G.R. No. L-23174 September 18, 1967

CONCEPCION MACABINGKIL, petitioner, vs. HON. NICASIO YATCO, Judge of the Court First Instance of Rizal, Quezon City Branch, PROVINCIAL SHERIFF OF RIZAL and SHERIFF OF QUEZON CITY, IRENE DE LEON and her husband, VICENTE LLANES,respondents.

Teofilo V. Ogsime for petitioner. Lea T. Castelo for respondents.

FERNANDO, J.:

The principal legal question posed by this original petition for a writ of certiorari and prohibition with preliminary injunction is one of procedural due process. It arose from the applicability of an order for demolition of April 18, 1964 to the house of petitioner, such order arising from the finality of a judgment in Civil Case No. Q-5866 of the Court of First Instance of Quezon City, thereafter affirmed by the Court of Appeals in CA-G.R. No. 31169-R, petitioner contending that she has not a party to such a case and was denied a chance to intervene therein.

The petition for certiorari and prohibition with preliminary injunction was filed with this Court on June 13, 1964, petitioner stating that she was a resident of and with postal address at Block-E-148, East Avenue Subdivision, Pinahan Area, Diliman, Quezon City, Philippines. As respondents, she named the then acting Judge of Court of First Instance of Rizal, Quezon City Branch, the Hon. Nicasio Yatco; the then Provincial Sheriff of Rizal and the Sheriff of Quezon City; and respondent spouses Irene de Leon and Vicente Llanes.1

It was then alleged that on February 26, 1964 when the Deputy Sheriff of Quezon City served upon petitioner copy of an alias writ of execution, she learned for the first time that a decision was rendered in a certain Civil Case No. Q-5866 with respondent spouses, plaintiffs therein, being the prevailing parties against the People's Homesite and Housing Corporation (herein referred to as the PHHC), a copy of which writ of execution as well as the final decision of the Court of Appeals affirming the lower court decision being included as annexes.2 Then on April 15, 1964, respondent spouses as plaintiffs in the above Civil Case No. Q-5866 filed an ex-parte motion for a special order of demolition, which motion was set for hearing on April 18, 1964, on which very day, the order of the court granting the same was issued addressed to the Sheriff of Quezon City "to demolish the houses existing in the premises of the land in question, which have been erected or occupied by squatters, and thereafter deliver the same to the spouses."3

Upon being served with such order of demolition on June 13, 1964, petitioner the next day immediately filed an urgent petition to lift the alias writ of execution and order of demolition with preliminary injunction alleging that she "is not a squatter on the Lot in question, she having acquired her rights and interest over the said Lot by virtue of Resolution No. 370 dated December 18, 1959, and again by virtue of Resolution No. 550, dated May 16, 1961, and that all of said Resolutions were duly passed upon by the Board of Directors of defendant PHHC, and her house having been improved by virtue of the authority of the General Manager of the PHHC to secure for herself a building permit from the authorities concerned, and that her rights over the said Lot in question were acquired after due investigation of her qualification to acquire the same with priority over any other person or persons who are not occupants of the subject Lot," more so as to persons who are disqualified in accordance with law and that granting arguendo that plaintiff spouses did have a conditional contract to sell executed by defendant PHHC, the same was obtained through fraud and

misrepresentation or in connivance with some well placed employees of the PHHC and that such contract "is against the law," referring to the PHHC Charter as amended, and the many established policies of the said Government Corporation, "which facts could have been duly proved by petitioner if, only, she was impleaded in the complaint, or given a chance to intervene . . . ."4

It was then asserted that although "a decision was rendered in the instant case, the same should not bind petitioner because, as already stated, your petitioner had not been impleaded in the plaintiff's complaint, or at least, given a chance to intervene . . . ." Petitioner, in the said urgent petition, likewise invoked the principle that respondent spouses did not exhaust the administrative remedies before filing the action and that the court was in error in declaring null and void Resolution No. 550 of the PHHC in her favor as shown by an Executive Directive of February 20, 1964 upholding her rights and interest on the lot in question, and ordering the cancellation of the conditional contract to sell in favor of respondent Irene de Leon. She then reiterated that the decision in Civil Case No. Q-5866 could not in any way bind her for not being a party in such a case and that to allow respondent spouses to take possession of the lot in question and remove petitioner's house and other improvements legally constructed thereon by virtue of such order of demolition dated April 18, 1964, would not only cause great and irreparable injury, but would also cause injustice to her by depriving her of her property without due process of law. On the date originally set for the hearing of such urgent petition on June 20, 1954, respondent spouses through counsel requested deferment as well as permission to file a written opposition, which was granted by the court, the hearing being reset on June 27, 1964, but on such subsequent date, without petitioner having as yet been furnished with such written opposition, a fact being made known to the court, respondent Judge "without hearing the matter as alleged in said petition and consequently without any evidence received, denied her

petition to lift alias writ of execution and order of demolition with preliminary injunction."5

Under the above circumstances, it is petitioner's contention that she could not be bound by the judgment and that the refusal to lift the alias writ of execution and the order of demolition, without hearing the matter as alleged in said petition and without receiving any evidence and her ejectment from the lot in question of which she was in actual possession "would constitute a deprivation of property rights without due process of law."6 The Provincial Sheriff of Rizal and the Sheriff of Quezon City were made respondents for they "threatened to enforce said writ of execution and order of demolition," as a matter of fact advising petitioner that unless a restraining order from a competent court could be secured, her house would be demolished.7 She then alleged that to enforce the writ of execution and order of demolition would be "to work unwarranted hardship and irreparable damage and injustice upon her without having been accorded her day in court," reiterating that thereby she would be deprived of her property rights without due process of law as she was a stranger to such a case never having been made a party to it.8 She then filed this petition for a writ of certiorari and prohibition with preliminary injunction, there being no appeal.9 She likewise expressed her willingness "to post a bond sufficient in amount as may be determined by this Honorable Court conditioned for the payment of damages that may be awarded in case the writ for preliminary injunction prayed for be found unmeritorious."10

On July 15, 1964, a resolution giving due course to the above petition for a writ of certiorari and prohibition, likewise granting the prayer for preliminary injunction upon posting a bond of P1,000.00, was issued by this Court.

