustration in his working environment. Three very basic labor law principles support this conclusion and militate against the companys case.

The first is the settled rule that in employee termination disputes, the employer bears the burden of proving that the employees dismissal was for just and valid cause.²⁵ That Peñaflor did indeed file a letter of resignation does not help the companys case as, other than the fact of resignation, the company must still prove that the employee voluntarily resigned.²⁶ There can be no valid resignation where the act was made under compulsion or under circumstances approximating compulsion, such as when an employees act of handing in his resignation was a reaction to circumstances leaving him no alternative but to resign.²⁷ In sum, the evidence does not support the existence of voluntariness in Peñaflors resignation.

Another basic principle is that expressed in Article 4 of the Labor Code that all doubts in the interpretation and implementation of the Labor Code should be interpreted in favor of the workingman. This principle has been extended by jurisprudence to cover doubts in the evidence presented by the employer and the employee.²⁸ As shown above, Peñaflor has, at very least, shown serious doubts about the merits of the companys case, particularly in the appreciation of the clinching evidence on which the NLRC and CA decisions were based. In such contest of evidence, the cited Article 4 compels us to rule in Peñaflors favor. Thus, we find that Peñaflor was constructively dismissed given the hostile and discriminatory working environment he found himself in, particularly evidenced by the escalating acts of unfairness against him that culminated in the appointment of another HRD manager without any prior notice to him. Where no less than the companys chief corporate officer was against him, Peñaflor had no alternative but to resign from his employment.²⁹

Last but not the least, we have repeatedly given significance in abandonment and constructive dismissal cases to the employees reaction to the termination of his employment and have asked the question: is the complaint against the employer merely a convenient afterthought subsequent to an abandonment or a voluntary resignation? We find from the records that Peñaflor sought almost immediate official recourse to contest his separation from service through a complaint for illegal dismissal.³⁰ This is not the act of one who voluntarily resigned; his immediate complaints characterize him as one who deeply felt that he had been wronged.

WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the decision and resolution of the Court of Appeals in CA-G.R. SP No. 87865 promulgated on December 29, 2006 and March 14, 2007, respectively. We REINSTATE the decision of the labor arbiter dated August 15, 2001, with the MODIFICATION that, due to the strained relations between the parties, respondents are additionally ordered to pay separation pay equivalent to the petitioners one months salary.

Costs against the respondents.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice

JOSE P. PEREZ
Associate Justice

A T T E S T A T I ON

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

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

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

---

Endnotes:

¹ Penned by Associate Justice Edgardo P. Cruz, with Associate Justice Jose C. Reyes and Associate Justice Enrico A. Lanzanas (retired) concurring; rollo, pp. 22-31.

² Id. at 40.

³ Penned by Commissioner Alberto R. Quimpo, and concurred in by Commissioner Roy V. Señeres and Commissioner Vicente S.E. Veloso; id. at 85-100.

⁴ Id. at 45-52.

⁵ Labor Arbiter Florentino R. Darlucio.

⁶ Rollo, p. 161.

⁷ Id. at 66; the March 10, 2000 memorandum reads:

To: All concerned

From: Accounting Department

Date: March 10, 2000

Re: Human Resources Department

This is to inform you that Mr. Edwin Buenaobra is concurrently our Accounting and Human Resources Department Manager. Aside from his present task in Accounting, he is now responsible to oversee the operation of Human Resources Department, which includes acquiring, motivating, maintaining, and developing people in their jobs for the achievement of individual, company and societys goal.

Any transaction and problems pertaining to Human Resources can now be coursed through him. This memo shall take effect immediately.

For your information and guidance.

Thank you.

Nathaniel Syfu
President and COO

Cc: All departments, Bulletin Board

⁸ CA rollo, p. 203; the resignation letter reads:

Mr. Nathaniel Y. Syfu
Chief Corporate Officer
Outdoor Clothing Manufacturing Corporation

Sir:

Please accept my irrevocable resignation effective at the close of office on March 15, 2000.

Thank you.

Very truly yours,

Manolo A. Peñaflor

⁹ Id. at 204.

¹⁰ Supra note 4.

¹¹ Rollo, p. 66; Syfus March 1, 2000 memorandum reads:

To: Edwin Buenaobra

From: Nathaniel Syfu

Date: March 1, 2000

Subject: HR Manager Resignation

Mr. Manolo A. Peñaflor has informed me of his intention to resign effective March 15, 2000 to be a full time teacher in a school he is presently connected with.

As such, due to the limited time provided, management has no other alternative but to appoint you as concurrent Human Resources Head to fill in the position of Manolo A. Peñaflor. We will formalize this announcement prior to March 15, 2000. Meanwhile, please coordinate with Manny for the pending HR matters labor cases now with him. He was already advised of this stopgap measure.

I trust you will handle this added assignment to the best of your capacity.

Nathaniel Syfu
Chief Corporate Officer.

¹² Id. at 67.

¹³ Supra note 3.

¹⁴ Supra note 1.

¹⁵ Supra note 2.

¹⁶ RULES OF COURT, Rule 45, Section 1.

¹⁷ The labor arbiter cited the performance of clerical and liaison work by an HRD manager and the appointment of a new HRD manager as basis for concluding that Peñaflors resignation letter was involuntarily executed. On the other hand, the NLRC declared the Peñaflor tendered his resignation because he saw no future in becoming a regular employee because Outdoor Clothing was financially unstable; see rollo, pp. 49-51 and 97-98.

¹⁸ R&E Transport, Inc. et al. v. Latag, 369 Phil. 1113 (1999); Mendoza v. NLRC, 467 Phil. 355 (2004).

¹⁹ Rollo, p. 9.

²⁰ CA rollo, pp. 91-95.

²¹ See PAL Employees Savings and Loan Association, Inc. v. NLRC, et al., 329 Phil. 581 (1996).

²² Supra note 8.

²³ CA rollo, p. 101.

²⁴ Outdoor Clothing never disputed that there was a fight between Syfu and Lee in any of the pleadings it filed before the labor arbiter, the NLRC, and the CA. It was only in the Memorandum it filed before the Court that it denied such allegation.

²⁵ Consolidated Broadcasting System, Inc. v. Oberio, et al., G.R. No. 168424, June 8, 2007, 524 SCRA 365.

²⁶ Vicente v. Court of Appeals, G.R. No. 175988, August 24, 2007, 531 SCRA 240.

²⁷ See Metro Transit Organization, Inc. v. NLRC, 348 Phil. 334 (1998).

²⁸ Fujitsu Computer Products Corporation of the Philippines v. Court of Appeals, 494 Phil. 697 (2005).

²⁹ Unicorm Safety Glass, Inc. v. Basarte, 486 Phil. 493 (2004).

³⁰ The records do not contain a categorical statement when the illegal dismissal complaint was actually filed before the labor arbiter. Peñaflor stated in his Memorandum before the Court that it was filed on March 14, 2000 a day after he learned of Buenaobras appointment, but Outdoor Clothing stated in its appeal with the NLRC that the complaint was filed on May 20, 2000. Either way, the Court believes that Peñaflor sought recourse against his illegal dismissal within a reasonable period.

G.R. No. 169438 : January 21, 2010 Romeo D. Mariano vs. Petron Corporation

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 169438 :: January 21, 2010

ROMEO D. MARIANO, Petitioner, vs. PETRON CORPORATION, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

For review¹ is the Decision² of the Court of Appeals upholding the lease contract between petitioner Romeo D. Mariano and respondent Petron Corporation.

The Facts

On 5 November 1968,³ Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a 2,064 square meter parcel of land in Tagaytay City⁴ (Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The lease period is 90 years⁵ and the rent is payable monthly for the first 10 years, and annually for the remaining period.⁶ The lease contract (Contract) contained an assignment veto clause barring the parties from assigning the lease without prior consent of the other.⁷ Excluded from the prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right.⁸

On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC).⁹ Apparently, the Aure Group was not informed of the sale. ESSO Philippines, whose corporate name was successively changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of the Property.

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained title to the Property issued in his name bearing an annotation of ESSO Easterns lease.¹⁰

On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed Petron that Presidential Decree No. 471 (PD 471),¹¹ dated 24 May 1974, reduced the Contracts duration from 90 to 25 years, ending on 13 November 1993.¹² Despite receiving the notice to vacate on 21 December 1998, Petron remained on the Property.

On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to rescind the Contract and recover possession of the Property. Aside from invoking PD 471, petitioner alternatively theorized that the Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC its lease on the Property, without seeking the Aure Groups prior consent.

In its Answer, Petron countered that the Contract was not breached because PNOC merely acquired ESSO Easterns shares in ESSO Philippines, a separate corporate entity. Alternatively, Petron argued that petitioners suit, filed on 18 March 1999, was barred by prescription under Article 1389 and Article 1146(1) of the Civil Code as petitioner should have sought rescission within four years from PNOCs purchase of ESSO Philippines on 23 December 1977¹³ or before 23 December 1981.¹⁴

To dispense with the presentation of evidence, the parties submitted a Joint Motion for Judgment (Joint Motion) containing the following stipulation:

5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation wholly owned by the Philippine Government, acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its shares of stocks.¹⁵ (Emphasis supplied)

The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract, ordered Petron to vacate the Property, and cancelled the annotation on petitioners title of Petrons lease.¹⁶ The trial court ruled that ESSO Easterns sale to PNOC of its interest in ESSO Philippines included the assignment to PNOC of ESSO Easterns lease over the Property, which, for lack of the Aure Groups consent, breached the Contract, resulting in its termination. However, because the Aure Group (and later petitioner) tolerated ESSO Philippines continued use of the Property by receiving rental payments, the law on implied new lease governs the relationship of the Aure Group (and later petitioner) and Petron, creating for them an implied new lease terminating on 21 December 1998 upon Petrons receipt of petitioners notice to vacate.¹⁷

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion that in buying ESSO Philippines from ESSO Eastern, PNOC also acquired ESSO Easterns leasehold right over the Property. Petron again invoked its separate corporate personality to distinguish itself from PNOC.

The Ruling of the Court of Appeals

In its Decision dated 29 October 2004, the Court of Appeals found merit in Petrons appeal, set aside the trial courts ruling, declared the Contract subsisting until 13 November 2058¹⁸ and ordered petitioner to pay Petron P300,000 as attorneys fees. The Court of Appeals found no reason to pierce ESSO Philippines corporate veil, treating PNOCs buy-out of ESSO Philippines as mere change in ESSO Philippines stockholding. Hence, the Court of Appeals rejected the trial courts conclusion that PNOC acquired the leasehold right over the Property. Alternatively, the Court of Appeals found petitioners suit barred by the four-year prescriptive period under Article 1389 and Article 1146 (1) of the Civil Code, reckoned from PNOCs buy-out of ESSO Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on 13 November 1968¹⁹ (for Article 1146 [1]).²⁰

Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution of 26 August 2005.

Hence, this petition.

The Issue

The question is whether the Contract subsists between petitioner and Petron.

The Ruling of the Court

We hold in the affirmative and thus sustain the ruling of the Court of Appeals.
ESSO Eastern Assigned to PNOC its
Leasehold Right over the Property, Breaching the Contract

PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Easterns lease over the Property. This is the import of Petrons admission in the Joint Motion that by PNOCs buy-out of ESSO Philippines "[PNOC], x x x acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its shares of stocks." As the Aure Group gave no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contracts assignment veto clause.

Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both counts.