In the answer to the petition filed on August 7, 1964, respondents sought to meet the due process question squarely by the allegation

that in the aforesaid Case No. Q-5866, upon the finality of which both the writ of execution and the order of demolition were issued "petitioner could have appealed the order . . . denying the motion for leave to intervene . . . ." Moreover, respondents deferred to another civil case, Q-5411, wherein respondent spouses as plaintiffs filed a complaint against the PHHC to compel it to execute the conditional contract to sell covering the disputed lot and restraining it from awarding or selling the same to one of the defendants, petitioner herein, alleging further that after they sought to have the said case dismissed without prejudice, the defendant PHHC having executed a conditional contract to sell in favor of the wife, respondent Irene de Leon, which motion was granted in an order of respondent Judge Nicasio Yatco on May 27, 1961, petitioner as defendant could have opposed such motion or could have thereafter appealed. Accordingly, respondents after mentioning that petitioner failed to perfect an appeal in both instances added: "It is therefore wrong to say now that in ejecting the petitioner from this lot, she is unjustly deprived of her property without due process of law."11

For further clarification of the inter-relationship between petitioner and the PHHC on the one hand and the respondent spouses and the PHHC on the other, with reference to the disputed lot, the facts as found by the Court of Appeals in its decision of August 31, 1963, affirming the decision in Civil Case No. Q-5866, should prove illuminating. Thus:

The basic facts are not seriously disputed.1awphl.nt

On January 30, 1957, Plaintiff Irene de Leon filed with the People's Homesite & Housing Corporation, PHHC for convenience, an application to purchase the latter's lot 27, Block E-148 of the East Avenue Subdivision, Quezon City. The application was approved by defendant corporation on February 1, 1957, and accordingly plaintiff was issued an order of payment requiring her to pay in advance 10% or the sum of P1,053.00, of the total value of the

property. The advance payment required of her was made and plaintiff was issued a passbook, after which several installments were made.

On December 18, 1959, the PHHC Board of Directors passed and approved Resolution No. 370 cancelling the award thus made in favor of plaintiff De Leon and, instead, awarding the same property to one Concepcion Makabingkil who, as a squatter on the lot, claims to have a preferential right in the matter of awards. But before this Resolution No. 370 could be implemented and the property formally awarded to Makabingkil, Plaintiff De Leon filed with the Court of First Instance of Quezon City a complaint for injunction docketed as Civil Case No. Q-5411 against the PHHC, Makabingkil and three others. Upon application, a Writ of preliminary injunction was issued by that Court temporarily enjoining the PHHC from implementing said resolution.

At a pre-trial conference in said Civil Case Q-5411, the PHHC, duly represented by its authorized officers and representatives, agreed to reconsider Res. 370 and to respect the award previously made in favor of De Leon, and, pursuant thereto, passed and approved Resolution No. 430 which authorizes the award of the lot in dispute to plaintiff De Leon. Making good its commitment, the PHHC on March 27, 1961, executed a Conditional Contract to Sell the property to plaintiff Irene de Leon, who, on the basis of that pre-trial agreement and the Contract to Sell thus executed in her favor by the PHHC, moved to dismiss Civil Case Q-5411 without prejudice and fulfilled partly her obligation under the Contract by paying several installment more. Without objection on the part of either of the defendants therein, the case, as prayed for, was ordered dismissed without prejudice.

Shortly after the dismissal of Civil Case No. Q-5411, or on May 16, 1961, the Board again passed and approved Resolution No. 550

reconsidering altogether its commitments to plaintiff De Leon, totally disregarding the Conditional Contract to Sell previously executed, and reawarding the subject-property to Makabingkil.

It was precisely at that stage that the above decision of the Court of Appeals noted that respondent spouses as plaintiffs instituted Civil Case Q-5866 for injunction with damages "against the PHHC seeking, among others, to enjoin the latter, its officers, representatives, agents or persons acting for and in its behalf from implementing PHHC Board Resolution No. 550 dated May 16, 1961, or from awarding or selling the lot in question to Concepcion Makabingkil or any other person or persons." What is even more noteworthy is that, as shown in the petition, petitioner Makabingkil was at no time named a party and could not therefore be heard on a matter wherein her vital rights were undoubtedly involved.

From the above recital of undisputed facts, the picture clearly emerges. Petitioner was indeed denied due process. This petition for certiorari and prohibition possesses merit.

As far back as 1908, U.S. v. Ling Su Fan,12 this Court affixed the imprimatur of its approval on Webster's definition of procedural due process. Thus: "By the law of the land is more clearly intended the general law, a law which hears before it condemns, which proceeds upon inquiry and renders judgment only after trial."13 This Court in a 1924 decision, Lopez v. Director of Lands, after quoting the above added that due process "contemplates notice and opportunity to be heard before judgment is rendered, affecting one's person or property." It is satisfied according to another leading decision: "If the following conditions are present, namely: (1) There must be a court or tribunal clothed with judicial power to hear and determine the matter before it; (2) jurisdiction must be lawfully acquired over the person of the defendant or over the property which is the subject of the

proceeding; (3) the defendant must be given an opportunity to be heard; and (4) judgment must be rendered upon lawful hearing."14

The due process concept is thus a vital living force in our jurisprudence. It was so announced in an impressive number of decisions, not all of which need be recounted here. Fidelity to such a view has been reinforced by time. Thus in Cuaycong v. Sengbengco,15 decided in 1960, this Court through the then Justice, now Chief Justice, Concepcion declared that "acts of Congress, as well as those of the Executive, can deny due process only under pain of nullity, and judicial proceedings suffering from the same flaw are subject to the same sanction, any statutory provision to the contrary notwithstanding." Only lately, this Court through Justice Bengzon reiterated that the due process clause "is designed to secure justice as a living reality; not to sacrifice it by paying undue homage to formality."16

A 1957 decision, Cruzcosa v. Concepcion,17 is even more illuminating in so far as the availability of the remedy sought is concerned. In the language of this Court, speaking through Justice J.B.L. Reyes: "The petition is clearly meritorious. Petitioners were conclusively found by the Court of Appeals to be co-owners of the building in question. Having an interest therein, they should have been made parties to the ejectment proceedings to give them a chance to protect their rights; and not having been made parties thereto, they are not bound and can not be affected by the judgment rendered therein against their co-owner Catalino Cruzcosa, Jr. . . . ." Two due process cases deal specifically with a writ of execution that could not validly be enforced against a party who was not given his day in court, Sicat v. Reyes,18 and Hamoy vs. Batingolo.19 According to the former: "The above agreement, which served as basis for the ejectment of Alipio Sicat, cannot be binding and conclusive upon the latter, who is not a party to the case. Indeed, that order, as well as the writ for execution, cannot legally be enforced against Alipio Sicat for the simple reason

that he was not given his day in court." From the latter: "The issue raised in the motion to Rangar is not involved in the appeal for it concerns a right which he claims over the property which has not so far been litigated for the reason that he was not made a party to the case either as plaintiff or as defendant. He only came to know of the litigation when it was forced out of the property by the sheriff, and so he filed the present motion to be heard and prove his title to the property. This he has the right to do as the most expeditious manner to protect his interest instead of filing a separate action which generally is long, tedious and protracted."

Petitioner was therefore right in assertion that "the separate and collective effect of the Writ of Execution and Order of Demolition . . . and the respondent Provincial Sheriff's threat to enforce [the same] is to work unwarranted hardship and irreparable damage and injustice upon the Petitioner who have not been accorded her day in court." It would as claimed be tantamount to a deprivation of her property rights without due process of law. She is entitled to redress. This petition for certiorari and prohibition must be granted.

Petitioner's right to due process must be respected. This Court could go even further. This petition for certiorariand prohibition could be utilized to determine who has the right to the disputed lot. This approach of resolving the issue is not without precedent. Francisco v. City of Davao,20 decided by the then Justice, now Chief Justice, Concepcion, points the way: ". . . The ends of justice would not be served, if we now dismiss the case over nine (9) years after it has been initiated and bade the plaintiff to start all over again, following the procedure that the defendants had asked the lower court, but which the latter refused, to require. At any rate, since the legal question raised in the pleadings has reached this Court, and the assessment complained of is manifestly violative of the clear and express provision of the law, it is best that we decide said question, instead of further deferring its resolution." The

records of the case however show that another litigation involving petitioner, the PHHC, and the respondent spouses is still pending adjudication. For that reason, any further pronouncement from this Court would be inappropriate.

WHEREFORE, this petition for certiorari and prohibition is granted and the preliminary injunction issued made permanent. With costs against respondent spouses, Irene de Leon and Vicente Llanes.

G.R. No. L-77194 March 15, 1988

VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners, vs. REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.:

Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the Court although the subject matter of the present controversy is of

common interest to all sugar producers, whether parties in this action or not.

Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of regulating and supervising the sugar industry until it was superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets."

Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed on February 16,1988.

Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents:

TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE

BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388.

Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of stock.

Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by laches.

The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied.

P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund as follows:

SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. There is hereby established a fund for the commission for the purpose of financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market to be administered in trust by the Commission and deposited in the Philippine National Bank derived in the manner herein below cited from the following sources:

a. Stabilization fund shall be collected as provided for in the various provisions of this Decree.

b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for every picul produced and milled every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees for the purpose of accomplishing and employees for the purpose of accomplishing the efficient performance of the duties of the Commission.

Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission. (paragraphing and bold supplied).

Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S. 947).

No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]).

Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the meeting

of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and necessity and that they are the true and beneficial owners thereof.

In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself.

The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that the aforementioned Agreement is of doubtful validity."

From the legal standpoint, we find basis for the opinion of the Commission on Audit reading:

That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular, owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ...

The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.).

The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra).

The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are

held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private

purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest.

WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs.

This Decision is immediately executory.

SO ORDERED.

G.R. No. 87479 June 4, 1990

NATIONAL POWER CORPORATION, petitioner, vs. THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and ALBAY PROVINCIAL TREASURER ABUNDIO M. NUEZ, respondents.

Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:

The National Power Corporation (NAPOCOR) questions the power of the provincial government of Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to March 10, 1987.

It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines, and similar improvements standing on their offices at Tiwi,

Albay. The amounts to be realized from this advertised auction sale are supposed to be applied to the tax delinquencies claimed, as and for, as we said, real property taxes. The back taxes NAPOCOR has supposedly accumulated were computed at P214,845,184.76.

NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB), which provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted under the terms and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers, objectives and functions, and for other purposes), as amended, are restored effective March 10, 1987, subject to the following conditions: 1

as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus:

Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB Resolution No. 17-87, series of 1987, restoring, subject to certain conditions prescribed therein, the tax and duty exemption privileges of NPC as provided under Commonwealth Act No. 120, as amended, effective March 10, 1987, is hereby confirmed and approved. 2

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay provincial government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties subject matter of this petition. 3 It appears, however, that "the temporary restraining order failed to reach respondents before the scheduled bidding at

10:00 a.m. on March 30, 1989 ... [h]ence, the respondents proceeded with the bidding wherein the Province of Albay was the highest bidder. 4

The Court gathers from the records that:

(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of NAPOCOR):

Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion, To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. 5

(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives Review Board (FIRB). Among other things, the Board was tasked as follows:

Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of determining what subsidies and tax exemptions should be modified, withdrawn, revoked or suspended, which shall be composed of the following officials:

Chairman - Secretary of Finance Members - Secretary of Industry - Director General of the National Economic and Development Authority - Commissioner of Internal Revenue - Commissioner of Customs

The Board may recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the abovestated statutory subsidies or tax exemption grants, except those granted by the Constitution. To attain its objectives, the Board may require the assistance of any appropriate government agency or entity. The Board shall meet once a month, or oftener at the call of the Secretary of Finance. 6

(3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing, among other things, that:

Section 1. The provisions of special or general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, impost and other charges heretofore granted in favor of government-owned or controlled corporations including their subsidiaries are hereby withdrawn. 7

(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985;

(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR from July 1, 1985 and indefinitely thereafter;

(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges effective until March 10, 1987; 8

(7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino, providing, among other things, as follows:

SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn, except. 9

and

SECTION 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and conditions

for the grant thereof taking into consideration the international commitments of the Philippines and the necessary precautions such that the grant of subsidies does not become the basis for countervailing action. 10

(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's tax exemption aforesaid. 11

The provincial government of Albay now defends the auction sale in question on the theory that the various FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under the Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax exemptions, the same is of no force and effect under the constitutional provision allowing the legislature alone to accord tax exemption privileges.

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to "recommend to the President of the Philippines and for reasons of compatibility with the declared economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may accomplish. 12 The question therefore is whether or not the various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional.

We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we sustain the provincial government of Albay.

As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to "recommend" tax exemptions. By itself, it

could not have validly prescribed exemptions or restore taxability. Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy tax exemption privileges.

The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or duty exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax and/or duty exemption" 14 is of no moment. These provisions are prospective in character and can not affect the Board's past acts.

The Court is aware that in its preamble, Executive Order No. 93 states:

WHEREAS, a number of affected entities, government and private were able to get back their tax and duty exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board (FIRB); 15but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive Order was clearly intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB did not have the right, in the first place, to grant tax exemptions or withdraw existing ones.

Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption had been validly restored. What it questions is NAPOCOR's liability in the interregnum between June 11, 1984, the date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To be sure, it objects to Executive Order No. 93 as alledgedly a delegation of legislative power, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue of "delegation" to the future and its constitutionality when the

proper case arises. For the nonce, we leave Executive Order No. 93 alone, and so also, its validity as far as it grants tax exemptions (through the FIRB) beginning December 17, 1986, the date of its promulgation.

NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:

xxx xxx xxx

The last issue to be resolved is whether or not the private-respondent is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948) before the approval of its municipal franchises. As aforestated, the franchises were approved by the President only on February 24,1948. Therefore, before the said date, the private respondent was liable for the payment of percentage and fixed taxes as seller of light, heat, and power which, as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. ... 16

Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level, Thus:

SEC. 86. Distribution of proceeds. (a) The proceeds of the real property tax, except as otherwise provided in this Code, shall accrue to the province, city or municipality where the

property subject to the tax is situated and shall be applied by the respective local government unit for its own use and benefit.

(b) Barrio shares in real property tax collections. The annual shares of the barrios in real property tax collections shall be as follows:

(1) Five per cent of the real property tax collections of the province and another five percent of the collections of the municipality shall accrue to the barrio where the property subject to the tax is situated.

(2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the barrio where the property is situated.

Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio officials and other administrative expenses, while the remaining seventy per cent shall be utilized for development projects approved by the Secretary of Local Government and Community Development or by such committee created, or representatives designated, by him.

SEC. 87. Application of proceeds. (a) The proceeds of the real property tax pertaining to the city and to the municipality shall accrue entirely to their respective general funds. In the case of the province, one-fourth thereof shall accrue to its road and bridge fund and the remaining three-fourths, to its general fund.

(b) The entire proceeds of the additional one per cent real property tax levied for the Special Education Fund created under R.A. No. 5447 collected in the province or city on real

property situated in their respective territorial jurisdictions shall be distributed as follows:

(1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the property subject to the tax is situated; twenty per cent shall accrue to the province; and thirty per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the Special Education Fund in municipalities, cities and provinces in accordance with the provisions of Section seven of R.A. No. 5447.

(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the special education fund in municipalities, cities and provinces as provided under Section 7 of R.A. No. 5447.

However, any increase in the shares of provinces, cities and municipalities from said additional tax accruing to their respective local school boards commencing with fiscal year 1973-74 over what has been actually realized during the fiscal year 1971-72 which, for purposes of this Code, shall remain as the based year, shall be divided equally between the general fund and the special education fund of the local government units concerned. The Secretary of Finance may, however, at his discretion, increase to not more than seventy-five per cent the amount that shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the use, lease or other

disposition of real property acquired by the province or city at a public auction in accordance with the provisions of this Code, and the proceeds of the sale of the delinquent real property or, of the redemption thereof shall accrue to the province, city or municipality in the same manner and proportion as if the tax or taxes had been paid in regular course.