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating the conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to justify wrong, protect fraud, or defend crime, thwarting the ends of justice.²¹ The fiction even holds lesser sway for subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The structural and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local branch, agency or adjunct of the foreign parent corporation.²²

Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution and breach of the Contract. First, by ESSO Easterns admission in the Contract, it is "a foreign corporation organized under the laws of the State of Delaware, U.S.A., duly licensed to transact business in the Philippines, and doing business therein under the business name and style of Esso Standard Philippines x x x". In effect, ESSO Eastern was ESSO Philippines for all of ESSO Easterns Philippine business.

Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the Aure Group as lessor. ESSO Eastern leased the Property for the use of ESSO Philippines, acting as ESSO Easterns Philippine branch. Consistent with such status, ESSO Philippines took possession of the Property after the execution of the Contract. Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern.

The Lessors Continued Acceptance of Lease Payments Despite Breach of Contract Amounted to Waiver

The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial courts conclusion that ESSO Easterns violation of the assignment veto clause extinguished the Contract, replaced by a new implied lease with a monthly term,²³ we hold that the breach merely gave rise to a cause of action for the Aure Group to seek the lessees ejectment as provided under Article 1673, paragraph 3 of the Civil Code.²⁴ Although the records do not show that the Aure Group was formally notified of ESSO Philippines sale to PNOC, the successive changes in the lessees name (from ESSO Philippines to Petrophil Corporation then to Petron) suffice to alert the Aure Group of a likely change in the personality of the lessee, which, for lack of the Aure Groups prior consent, was in obvious breach of the Contract. Thus, the continued receipt of lease payments by the Aure Group (and later by petitioner) despite the contractual breach amounted to a waiver of their option to eject the lessee.

Petitioners Suit Barred by Prescription

Petitioners waiver of Petrons contractual breach was compounded by his long inaction to seek judicial redress. Petitioner filed his complaint nearly 22 years after PNOC acquired the leasehold rights to the Property and almost six years after petitioner bought the Property from the Aure Group. The more than two decades lapse puts this case well within the territory of the 10 year prescriptive bar to suits based upon a written contract under Article 1144 (1) of the Civil Code.²⁵

WHEREFORE, we DENY the petition. The Decision dated 29 October 2004 and the Resolution dated 26 August 2005 of the Court of Appeals are AFFIRMED.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA* Associate Justice

MARIANO C. DEL CASTILLO Associate Justice

JOSE P. PEREZ
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

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

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

---

Endnotes:

^* Designated additional member per Raffle dated 18 January 2010.

¹ Under Rule 45 of the 1997 Rules of Civil Procedure.

² Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Regalado E. Maambong and Lucenito N. Tagle, concurring.

³ 13 November 1968 is the date the lower courts used to place the execution of the lease contract. However, the contract shows that it was signed on 5 November 1968 but notarized on 13 November 1968 (see Records, p. 14).

⁴ Covered by Transfer Certificate of Title No. T-6190.

⁵ Ending on 5 November 2058.

⁶ P740 monthly rent for the first 10 years and P1 annual rent for the succeeding years (Records, p. 13-A).

⁷ This is a modification of the statutory ban on unconsented assignment of lease under Article 1649 of the Civil Code which provides: "The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary."

⁸ The stipulation provides (Records, p. 13-A):

This contract may not be assigned or transferred by either party without the prior written consent of the other, provided, however, that the Lessee may assign and transfer its rights and obligations under this contract to Standard Oil Company (a New Jersey corporation) or any company 50% or more of whose capital stock is owned or controlled directly or indirectly by Standard Oil Company, without need of obtaining the consent of the Lessor.

⁹ Other parts of the record show the following alternative dates: 23 December 1979 (Records, p. 91); 23 December 1978 (id. at 92); and 23 December 1979 (Rollo, p. 27).

¹⁰ Transfer Certificate of Title No. T-29178.

¹¹ Fixing a maximum period of 25 years for the lease of private lands to aliens.

¹² This should be 5 November 1993, the 25th year after the Contracts signing.

¹³ Petron erroneously indicated this date as 23 December 1973 (see Records, p. 36).

¹⁴ Petron also argued that PD 471, which carried penal clauses, cannot be retroactively applied to shorten the term of the Contract without violating the constitutional ban on ex post facto laws and on impairment of contracts.

¹⁵ Records, p. 91.

¹⁶ The dispositive portion of the trial courts ruling provides (id. at 94):

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the lease contract, subject matter of this case, be rescinded and ordering the defendant to vacate and surrender possession of the leased premises to plaintiff.

It is likewise ordered that the annotation of said lease agreement at the back of TCT No. T-29178 be cancelled. Defendant is also ordered to pay the cost of the suit.

¹⁷ Id. at 86-94.

¹⁸ See note 3.

¹⁹ But see note 3.

²⁰ Rollo, pp. 19-33.

²¹ Koppel (Phils.), Inc. v. Yatco, 77 Phil. 496 (1946).

²² Id.

²³ Records, pp. 91-93. The trial court gave no reason for its conclusion but deducing from its finding that the Contract was replaced by an implied lease with a monthly term, it could have only treated the unconsented assignment of lease as resulting in the Contracts novation. However, novation takes place only in two instances (1) by express agreement or (2) when the old and the new obligations are incompatible on every point (Lim Tay v. Court of Appeals, 355 Phil. 381 [1998]). None of these obtain here as the parties to the contract did not expressly novate it and except for the term of lease and the personality of the lessee, all the other contractual stipulations remained unchanged.

²⁴ This provides: "The lessor may judicially eject the lessee for any of the following causes:

x x x

(3) Violation of any of the conditions agreed upon in the contract;"

²⁵ This provides: "The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;"

G.R. No. 167464 : January 21, 2010 Ronnie Sumbillo, et al. vs. People of the Philippines

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167464 :: January 21, 2010

RONNIE SUMBILLO, FRANCISCO SERICON, JOSELITO SERICON, and FELIX GAYUSO, JR., Petitioners, vs. PEOPLE OF THE PHILIPPINES, Respondent.

R E S O L U T I O N

CARPIO, J.:

This is an appeal¹ from the Court of Appeals Decision² dated 23 November 2004 in CA-G.R. CR No. 26562 as well as the Resolution³ dated 17 March 2005 denying the Motion for Reconsideration. The Court of Appeals affirmed with modification the 8 February 2002 Decision⁴ of the Regional Trial Court of Manila, Branch 33, convicting Ronnie Sumbillo of the crime of attempted murder as principal and Francisco Sericon, Joselito Sericon and Felix Gayuso, Jr. as accomplices.

In an Amended Information dated 9 September 1999, Ronnie Sumbillo, Francisco Sericon, Joselito Sericon, and Felix Gayuso, Jr. (petitioners) were charged with the frustrated murder of Edilberto Pangan, Jr. (Pangan).⁵ They pleaded not guilty upon arraignment.

During the trial, the prosecution presented Pangan, Pangans wife Evelyn Prieto Pangan, Pangans employee Dante Morales, and the attending physician Dr. Policarpio Santos, Jr.⁶

Pangan testified that on 15 November 1995 at about 8:00 in the evening, he arrived from work and noticed the bruises on his wifes body. Pangan decided to bring his wife to the hospital so he went outside to get his jeep which was parked 30 meters from their house. While removing the lawanit cover of his jeep, accused Ronnie Sumbillo (Sumbillo) suddenly appeared and aimed his gun on Pangan. Sumbillo pulled the guns trigger but it did not fire. Pangan hid behind his jeep and covered himself with the lawanit. Pangan heard Sumbillo pulling the guns trigger several times but the gun did not fire. Pangan ran towards his house but Francisco Sericon, Joselito Sericon, and Felix Gayuso, Jr. stopped him and held him. However, Pangan was able to free himself. While running towards his house, Pangan heard a gunshot. Pangan fell on the pavement and was unconscious.⁷

Pangan stated that his cousin, Leopoldo Macayag, brought him to Mary Johnston Hospital where he was given first aid treatment. Then, Pangan was transferred to Metropolitan Hospital where he was confined for three days.⁸

Evelyn Pangan and Dante Morales corroborated Pangans testimony. Evelyn Pangan added that on 15 November 1995 at around 7:30 p.m., while she was walking towards Juan Luna Street, she was hit at the back. She fell on the ground and saw Joselito Sericon holding a wooden stick. Then, Emelinda Sericon and Nida Almario kept pulling her hair and pushing her to the ground. Evelyn Pangan shouted for help and eventually her relatives and neighbors rescued her while Nida Almario, Joselito and Emelinda Sericon ran away. Evelyn Pangan further stated that she sustained slight injuries so when her husband saw her, he decided to bring her to the hospital. While her husband was getting their jeep, she saw Sumbillo pointing a gun at her husband.⁹

Dr. Policarpio Santos, Jr. stated that aside from the hematoma and contusion at the back of Pangans head which was treated with an ice pack, Pangan was in normal condition and was given analgesic only.¹⁰

On the other hand, Sumbillo alleged that on 15 November 1995, he was on duty from 7:00 p.m. to 2:00 a.m. of the next day as Barangay Tanod of Panday Pira Extension. Sumbillo stated that he was in the Barangay Hall when he saw her sister, Emelinda Sericon, filed a complaint against Evelyn Pangan. Sumbillo denied seeing Pangan that evening. Sumbillo also denied that he was in possession of any firearm.¹¹

Felix Gayuso, Jr. testified that on 15 November 1995 at about 8:00 p.m., he was busy serving the customers at their carinderia in Canal de Reyna St., Tondo, Manila until midnight. Felix Gayuso, Jr. stated that he only knew about the incident because he was informed that her aunt, Emelinda Sericon, was involved in an altercation with Pangans wife. Felix Gayuso, Jr. stated that when he arrived from school on 16 November 1995, his parents informed him that two policemen came to their house. Since the policemen did not have a warrant, his father was not arrested. Felix Gayuso, Jr. also stated that a case was filed against his father but was subsequently dismissed because Pangan was not able to identify his father in court. Felix Gayuso, Jr. denied having met Pangan on 15 November 1995 and explained that he was probably charged with the crime because of his relation to Sumbillo.¹²

Joselito Sericon testified that on 15 November 1995, he was watching the PBA game at his friends house when somebody informed him that Evelyn Pangan mauled his mother, Emelinda Sericon. Joselito Sericon stated that he immediately went to the place of the incident and saw his mother lying on the floor. He brought his mother to Tondo General Hospital. Then, they went to the Barangay Hall to report the incident. Joselito Sericon said that he was angry with Pangans wife but he had no intention to take revenge. Joselito Sericon alleged that he was charged with the offense because he was related by blood to all the co-accused. Francisco Sericon and Emelinda Sericon corroborated their sons testimony.¹³

During the trial, the defense presented an affidavit of desistance signed by Pangan.¹⁴

The trial court gave premium to the testimonies of the prosecution witnesses. The defenses of alibi and denial cannot prevail over the positive identification and unwavering positive assertions. The trial court was convinced that petitioners conspired with one another in the commission of crime. However, since there was no allegation of conspiracy in the Information, Francisco Sericon, Joselito Sericon and Felix Gayuso, Jr. were considered as accomplices. The simultaneous act of holding Pangan while Sumbillo was pulling the trigger was aimed to deprive Pangan the chance to escape or put up a defense, thus facilitating the commission of the crime.¹⁵

The trial court stated that the affidavit of desistance signed by Pangan was only an afterthought because Emelinda Sericon testified that Pangan expressed willingness to desist from pursuing the case if the charges against Evelyn Pangan would be withdrawn. The trial court ruled that the affidavit of desistance was only a bargain and it did not suggest that Pangans declarations were clouded by a misapprehension of facts.¹⁶