(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the respective general funds of the province, city and municipality where the land subject to the tax is situated. 17

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the Government be said to have lost anything.

As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also be shown to exist clearly and categorically, and supported by clear legal provisions. 19

Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal.

WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid.

SO ORDERED.

G.R. No. L-58897 December 3, 1987

LUZON STEVEDORING CORPORATION, petitioner, vs. COURT OF APPEALS, HIJOS DE F. ESCANO, INC., and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES, respondents.

GANCAYCO, J.:

On May 30, 1968 at past 6:00 in the morning a maritime collision occurred within the vicinity of the entrance to the North Harbor, Manila between the tanker LSCO "Cavite" owned by Luzon Stevedoring Corporation and MV "Fernando Escano" a passenger ship owned by Hijos de F. Escano, Inc. as a result of which said passenger ship sunk. An action in admiralty was filed by Hijos de F. Escano, Inc. and Domestic Insurance Company of the Philippines against the Luzon Stevedoring Company (LSC) in the Court of First Instance of Cebu. In the course of the trial, the trial court appointed two commissioners representing the plaintiffs and defendant to determine the value of the LSCO "CAVITE." Said commissioners found the value thereof to be P180,000.00.

After trial on the merits, a decision was rendered on January 24, 1974 finding that LSCO "Cavite" was solely to blame for the collision, thus its dispositive portion reads as follows:

WHEREFORE, based on all the foregoing considerations, the Court renders judgment in favor of the plaintiffs and against the defendant ordering the latter to pay to the plaintiff Domestic Insurance Company of the Philippines the sum of P514,000.00, and to the plaintiff Hijos de F. Escano, Inc. the sum of P68,819.00, with interest on both sums at the legal rate, from the date the complaint was filed and the further sum of P252,346.70, with interest at the legal rate from August 7, 1972 and the sum of P163,721.91, without

interest in trust for, and with direction that it pay the same to, the claimants concerned.

With costs against the defendant. 1

In the penultimate paragraph of the decision the trial court held:

With respect to the defense that defendant's liability is limited to the value of the LSCO "Cavite" and freight earned, invoking Art. 837 of the Code of Commerce, the Court believes and so holds that the defense has not been established. Moreover, the evidence is such that in principle Art. 837 does not apply here. The counterclaim of the defendant is likewise ordered dismissed for lack of merit. 2

Not satisfied therewith the defendant interposed an appeal therefrom to the Court of Appeals wherein in due course a decision was rendered on June 30, 1981 affirming the decision of the court a quo in toto with costs against appellant. The motion for reconsideration filed by the defendant of the decision was denied in a resolution of the Court of Appeals of November 7, 1981. Hence said defendant filed a petition for certiorari in this Court based on the following grounds:

I

THE LOWER COURT ERRED IN FINDING THAT THE LSCO "CAVITE" WAS THE VESSEL AT FAULT IN THE COLLISION.

II

THE LOWER COURT ERRED IN NOT FINDING THAT THE COLLISION BETWEEN THE M/V "FERNANDO ESCANO" AND THE LSCO "CAVITE" WAS DUE SOLELY AND EXCLUSIVELY TO THE FAULT, NEGLIGENCE AND LACK OF SKILL OF THE MASTER OF THE FORMER VESSEL.

III

THE LOWER COURT ERRED IN NOT RULING THAT THE CIVIL LIABILITY OF THE PETITIONER, IF ANY THERE BE, SHOULD BE LIMITED TO THE VALUE OF THE LSCO "CAVITE" WITH ALL ITS APPURTENANCES AND FREIGHT- AGE WHEN THE COLLISION TOOK PLACE. 3

In a resolution of February 26, 1982 this Court denied the petition for lack of merit.

A motion for reconsideration of said resolution was filed by petitioner limiting the issue to the legal question of whether under Art. 837 of the Code of Commerce abandonment of vessel at fault is necessary in order that the liability of owner of said vessel shall be limited only to the extent of the value thereof, its appurtenances and freightage earned in the voyage. After respondents submitted their comment to the motion as required, on September 29, 1982 this Court denied the motion for reconsideration for lack of merit.

With leave of court petitioner filed a second motion for reconsideration of said resolution raising the following issues:

1. Whether abandonment is required under Article 837 of the Code of Commerce. The decisions of this Honorable Court cited by the parties in support of their respective positions only imply the answer to the question, and the implied answers are contradictory.

2. If abandonment is required under Article 837 of the Code of Commerce, when should it be made? The Code of Commerce is silent on the matter. The decision of this Honorable Court in Yangco v. Laserna, 13 Phil. 330, left the

question open and no other decision, as far as petitioner can ascertain, has resolved the question.

3. Is the decision of this Honorable Court in Manila Steamship Co., Inc. v. Abdulhama,n 100 Phil. 32, wherein it was held that "(t)he international rule to the effect that the right of abandonment of vessels, as a legal station of a shipowner's own fault," invoked by private respondents and apparently a major consideration in the denial of the motion for reconsideration, applicable to petitioner under the circumstances of the case at bar? 4

The respondents were required to comment thereto and after said comment was submitted petitioners submitted a reply thereto to which the respondents filed a rejoinder.

On November 28, 1983, the Court gave due course to the petition for review and considered the respondents' comment thereto as the Answer. The parties were required to file their briefs. Both parties having filed their briefs the case is now submitted for decision.