On 8 February 2002, the trial court rendered its decision, finding Sumbillo guilty of the crime of Attempted Murder as principal and Francisco Sericon, Joselito Sericon, and Felix Gayuso, Jr. as accomplices. The trial court sentenced Sumbillo to suffer an indeterminate prison term ranging from four years, two months and one day of prision correccional maximum as minimum to six years and one day of prision mayor minimum as maximum. The accomplices were sentenced to suffer an indeterminate prison term ranging from six months and one day of prision correccional minimum as minimum to four years, two months of prision correccional medium as maximum. All of the accused were ordered to indemnify the victim jointly and severally P12,000 as medical expenses.¹⁷

On appeal, petitioners contended that the trial court erred in giving weight and credence to the incredulous testimonies of the prosecution witnesses which were conflicting and inconsistent. Petitioners alleged that the prosecution failed to prove their guilt beyond reasonable doubt because the imputation of the crime was merely fabricated.¹⁸

In its 23 November 2004 Decision, the Court of Appeals affirmed the trial courts decision with modification as to the penalty so that Sumbillo should suffer the indeterminate prison term of four years, two months and one day of prision correccional maximum as minimum to eight years and one day to ten years of prision mayor in its medium period as maximum.¹⁹

The Court of Appeals ruled that the discrepancies in the testimonies of the prosecution witnesses refer to immaterial and collateral matters that do not affect the credibility of the witnesses. The Court of Appeals held that petitioners alibi and denial are bereft of merit in the light of the positive and categorical assertions made by the prosecution witnesses.

Hence, this appeal.

We find the appeal without merit. The Court of Appeals was correct in affirming the trial courts ruling that attempted murder was clearly established by the prosecution witnesses. The assessment of the credibility of witnesses and their testimonies is best undertaken by the trial court due to its unique opportunity to observe the witnesses firsthand and to note their demeanor, conduct and attitude under grilling examination.²⁰ These significant factors are needed in unearthing the truth, especially in conflicting testimonies. The findings of the trial court on such matters are binding and conclusive on the appellate court unless some facts or circumstances of weight and substance have been overlooked, misapprehended or misinterpreted,²¹ which is not true in the present case.

The clear and convincing testimonies of Pangan and the other prosecution witnesses positively point to Sumbillo as the one who held a gun and tried to shot Pangan. As correctly pointed out by the appellate court, the inconsistencies in the prosecution witnesses testimonies pertain to minor details which do not affect the witnesses credibility.²²

Sumbillos alibi that he was on duty as Barangay Tanod cannot prevail over the positive and categorical testimonies of the prosecution witnesses. Sumbillos testimony, corroborated by the accomplices and other witnesses, does not prove that it was physically impossible for Sumbillo, Francisco Sericon, Joselito Sericon, and Felix Gayuso, Jr. to be at the crime scene or its immediate vicinity at the time of the incident. Alibi is the weakest defense not only because it is inherently weak and unreliable, but also because it is easy to fabricate. It is generally rejected when the accused is positively identified by a witness.²³

The trial court was correct in appreciating the qualifying circumstance of treachery to have attended the commission of the crime. The evidence shows that when Sumbillo aimed the gun, the Sericons and Gayuso, Jr. held different parts of Pangans body, giving him no opportunity to defend himself. Then, when Pangan was able to free himself, he ran away with his back turned against Sumbillo who kept on firing his gun until he was hit at the back of his head.²⁴

Treachery has been defined as "the deliberate employment of means, methods, or forms in the execution of a crime against persons which tend directly and specially to insure its execution, without risk to the offender arising from the defense which the intended victim might raise."²⁵

In People v. Pascual,²⁶ the Court held:

Attempted Murder is punishable with the penalty two degrees lower than that prescribed for the consummated felony under Article 51 of the Revised Penal Code. Accordingly, the imposable penalty is prision mayor. Absent any mitigating or aggravating circumstance, the penalty shall be imposed in its medium period. Applying the Indeterminate Sentence Law, the minimum penalty to be imposed should be within the range of prision correccional, and the maximum of the penalty to be imposed should be within the range of prision mayor in its medium period.²⁷

The penalty of indeterminate prison term of four years, two months and one day of prision correccional as minimum to eight years and one day of prision mayor as maximum was correctly imposed on Sumbillo.

In People v. Continente,²⁸ the Court stated:

On the other hand, being an accomplice to the crimes of murder and attempted murder, the penalty to be imposed on appellant Donato Continente shall be the medium periods of reclusion temporal and prision correccional, respectively. Applying the Indeterminate Sentence Law in both cases, the maximum of the penalty to be imposed on appellant Continente as an accomplice to the crime of murder is the medium period of reclusion temporal and the minimum shall be prision mayor, while the maximum of the penalty to be imposed on the said appellant as an accomplice to the crime of attempted murder is the medium period of prision correccional and the minimum shall be arresto mayor.²⁹

The penalty of indeterminate prison term ranging from six months of arresto mayor as minimum to four years, two months of prision correccional as maximum should be imposed on the accomplices. Thus, the penalty imposed on the accomplices, Francisco Sericon, Joselito Sericon and Felix Gayuso, Jr. should be modified. However, the trial court was correct in holding Sumbillo, Francisco Sericon, Joselito Sericon and Felix Gayuso, Jr. jointly liable to pay Pangan P12,000 representing medical expenses.

Finally, Pangan is likewise entitled to exemplary damages since the qualifying circumstance of treachery was firmly established. If an aggravating circumstance, either qualifying or generic, accompanies the crime, an award of P25,000 as exemplary damages is justified under Article 2230 of the Civil Code. This serves as deterrent to serious wrongdoings, and as vindication for undue sufferings and wanton invasion of the rights of an injured person or punishment for those guilty of outrageous conduct.³⁰

WHEREFORE, we AFFIRM the 23 November 2004 Decision of the Court of Appeals in CA-G.R. CR No. 26562 finding Ronnie Sumbillo guilty beyond reasonable doubt of attempted murder as principal and Francisco Sericon, Joselito Sericon and Felix Gayuso, Jr. as accomplices with the MODIFICATION that the accomplices are hereby sentenced to suffer imprisonment of six months of arresto mayor, as minimum, to four years and two months of prision correccional, as maximum. In addition to the award of P12,000 representing medical expenses, Pangan is also entitled to the award of P25,000 as exemplary damages.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice

JOSE P. PEREZ
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

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

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

---

Endnotes:

¹ Under Rule 45 of the Rules of Court.

² Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Bienvenido L. Reyes and Rosalinda Asuncion-Vicente, concurring.

³ Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Bienvenido L. Reyes and Rosalinda Asuncion-Vicente, concurring.

⁴ Penned by RTC Acting Presiding Judge Romulo A. Lopez.

⁵ Rollo, p. 53.

⁶ Id. at 30.

⁷ Id. at 31.

⁸ Id. at 55.

⁹ Records, p. 196.

¹⁰ Rollo, p. 56.

¹¹ Id. at 59-60.

¹² Id. at 56-57.

¹³ Id. at 57-59.

¹⁴ Id. at 61.

¹⁵ Id. at 60-63.

¹⁶ Id.

¹⁷ Id. at 63-64.

¹⁸ Id. at 68-78.

¹⁹ Id. at 46.

²⁰ People v. Lopez, G.R. No. 172369, 7 March 2007, 517 SCRA 749, 760.

²¹ People v. Alarcon, G.R. No. 174199, 7 March 2007, 517 SCRA 778, 784.

²² Rollo, p. 42.

²³ Resayo v. People, G.R. No. 154502, 27 April 2007, 522 SCRA 391, 407.

²⁴ Rollo, p. 62.

²⁵ People v. Cabinan, G.R. No. 176158, 27 March 2007, 519 SCRA 133, 140-141.

²⁶ G.R. No. 173309, 23 January 2007, 512 SCRA 385.

²⁷ Id. at 400.

²⁸ 393 Phil. 367 (2000).

²⁹ Id. at 407.

³⁰ People v. Ausa, G.R. No. 174194, 20 March 2007, 518 SCRA 602, 618-619.

G.R. No. 164152 : January 21, 2010 Commissioner of Internal Revenue vs. Julieta Ariete

Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 164152 :: January 21, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. JULIETA ARIETE, Respondent.

D E C I S I O N

CARPIO, J.:

The Case

The Commissioner of Internal Revenue (petitioner) filed this Petition for Review¹ to reverse the Court of Appeals (CA) Decision² dated 14 June 2004 in CA-G.R. SP No. 70693. In the assailed decision, the CA affirmed the Court of Tax Appeals (CTA) Decision³ and Resolution dated 15 January 2002 and 3 May 2002, respectively. The CTA cancelled the assessments issued against Julieta Ariete (respondent) for deficiency income taxes of P191,463.04 for the years 1993, 1994, 1995, and 1996.

The Facts

On 21 May 1997, George P. Mercado filed an Affidavit with the Special Investigation Division, Revenue Region No. 19, Davao City. The affidavit attested that respondent earned substantial income in 1994, 1995, and 1996 without paying income tax.⁴

The Chief of the Special Investigation Division (SID Chief) issued Mission Order No. 118-97 dated 23 May 1997, directing a Revenue Officer to conduct preliminary verification of the denunciation made and submit a progress report. The SID Chief also sent a request to access the BIR records of Revenue District No. 112, Tagum, Davao del Norte (RDO), inquiring if the income tax returns of respondent for the years 1993 to 1996 are available for examination. The RDO replied that respondent had no records of income tax returns for the years 1993 to 1996.⁵

On 15 October 1997, the Revenue Officer submitted a report stating that respondent admitted her non-filing of income tax returns.⁶

On 2 December 1997, respondent filed her income tax returns for the years 1993, 1994, 1995, and 1996 under Revenue Memorandum Order (RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise known as the Voluntary Assessment Program (VAP).⁷

On 28 July 1998, the Regional Director issued a Letter of Authority to investigate respondent for tax purposes covering the years 1993 to 1996.

On 14 October 1998, the Revenue Officer submitted a Memorandum to the SID Chief recommending that respondent be assessed with deficiency income taxes for the years 1993 to 1996. On 22 January 1999, four assessment notices were issued against respondent. The total deficiency income taxes, inclusive of interests and surcharges amounted to P191,463.04:

1993	P 6,462.188
1994	47,187.399
1995	24,729.6410
1996	113,083.8311
	P 191,463.04 =============

On 22 February 1999, respondent filed an Assessment Protest with Prayer for Reinvestigation. On 30 March 1999, the assessment protest was denied.

On 16 April 1999, respondent offered a compromise settlement but the same was denied.

Respondent filed a petition for review with the CTA assailing the Bureau of Internal Revenues (BIR) decision denying with finality the request for reinvestigation and disapproving her availment of the VAP. Respondent also contested the issuance of the four assessment notices.

On 15 January 2002, the CTA rendered a decision cancelling the deficiency assessments. Petitioner filed a motion for reconsideration but the CTA denied the same in a Resolution dated 3 May 2002.

Petitioner appealed the CTAs decision to the CA. In a decision dated 14 June 2004, the CA affirmed the CTAs decision.

Aggrieved by the CAs decision affirming the cancellation of the tax deficiency assessments, petitioner elevated the case before this Court.

Ruling of the Court of Tax Appeals

The CTA stated that when respondent filed her income tax returns on 2 December 1997, she was not yet under investigation by the Special Investigation Division. The Letter of Authority to investigate respondent for tax purposes was issued only on 28 July 1998. Further, respondents case was not duly recorded in the Official Registry Book of the BIR before she availed of the VAP.