Articles 587, 590, and 837 of the Code of Commerce provide as follows:

ART. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the vigilance over the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight he may have earned during the voyage.

xxx xxx xxx

ART. 590. The co-owners of the vessel shall be civilly liable in the proportion of their contribution to the common fund for

the results of the acts of the captain, referred to in Article 587.

Each co-owner may exempt himself from this liability by the abandonment, before a notary, of that part of the vessel belonging to him.

xxx xxx xxx

ART. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all her appurtenances and freight earned during the voyage. 5

In the case of Philippine Shipping Company vs. Garcia, 6 which is an action for damages instituted by the Philippine Shipping Company for the loss of Steamship "Ntra. Sra. de Lourdes" as a result of the collision with the Steamship "Navarra" of Garcia, it was found that the "Navarra" was responsible for the collision. The claim of the Philippine Shipping is that the defendant should pay P18,000.00, the value of the "Navarro" at the time of its loss, in accordance with the provision of Article 837 of the Code of Commerce, and that it was immaterial that the "Navarro" had been entirely lost provided the value could be ascertained since the extent of liability of the owner of the colliding vessel resulting from the collision is to be determined by its value.

This Court speaking through the then Chief Justice Arellano held:

Article 837 of the Code of Commerce provides: "The civil liability contracted by the shipowners in the cases prescribed in this section shall be understood as limited to the value of the vessel with all her equipment and all the freight money earned during the voyage "

"This section is a necessary consequence of the right to abandon the vessel given to the shipowner in article 587 of the code, and it is one of the many superfluities contained in the code." (Lorenzo Benito, "Lecciones," 352.)

ART. 587. The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the trip.

ART. 590. The part owners of a vessel shall be civilly liable, in the proportion of their contribution to the common fund, for the results of the acts of the captain referred to in Article 587. Each part owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him.

The "Exposicion de motivos" of the Code of Commerce contains the following: "The present code (1829) does not determine the juridical status of the agent where such agent is not himself the owner of the vessel. This omission is supplied by the proposed code, which provides in accordance with the principles of maritime law that by agent it is to be understood the person intrusted with the provisioning of the vessel, or the one who represents her in the port in which she happens to be. This person is the only one who represents the vessel that is to say, the only one who represents the interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the proposed

code to the value of the vessel and other things appertaining thereto."

There is no doubt that if the Navarro had not been entirely lost, the agent, having been held liable for the negligence of the captain of the vessel could have abandoned her with all her equipment and the freight money earned during the voyage, thus bringing himself within the provisions of article 837 in so far as the subsidiary civil liability is concerned This abandonment which would have amounted to an offer of the value of the vessel, of her equipment, and freight money earned could not have been refused, and the agent could not have been personally compelled, under such circumstances, to pay the 18,000 pesos, the estimated value of the vessel at the time of the collision.

This is the difference which exists between the lawful acts and lawful obligations of the captain and the liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason that such obligations arise from the contract of agency (provided, however, that the captain does not exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value of the vessel, as the codes of the principal maritime nations provide, with the vessel, and not individually. Such is also the spirit of our code.

The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper to quote the following as the basis of this decision:

That which distinguishes the maritime from the civil law and even from the mercantile law in general is the real and hypothecary nature of the former, and the many securities of a real nature that maritime customs from time immemorial the laws, the codes, and the later jurisprudence, have provided for the protection of the various and conflicting interests which are ventured and risked in maritime expeditions, such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees, those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of the crew as to their wages, and those of a constructor as to repairs made to the vessel.

As evidence of this "real" nature of the maritime law we have (1) the limitation of the liability of the agents to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than a personal action against the debtor or person liable. It will be observed that these rights are correlative, and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a settlement of his rights by a final judgment, even to the prejudice of a third person.

This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no personal action lies against the owner or agent of the vessel. For instance, where the' vessel is lost the sailors and members of the crew can not recover their wages; in case of collision, the liability of the agent is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose all their rights and can not claim reimbursement under the law.

There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which the thing is exposed, and (2) the "real" nature of the maritime law, exclusively "real," according to which the liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable with the vessel and freight money and both may be lost through the accidents of navigation it is only just that the maritime creditor have some means of obviating this precarious nature of his rights by detaining the ship, his only security, before it is lost.

The liens tacit or legal, which may exist upon the vessel and which a purchaser of the same would be obliged to respect and recognize are in addition to those existing in favor of the State by virtue of the privileges which are granted to it by all the laws pilot, tonnage, and port dues and other similar charges, the wages of the crew earned during the last voyage as provided in article 646 of the Code of Commerce, salvage dues under article 842, the indemnification due to the captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the insolvency of the owner as provided in article 608, and all

other liabilities arising from collisions under Articles 837 and 838.' (Madariaga pp. 60, 62, 63, 85.

We accordingly hold that the defendant is liable for the indemnification to which the plaintiff is entitled by reason of the collision but he is not required to pay such indemnification for the reason that the obligation thus incurred has been extinguished on account of the loss of the thing bound for the payment thereof and in this respect the judgment of the court below is affirmed except in so far as it requires the plaintiff to pay the costs of this action, which is not exactly proper. No special order is made as to costs of this appeal. After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter the record be remanded to the Court of First Instance for execution. So ordered. 7

From the foregoing the rule is that in the case of collision, abandonment of the vessel is necessary in order to limit the liability of the shipowner or the agent to the value of the vessel, its appurtenances and freightage earned in the voyage in accordance with Article 837 of the Code of Commerce. The only instance where such abandonment is dispensed with is when the vessel was entirely lost. In such case, the obligation is thereby extinguished.