The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the requirements before a person may be excluded from the coverage of the VAP are:

a. The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation Division;

b. The investigation must be as a result of a verified information filed by an informer under Section 281 of the NIRC, as amended; and

c. The investigation must be duly registered in the Official Registry Book of the Bureau before the date of availment under the VAP.¹²

The CTA ruled that the conjunctive word "and" is used; therefore, all of the above requisites must be present before a person may be excluded from the coverage of the VAP. The CTA explained that the word "and" is a conjunction connecting words or phrases expressing the idea that the latter is to be added or taken along with the first.¹³

The CTA also stated that the rationale behind the VAP is to give taxpayers a final opportunity to come up with a clean slate before they will be dealt with strictly for not paying their correct taxes. The CTA noted that under the RMOs, among the benefits that can be availed by the taxpayer-applicant are:

1) A bona fide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the taxpayer-applicant from any criminal or civil liability incident to the misdeclaration of incomes, purchases, deductions, etc., and non-filing of a return.

2) The taxpayer who shall avail of the VAP shall be liable only for the payment of the basic tax due.¹⁴

The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax Code), she was given the chance to rectify her fault and be absolved of criminal and civil liabilities incident to her non-filing of income tax by virtue of the VAP. The CTA held that respondent is not disqualified to avail of the VAP. Hence, respondent has no more liabilities after paying the corresponding taxes due.¹⁵

The CTA found the four assessments issued against respondent to be erroneous and ordered that the same be cancelled.¹⁶

Ruling of the Court of Appeals

The CA explained that the persons who may avail of the VAP are those who are "liable to pay any of the above-cited internal revenue taxes for the above specified period who due to inadvertence or otherwise, has underdeclared his internal revenue tax liabilities or has not filed the required tax returns." The CA rationalized that the BIR used a broad language to define the persons qualified to avail of the VAP because the BIR intended to reach as many taxpayers as possible subject only to the exclusion of those cases specially enumerated.

The CA ruled that in applying the rules of statutory construction, the exceptions enumerated in paragraph 3¹⁷ of RMO No. 59-97, as well as those added in RMO No. 63-97, should be strictly construed and all doubts should be resolved in favor of the general provision stated under paragraph 2¹⁸ rather than the said exceptions.

The CA affirmed the CTAs findings of facts and ruled that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. The CA disagreed with petitioners contention that the recording in the Official Registry Book of the BIR is merely a procedural requirement which can be dispensed with for the purpose of determining who are excluded from the coverage of RMO No. 59-97.

The CA explained that it is clear from the wordings of RMO No. 59-97 that the recording in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer-applicant under the VAP may be excluded from its coverage as this requirement was preceded by the word "and." The use of the conjunction "and" in subparagraph 3.4 of RMO No. 59-97 must be understood in its usual and common meaning for the purpose of determining who are disqualified from availing of the benefits under the VAP. This interpretation is more in faithful compliance with the mandate of the RMOs.

Aggrieved by the CA decision, petitioner elevated the case to this Court.

Issue

Petitioner submits this sole issue for our consideration: whether the CA erred in holding that the recording in the Official Registry Book of the BIR of the information filed by the informer under Section 281¹⁹ of the Tax Code is a mandatory requirement before a taxpayer-applicant may be excluded from the coverage of the VAP.

Ruling of the Court

Petitioner contends that the VAP, being in the nature of a tax amnesty, must be strictly construed against the taxpayer-applicant such that petitioners failure to record the information in the Official Registry Book of the BIR does not affect respondents disqualification from availment of the benefits under the VAP. Petitioner argues that taxpayers who are under investigation for non-filing of income tax returns before their availment of the VAP are not covered by the program and are not entitiled to its benefits. Petitioner alleges that the underlying reason for the disqualification is that availment of the VAP by such taxpayer is no longer voluntary. Petitioner asserts that voluntariness is the very essence of the Voluntary Assessment Program.²⁰

Respondent claims that where the terms of a statute are clear and unambiguous, no interpretation is called for, and the law is applied as written, for application is the first duty of the court, and interpretation, only where literal application is impossible or inadequate.

Verba Legis

It is well-settled that where the language of the law is clear and unequivocal, it must be given its literal application and applied without interpretation.²¹ The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication.²² A careful reading of the RMOs pertaining to the VAP shows that the recording of the information in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer may be excluded from the coverage of the VAP.

On 27 October 1997, the CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final opportunity to come up with a clean slate. Any person liable to pay income tax on business and compensation income, value-added tax and other percentage taxes under Titles II, IV and V, respectively, of the Tax Code for the taxable years 1993 to 1996, who due to inadvertence or otherwise, has not filed the required tax return may avail of the benefits under the VAP.²³ RMO No. 59-97 also enumerates the persons or cases that are excluded from the coverage of the VAP.

3. Persons/Cases not covered

The following shall be excluded from the coverage of the VAP under this Order:

x x x

3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under the VAP; x x x (Boldfacing supplied)

On 30 October 1997, the CIR issued RMO No. 60-97 which supplements RMO No. 59-97 and amended Item No. 3.4 to read as:

3. Persons/Cases not covered

The following shall be excluded from the coverage of the VAP under this Order:

x x x

3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; (Boldfacing supplied)

On 27 November 1997, the CIR issued RMO No. 63-97 and clarified issues related to the implementation of the VAP. RMO No. 63-97 provides:

3. Persons/cases not covered:

x x x

3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under the VAP; (Underscoring in the original, boldfacing supplied)

It is evident from these RMOs that the CIR was consistent in using the word "and" and has even underscored the word in RMO No. 63-97. This denotes that in addition to the filing of the verified information, the same should also be duly recorded in the Official Registry Book of the BIR. The conjunctive word "and" is not without legal significance. It means "in addition to." The word "and," whether it is used to connect words, phrases or full sentences, must be accepted as binding together and as relating to one another.²⁴ "And" in statutory construction implies conjunction or union.²⁵

It is sufficiently clear that for a person to be excluded from the coverage of the VAP, the verified information must not only be filed under Section 281²⁶ of the Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP. This interpretation of Item 3.4 of RMO Nos. 59-97, 60-97, and 63-97 is further bolstered by the fact that on 12 October 2005, the BIR issued Revenue Regulations (RR) No. 18-2005 and reiterated the same provision in the implementation of the Enhanced Voluntary Assessment Program (EVAP). RR No. 18-2005 reads:

SECTION 1. COVERAGE. x x x

Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for the above specified period/s who, due to inadvertence or otherwise, erroneously paid his/its internal revenue tax liabilities or failed to file tax returns/pay taxes, may avail of the EVAP, except those falling under any of the following instances:

x x x

b. Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC, duly processed and recorded in the BIR Official Registry Book on or before the effectivity of these regulations. (Boldfacing supplied)

When a tax provision speaks unequivocally, it is not the province of a Court to scan its wisdom or its policy.²⁷ The more correct course of dealing with a question of construction is to take the words to mean exactly what they say. Where a provision of law expressly limits its application to certain transactions, it cannot be extended to other transactions by interpretation.²⁸

Findings of Fact

Generally, the findings of fact of the CTA, a court exercising expertise on the subject of tax, are regarded as final, binding, and conclusive upon this Court, especially if these are similar to the findings of the Court of Appeals which is normally the final arbiter of questions of fact.²⁹

In this case, the CA affirmed the CTAs findings of fact which states:

We will start with the question as to whether or not the respondent was already under investigation for violation of the Tax Code provisions at the time she applied under VAP on December 2, 1997. The records show that she was indeed under investigation. Albeit, the Letter of Authority was issued only on 28 July 1998, there is no question that on 23 May 1997, a Mission Order No. 118-97 had already been issued by the Chief of Special Investigation Division of the BIR, Revenue Region No. 19 to Intelligence Officer Eustaquio M. Valdez authorizing the conduct of monitoring and surveillance activities on the respondent. This investigation was preceded by the filing of a verified information by a certain George Mercado alleging respondents failure to pay her income taxes for the years 1994 to 1996.

x x x

We now proceed to the question as to whether or not the requirement of recording in the Official Registry Book of the BIR is present in the respondents case. At this juncture, we affirm CTAs finding that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. Petitioner claims that this was merely a procedural omission which does not affect respondents exclusion from the coverage of the VAP.³⁰ (Boldfacing supplied)

Petitioners failure to effect compliance with the requirement of recording the verified information or investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can avail of the benefits of the VAP. Consequently, respondent is relieved from any criminal or civil liability incident to the non-filing of a return.

Wherefore, we DENY the petition. We AFFIRM the Court of Appeals Decision dated 14 June 2004 in CA-G.R. SP No. 70693.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO Associate Justice

ROBERTO A. ABAD Associate Justice

JOSE P. PEREZ
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

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

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

REYNATO S. PUNO
Chief Justice

---

Endnotes:

¹ Under Rule 45 of the Rules of Court.

² Penned by Associate Justice Celia C. Librea-Leagogo with Associate Justices Arturo G. Tayag, and Edgardo A. Camello, concurring.

³ Penned by Presiding Justice Ernesto D. Acosta with Associate Justices Amancio Q. Saga and Juanito C. Castañeda, Jr., concurring.

⁴ Rollo, pp. 42-43.

⁵ Id. at 12.

⁶ Id.

⁷ Id. at 12-13.

⁸ Id. at 56.

⁹ Id. at 57.

¹⁰ Id. at 58.

¹¹ Id. at 59.

¹² Id. at 93.

¹³ Id.

¹⁴ Id. at 93-94.

¹⁵ Id. at 95.

¹⁶ Id.

¹⁷ 3. Persons/Cases not covered

The following shall be excluded from the coverage of the VAP under this Order:

3.1. Dealers of petroleum products and purchasers of goods and services from petroleum companies who have availed of the VAP under RMO No. 39-96, as amended by RMO No. 10-97;

3.2. Withholding Agents with respect to their withholding tax liabilities;

3.3. Persons to whom a validly issued Letter of Authority has been served;

3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; and

3.5. Tax cases filed in Court.

¹⁸ 2. Who May Avail

Any person liable to pay any of the above-cited internal revenue taxes for the above specified period; who due to inadvertence or otherwise, has under-declared his internal revenue tax liabilities or has not filed the required tax return may avail of the benefits under VAP.

¹⁹ Now Section 282 of the NIRC, as amended.

²⁰ Id. at 156-163.

²¹ Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159610, 12 June 2008, 554 SCRA 398, 409.

²² CIR v. Court of Appeals, 338 Phil. 322, 330 (1997).

²³ Items 1 & 2, RMO No. 59-97.

²⁴ Laurel, Jose Jesus, Statutory Construction Cases & Materials, 1999 Revised Edition, p. 139.

²⁵ LICOMCEN, Incorporated v. Foundation Specialists, Inc., G.R. No. 167022, 31 August 2007, 531 SCRA 705, 722.

²⁶ Now Section 282 of the NIRC, as amended.

²⁷ Commissioner of Customs v. Manila Star Ferry, Inc., G.R. Nos. 31776-78, 21 October 1993, 227 SCRA 317, 322.

²⁸ Canet v. Decena, 465 Phil. 325, 333 (2004).

²⁹ Philippine Long Distance Telephone Company v. Commissioner of Internal Revenue G.R. No. 157264, 31 January 2008, 543 SCRA 329, 338 citing Far East Bank and Trust Company v. Court of Appeals, G.R. No. 129130, 9 December 2005, 477 SCRA 49, 54.

³⁰ Rollo, p. 38.