In the case of Government of the Philippines vs. Maritime this Court citing Philippine Shipping stated the exception thereto in that while "the total destruction of the vessel extinguishes a maritime lien, as there is no longer any risk to which it can attach, but the total destruction of the vessel does not affect the liability of the owner for repairs of the vessel completed before its loss, 8 interpreting the provision of Article 591 of the Code of Commerce in relation with the other Articles of the same Code.

In Ohta Development Company vs. Steamship "Pompey" 9 it appears that at the pier sunk and the merchandise was lost due to the fault of the steamship "Pompey" that was then docked at said pier. This Court ruled that the liability of the owner of "Pompey" may not be limited to its value under Article 587 of the Code of Commerce as there was no abandonment of the ship. We also held that Article 837 cannot apply as it refers to collisions which is not the case here. 10

In the case of Guison vs. Philippine Shipping Company 11 involving the collision at the mouth of the Pasig river between the motor launches Martha and Manila H in which the latter was found to be at fault, this Court, applying Article 837 of the Code of Commerce limited the liability of the agent to its value.

In the case of Yangco vs. Laserna 12 which involved the steamers SS "Negros" belonging to Yangco which after two hours of sailing from Romblon to Manila encountered rough seas as a result of which it capsized such that many of its passengers died in the mishap, several actions for damages were filed against Yangco, by a verified pleading, he sought to abandon the vessel to the plaintiffs in the three cases together with all the equipment without prejudice to the right to appeal. This Court in resolving the issue held as follows:

Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent, notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this question is controlled by the provision of article 587 of the Code of Commerce. Said article reads:

The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the

captain in the. care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the voyage.

The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is entitled as of right to -abandon "the vessel with all her equipments and the freight it may have earned during the voyage." It is true that the article apears to deal only with the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language of the afore-quoted provision, the benefit of limited liability therein provided for, applies in all cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco commenting on said article, said:

La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la custodia de los efectos que cargo en el buque.

Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:

El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo que quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos; (Echavarri, Codigo de Comercio, Tomo 4, 2. ed., pags. 483- 484.)

A cursory examination will disclose that the principle of limited liability of a shipowner or agent is provided for in but three articles of the Code of Commerce Article 587 aforequoted and articles 590 and 837. Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned by several person Article 837 applies the same principle in cases of collision and it has been observed that said article is but 'a necessary consequence of the right to abandon the vessel given to the shipowner in Article 587 to the Code, and it is one of the many superfluities contained in the Code. (Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.) In effect therefore, only Articles 587 and 590 are the provisions contained in our Code of Commerce on the matter, and the framers of said code had intended those provisions to embody the universal principle of limited liability in all cases. ... . 13

In the said case We invoked our ruling in Philippine Shipping and concluded as follows:

In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of collisions or shipwrecks, his liability is merely coextensive with his interest in the

vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De Villata v. Stanely 32 Phil. 541), and that the relationship between the petitioner and the passengers who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear that the vessel was insured.

Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with law or not, is immaterial The vessel having totally perished any act of abandonment would be an Idle ceremony. 14

In the case of Abueg vs. San Diego,15 which involves a claim of compensation under the Workmen's Compensation Act for the deceased members of the crew of the MS "San Diego II" and MS "Bartolome" which were caught by a typhoon in the vicinity of Mindoro Island and as a consequence of which they were sunk and totally lost, this Court held as follows:

Counsel for the appellant cite article 7837 of the Code of Commerce which provides that if the vessel together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability to third persons for tortious acts of the captain in the care of the goods which the ship carried is extinguished (Yangco vs. Laserna, 73 Phil. 330) Article 937 of the same Code which provides that in cases of collision, the shipowners' liability is limited to the value of the vessel with all her equipment and freight earned during

the voyage (Philippine Shipping Company vs. Garcia, 6 Phil. 281); and Article 643 of the same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of the crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October 1, 1941, was extinguished.

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his liability was extinguished

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as a result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in

the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment.Such compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be included in the budget of any well managed industry.

Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil. 446), and Murillo vs. Mendoza (66 Phil. 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In the last mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight, and insurance, if any, was the lis mota In the case of Enciso vs. Dy-Liaco, supra, the application of the Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the motorboat of which he was the master, was the controversy submitted to the court for decision. This Court held in that case that .It has been repeatedly stated that the Workmen's Compensation Act was enacted to abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer need not be guilty of neglect or fault in order that responsibility may attach to him' (pp. 449-450); and that the shipowner was liable to pay compensation provided for in the Workmen's Compensation Act, notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza, supra, this Court held that 'The rights and responsibilities defined in said Act must be governed by its own peculiar provisions in complete disregard of other similar provisions of the Civil as well as the mercantile law. If

an accident is compensable under the Workmen's Compensation Act, it must be compensated even when the workman's right is not recognized by or is in conflict with other provisions of the Civil Code or of the Code of Commerce. The reason behind this principle is that the Workmen's Compensation Act was enacted by the Legislature in abrogation of the other existing laws.' This quoted part of the decision is in answer to the contention that it was not the intention of the Legislature to repeal Articles 643 and 837 of the Code of Commerce with the enactment of the Workmen's Compensation Act. 16

In said case the Court reiterated that the liability of the shipowner or agent under the provision of Articles 587 and 837 of the Code of Commerce is limited to the value of the vessel with all her equivalent and freight earned during the voyage if the shipowner or agent abandoned the ship with all the equipment and freight. However, it does not apply to the liability under the Workmen's Compensation Act where even as in said case the vessel was lost the liability thereunder is still enforceable against the employer or shipowner.

The case of Manila Steamship Company, Inc. vs. Insa Abdulhaman and Lim Hong To 17 is a case of collision of the ML "Consuelo V" and MS "Bowline Knot" as a result of which the ML "Consuelo V" capsized and was lost where nine (9) passengers died or were missing and all its cargoes were lost. In the action for damages arising from the collision, applying Article 837 of the Code of Commerce, this Court held that in such case where the collision was imputable to both of them, each vessel shall suffer her own damages and both shall be solidarily liable for the damages occasioned to their cargoes.18 Thus, We held:

In fact, it is a general principle, well established maritime law and custom, that shipowners and ship agents are civilly liable for the acts of the captain (Code of Commerce, Article

586) and for the indemnities due the third persons (Article 587); so that injured parties may immediately look for reimbursement to the owner of the ship, it being universally recognized that the ship master or captain is primarily the representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260).This direct liability, moderated and limited by the owner's right of abandonment of the vessel and earned freight (Article 587) has been declared to exist not only in case of breached contracts, but also in cases of tortious negligence (Yu Biao Sontua vs. Osorio, 43 Phil. 511; 515):

xxx xxx xxx

It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater protection of injured parties. Shipowners would be able to escape liability in practically every case, considering that the qualifications and licensing of ship masters and officers are determined by the State, and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for almost always its members. are, from captains down, mere wage earners.

We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of the Manila Steamship Co., that it is exempt from liability for the collision with the M L "Consuelo V " due to the absence of

negligence on its part in the selection and supervision of the officers and crew of the M/S "Bowline Knot. 19

However, insofar as respondent Lim Hong To, owner of M L "Consuelo V" who admittedly employed an unlicensed master and engineer and who in his application for permission to operate expressly assumed full risk and responsibility thereby (Exh. 2) this Court held that the liability of Lim Hong To cannot be limited to the value of his motor launch by abandonment of the vessel as invoked in Article 587 of the Code of Commerce, We said:

The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or the average is due to shipowner's own fault. Farina (Derecho Commercial Maritima Vol. 1, pp. 122-123), on the authority of judicial precedents from various nations, sets the rule to be as follows:

xxx xxx xxx 20

From the foregoing, it is clear that in case of collision of vessels, in order to avail of the benefits of Article 837 of the Code of Commerce the shipowner or agent must abandon the vessel. In such case the civil liability shall be limited to the value of the vessel with all the appurtenances and freight earned during the voyage. However, where the injury or average is due to the ship-owner's fault as in said case, the shipowner may not avail of his right to limited liability by abandoning the vessel.

We reiterate what We said in previous decisions that the real and hypothecary nature of the liability of the shipowner or agent is embodied in the provisions of the Maritime Law, Book III, Code of Commerce. 21 Articles 587, 590 and 837 of the same code are precisely

intended to limit the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that owner or agent abandons the vessel. Although it is not specifically provided for in Article 837 of the same code that in case of collision there should be such abandonment to enjoy such limited liability, said article on collision of vessels is a mere amplification of the provisions of Articles 587 and 590 of same code where abandonment of the vessel is a pre-condition. Even without said article, the parties may avail of the provisions of Articles 587 and 590 of same code in case of collision. This is the reason why Article 837 of the same code is considered a superfluity. 22

Hence the rule is that in case of collision there should be abandonment of the vessel by the shipowner or agent in order to enjoy the limited liability provided for under said Article 837.

The exception to this rule is when the vessel is totally lost in which case there is no vessel to abandon so abandonment is not required. Because of such total loss the liability of the shipowner or agent for damages is extinguished. Nevertheless, the shipowner or agent is personally liable for claims under the Workmen's Compensation Act and for repairs of the vessel before its loss. 23

In case of illegal or tortious acts of the captain the liability of the shipowner and agent is subsidiary. In such instance the shipowner or agent may avail of the provisions of Article 837 of the Code by abandoning the vessel.24

However, if the injury or damage is caused by the shipowner's fault as where he engages the services of an inexperienced and unlicensed captain or engineer, he cannot avail of the provisions of Article 837 of the Code by abandoning the vessel. 25 He is personally liable for the damages arising thereby.

In the case now before the Court there is no question that the action arose from a collision and the fault is laid at the doorstep of LSCO "Cavite" of petitioner. Undeniably petitioner has not abandoned the vessel. Hence petitioner can not invoke the benefit of the provisions of Article 837 of the Code of Commerce to limit its liability to the value of the vessel, all the appurtenances and freightage earned during the voyage.

In the light of the foregoing conclusion, the issue as to when abandonment should be made need not be resolved.

WHEREFORE, the petition is DENIED with costs against petitioner.

SO ORDERED.

G.R. No. L-30232 July 29, 1988

LUZON STEVEDORING CORPORATION, petitioner-appellant, vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents-appellees.

H. San Luis & V.L. Simbulan for petitioner-appellant.

PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same court denying the motion for reconsideration.

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The decretal portion of the said decision reads:

WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.

On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid., pp. 28-34), but the same was denied in a Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant petition.

This Court, in a Resolution dated March 13, 1969, gave due course to the petition (Ibid., p. 40). Petitioner-appellant raised three (3) assignments of error, to wit:

I

The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the work of unloading and loading of a vessel in port, contrary to the evidence on record.

II

The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part and parcel of the shipping industry.

III

The lower court erred in not allowing the refund sought by petitioner-appellant.

The instant petition is without merit.

The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as amended by Republic Act No. 3176.

Said law provides:

Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. ....

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the

repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23).

On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. As such, it cannot be